CBDT new member Mr Durgesh Shankar gets charge of 'Revenue';

President appoints four judges to SC - Justice Ananga Kumar Patnaik, CJ of MP High Court + Justice Tirath Singh Thakur, CJ of P&H High Court + Justice K S Panicker Radhakrishnan, CJ of Gujarat HC + Justice Surinder Singh Nijjar, CJ of Calcutta HC;

FM approves 17 proposals worth Rs 1158 Crore, including Rs 503 Cr proposal of M/s Arcelor Mittal Netherlands B V;

Obama urges China to hold dialogue with Dalai lama;

EGoM decides quota for commercial utilisation of gas produced under NELP;

TIOL COMMENTARY

ddt 17 nov.pdf

Foreign Service Provider and Indian Tax payer – since when? – Litigation Continues in spite of Government's Review Petition in Hindustan Zinc being dismissed;

guest column.pdf

The black holes in Cenvat Credit Rules!

ice cube.pdf

Koda scam weakens India's case for FATF membership;

17 FDI Proposals Approved.pdf

FM approves 17 proposals worth Rs 1158 Crore, including Rs 503 Cr proposal of M/s Arcelor Mittal Netherlands B V

MIXED BUZZ

mbuzz1034.pdf

UN forum for tapping potential of internet to help poor nations develop;

2009-TIOL-620-HC-DEL-IT.pdf

Digember Jain Society For Child Welfare Vs DGIT (Exemptions) (Dated: October 9, 2009)

Income tax - Writ petition - Sec 10(23C)(vi) - Assessee is a registered society - runs many educational institutions - seeks exemption u/s 10(23)(vi) - In view of new provisions of Sec 10(23)(vi) read with Ruls 2BC and 2CA with effect from 1.6.2007, Revenue observes the society does not exist solely for educational purposes as it has wide objects in its MoU and may undertake any other welfare activity in future - denies exemption - held, there is no material difference between Sec 10(22) and Sec 10(23C) - writ allowed by quashing Revenue's order but Revenue given free hand to incorporate stipulations and conditions in terms of third proviso of the Section. It will also be subject to an affidavit of undertaking given by the petitioner society that it would not breach any of those conditions and further that surplus funds shall be utilized only for educational purposes and will not be diverted to other non-educational objectives. Writ allowed. :DELHI HIGH COURT;

2009-TIOL-619-HC-DEL-IT.pdf

CIT Vs M/s Bharat Aluminium Co Ltd (Dated: October 15, 2009)

Income Tax Act – Section 37(1) – Capital or Revenue Expenditure – Assessee had entered into an arrangement with NTPC which had a power plant in Korba. The assessee also put up its power plant at that place for generation of electricity for its aluminium plant. It did not create any separate facilities. Since the expenditure for creating these systems were huge assessee decided to share the facilities available with NTPC. It decided to contribute a sum of Rs.22.68 Crores to NTPC as its share of expenditure for sharing common facilities created by NTPC at Korba. The above infrastructure facilities were created on the land belonging to NTPC and ownership and title of the same vested with NTPC. On the aforesaid sum of Rs.3.76 Crores contributed by the assessee, the assessee had claimed depreciation till the Assessment Year 1991-92. However, the assessee decided to change the accounting policy and to write off the balance expenditure of Rs.15.07 Crores over a period of five years i.e., at the rate of Rs.3.76 Crore per year. This was necessitated because of the suggestion and direction given by C&AG to the assessee to follow the guidelines stipulated by ICAI under the Guidance Note No. 10. The assessee accordingly amortized the balance expenditure of Rs.15.07 Crores and claimed the same over a period of five years.

++ AO disallowed the claim on the ground that the claim was not covered under the provision of Section 32 and that the assessee had obtained a long duration usage of permanent assets and therefore it was not a revenue/business expenditure.

++CIT(A) held that even after expending the money, the assessee had not acquired the ownership of any tangible assets so as to be entitled for the claim of depreciation, according he held that the entire expenditure of Rs.15.07 Crores was incurred wholly and exclusively for the conduct business. He accordingly held that even though it was not allowable under Section 32 of the Act, as there was no ownership of the assets vested in the assessee, claim was allowable under Section 37 of the Act as a business expenditure.

High Court held that – the CIT(A) & ITAT has correctly concluded that the expenditure is to be treated as revenue / business expenditure – The ownership of the asset built up was not with the assessee - Held further that the expense was loosely termed by the assessee as depreciation and since this was a wrong practice adopted, the C&AG rightly advised the assessee to change the accounting method to bring it in tune with ICAI guidelines.

Income Tax Act – Section 254 – ITAT – Admission of additional ground of appeal – department's objections before High Court were that the Tribunal did not recorded any reasons in support of its decision to admit additional grounds. It was argued that new claims were made in the garb additional grounds, which were not permissible – High Court held that both the conditions for raising this additional ground stood satisfied, viz., grounds related to the tax proceedings of the assessee for the Assessment Year under consideration and that the necessary facts were also available on record and that detailed reasoning was given by ITAT for admitting the same.

Income Tax Act – Section 32 – Depreciation – Block of Assets – AO held that the plant and machinery was not used in the year under consideration and therefore, depreciation there upon was not allowable - The machinery in question formed part of block of assets – ITAT held that once a particular asset falls within the block, it is added to the written down value and the depreciation is to be allowed on the block assets. Thus the individual asset loses its identity. Considering this it was held by ITAT that whether an individual asset is put to use in a particular year or not is of no consequence in as much as the requirement of law is to establish the use of concerned block of assets and not the use of particular equipment individually – Held that the view taken by the Tribunal in the instant case was in consonance with similar view of various Benches of the ITAT – Held further that once the various assets are clubbed together and become block asset within the meaning of Section 2(11) of the Act, for the purpose of depreciation it is one asset. Every time, a new asset is acquired, it is to be thrown into the common hotchpotch, i.e., block asset on meeting the requirement of depreciation allowable at the same rate. The value of the block asset increases and the depreciation is to be given on the aforesaid value, which is to be treated as written down value. Individual assets lose their identity from that very moment it becomes inseparable part of block asset insofar as calculation of depreciation is concerned. Fusion of various assets into the block asset gets disturbed only when eventually contained in clause (iii) of Section 32 takes place viz., when a particular asset is sold, discarded or destroyed in the previous year (other than the previous year in which it was first brought in use). Even in that event, the amount by which the moneys payable in respect of that particular building, machinery, etc., together with the amount of scrap value is to be deducted from total written down value of the ‘block asset' – Held also that the expression “used for the purpose of business” when applied to block asset would mean use of block of asset and not any specific building machinery, plant or furniture in the said block asset as individual assets have lost their identity after becoming inseparable part of the block asset.:DELHI HIGH COURT;

2009-TIOL-712-ITAT-MUM.pdf + mauritius story.pdf

JCIT, Mumbai Vs M/s State Bank Of Mauritius Ltd (Dated: October 16, 2009)

Income tax - Indo-Mauritius DTAA - applicability of tax rate - whether lower income tax rate applicable to domestic company would be applicable to a non-resident company or the higher rate provided for in the relevant Finance Act would apply - If higher tax rate is applied, will it be hit by the limitation of non-discriminatory provisions provided vide Article 24 of the DTAA - whether there is any cap provided in the tax treaty on travelling and entertainment expenses

Assessee is incorporated as a company in Mauritius - has a Permanent Establishment (PE) in India - claims as per non-discriminatory clause under Article 24 of the DTAA its status is equivalent to a 'domestic company' as defined in Sec 2(22A) in the I-T Act, and hence higher rate of tax prescribed for non-resident companies and also surcharge will not be applicable in its case - AO holds that non-resident company has to pay taxes at the rate provided in the Finance Act - CIT(A) observes that there is no limitation to non-discriminatory provision of the DTAA and once it prevails in a conflict situation, lower rate of 40% will apply and not the higher rate of 50% in this case - held,

in view of insertion of Explanation 1 to Sec 90 vide Finance Act 2001 with retrospective effect from 1.4.1962 which provides that the charge of higher rate of tax in the case of non-resident companies shall not be regarded as less favourable, the application of 55% rate by the AO is valid - CIT(A) order set aside and Revenue's appeal allowed.

Ground no 2 & 3:

AO notices some administrative and entertainment expenses incurred by the company and disallows part of them in view of the restrictions of Sec 37(2) and Rule 6D - CIT(A) holds that the restrictions prescribed in the Income Tax Act will not apply to the non-resident company as no such restrictions are prescribed in Article 7(3) of the DTAA - held,

++ Article 7 of the DTAA prescribes the methodology for computation of business income and the deductions allowable under the treaty;

++ since there is no restriction incorporated in the DTAA with Mauritius, the restrictions provided by Sec 37(2) in the I-T Act cannot be enforced in this case.

CIT(A)'s order upheld and Revenue's appeal dismissed.:MUMBAI ITAT;

Kotak Forex Brokerage Ltd Vs ACIT, Mumbai (Dated: August 1, 2009)

Income Tax - Sec 32(1)(ii) - Assessee acquires foreign exchange broking business from M/s Uday S Kotak for a consideration - pays for goodwill as well and claims depreciation - Revenue disallows on the ground that 'goodwill' does not figure in the list of intangible assets enumerated in clause (ii) of Sub-Section (1) of Sec 32 - held, by applying the principles of ejusdem generis , the meaning has to be extended to the phrase ‘other business or commercial rights of similar nature'. The name ‘Kotak' has tremendous reputation and importance as the assessee company has benefited by the usage of the said name. Therefore, it is of commercial value for which the assessee has paid huge sum as goodwill payment. The goodwill is also an intangible asset of the similar nature referred to in clause ( ii ) of section 32(1) of the Act, the depreciation is allowable on the same. Assessee's appeal allowed :MUMBAI ITAT;

SERVICE TAX SECTION

2009-TIOL-622-HC-P&H-ST.pdf

CCE, Jalandhar Vs M/s Steel Craft India (Dated: October 22, 2009)

ST - jobwork - Assessee is a jobworker - undertakes production on behalf of clients - such a service was brought under service tax net from 10.9.2004 - Assessee fails to pay tax - on being pointed out, assessee pays tax with interest - Revenue imposes penalty - Tribunal invokes Sec 80 to set aside penalty for presence of reasonable ground for failure - held, since it is purely a finding of facts, and no substantial question of law involved, the Revenue's appeal is dismissed : PUNJAB AND HARYANA HIGH COURT;

2009-TIOL-1876-CESTAT-DEL.pdf

CCE, Chandigarh Vs M/s Grewal Trading Co (Dated : September 10, 2009)

ST - penalty - Commissioner(A) upholds penalty under Sec 78 but sets aside the same under Sec 76 as penalty under both Sections cannot be imposed together - held, this issue is now settled that there was no provision during the relevant time that penalty under both the Sections cannot be imposed - Revenue's appeal allowed : DELHI CESTAT;

2009-TIOL-1875-CESTAT-DEL.pdf

CCE, Panchkula Vs M/s Sharad Projects (India) Ltd (Dated : September 16, 2009)

ST - Penalty under Sec 76 - Assessee provides consulting engineering service - defaults in payment of tax - pays with interest - penalty - Commissioner(A) invokes Sec 80 to set aside penalty - held, even if it is presumed that the assessee failed to pay tax due to ignorance of law, how will it help for default after payment made for initial months - setting aside of penalty for initial months upheld but the levy of penalty for later period also upheld: DELHI CESTAT;

2009-TIOL-1868-CESTAT-KOL.pdf

M/s Gurunanak Roadlines Vs CCE, CC & ST, BBSR-II (Dated : June 2, 2009)

ST - Site Formation Service - Assessee enters into contract for mining of iron-ore - Revenue raises demand - assessee argues that site formation is a part of mining service on which tax is being regularly paid - held, since it is a composite contract for providing mining service on which tax is being paid by the assessee, the demand for site formation service is not sustainable - Assessee's appeal allowed: KOLKATA CESTAT;

CENTRAL EXCISE SECTION

2009-TIOL-621-HC-P&H-CX.pdf

CCE, Chandigarh Vs M/s JCBL Limited (Dated: October 29, 2009)

Central Excise - interest - Sec 11AB - In view of Apex Court decision in the case of SKF India Ltd, the payment of differential amount of duty on the basis of upward revision of price of the goods sold earlier will attract levy of interest under Sec 11AB - Revenue's appeal allowed: PUNJAB AND HARYANA HIGH COURT;

2009-TIOL-1880-CESTAT-KOL.pdf

CCE, Kolkata-III Vs Electrosteel Casting Ltd (Dated : October 27, 2009)

CE – Exemption - Pipes for delivery of water - No restriction in Notification that water to be delivered only to first storage point - Exemption available: It is the Department which has actually supplied the words ‘first' before the expression, "storage facilities" trying to deny the exemption, whereas the Notification as interpreted on the basis of the language used therein, cannot restrict the exemption being extended to pipes used for delivering water upto subsequent storage points which are part of the water treatment project.: KOLKATA CESTAT;

2009-TIOL-1879-CESTAT-MUM.pdf + penalty story.pdf

CCE Vs GKN Sinter Metals Ltd (Dated : October 01, 2009)

Penalty imposable only to the extent of Cenvat Credit held ineligible – Appellant cannot claim exoneration from penal liability – Appeal disposed of: CESTAT

Tribunal's observations –

“6. …, I find that this Tribunal has already held that the respondent is entitled to take Cenvat credit on outdoor catering services and further held that the respondent is not entitled to take Cenvat credit on garden maintenance service. I hold that the respondent is not liable to pay any penalty imposed by the original adjudicating authority on account of outdoor catering service. But the respondent is liable to pay penalty on garden maintenance service to the tune of Rs.14,712/- and I further held that the respondent is liable to pay the penalty of the equivalent amount of Rs.14,712/- as penalty under Rule 15 of the Cenvat Credit Rules, 2004 read with section 11AC of the Central Excise Act, 1944. With these observations, the appeal is disposed off.” : MUMBAI CESTAT;

2009-TIOL-1878-CESTAT-MUM.pdf

M/s Knorr Bremse Systems For Commercial Vehicles India Pvt Ltd Vs CCE, Pune-I (Dated : August 27, 2009)

Cenvat Credit - UPS installed in the office premises of the applicant – main consideration is whether the capital goods are used for manufacture of final products or not – immaterial where it is installed – Strong prima facie case in favour – Pre-deposit waived and stay granted. : MUMBAI CESTAT;

CUSTOMS SECTION

2009-TIOL-1874-CESTAT-MUM.pdf + impex story.pdf

CC (Import), Mumbai Vs S M Impex (Dated : October 19, 2009)

DGFT notification 82(RE-2008)/2004-2009 dated 23.01.2009 - Import of Toys from China – If the original Bill of Lading is dated 22.01.2009, IGM has got to be corrected accordingly and if in this process, the importer gets the benefit of free import of the toys from China, it can't be helped – CESTAT dismisses Revenue appeal along with stay application.: MUMBAI CESTAT;

2009-TIOL-1873-CESTAT-DEL.pdf

M/s JAI Ganesh Textile & Woollen Mills Pvt Ltd Vs CC, Amritsar (Dated : July 20, 2009)

Customs - Import - Anti-dumping duty on acrylic fibre - Classification - Test report - The test report of CRCL did not prove the impugned goods to be acrylic. Cross-examination of the Chemical Examiner has not supported the department's case. Revenue failed to discharge its burden of proof for claimed classification. Hence, the classification claimed by Appellant is upheld. Consequently, imposition of anti dumping duty not possible when the goods itself remained in doubt for its identification and classification.  As department has failed to prove its case, the appellant also gets the benefit of doubt with regard to valuation of the imported goods.  (Para 13 & 14): DELHI CESTAT;

2009-TIOL-1872-CESTAT-BANG.pdf

M/s Goyal Impex & Industries Ltd Vs CC & CCE, Hyderabad-II (Dated : March 13, 2009)

Customs – Allegation of over-invoicing of exports to claim higher DEPB benefits – In view of evidences, no prima facie case for waiver of pre-deposits – Pre-deposit of Rs. 54 lakhs ordered : BANGALORE CESTAT;