Water Treatment Plants - Exemption - Pipe size reduced + ASK Income Tax; (See DDT)

Doing Difficult is Easiest Thing to Do! (See Guest Column article)

Govt needs to create Unified Aviation Regulator; (See Editorial)

CBEC Chief Commissioners  Promotion file comes back to North Block with PM's approval;

CBEC clarifies on reversal of Cenvat credit on goods written off in books;

Excise exemption to Uttrakhand: Amendment made under sub-heading Pauri Garhwal;

Lower denomination notes to be coinised: Govt;

No targets from disinvestment: Govt;

Spurious drugs: 8418 licences of chemist shops cancelled last year, says Govt;

New Chief Economic Advisor Kaushik Basu to join MoF today;

JNPT developing port-based SEZ over 277 hactares;

TIOL COMMENTARY

ddt 8 dec.pdf

ASK Income Tax;

guest column.pdf

Doing Difficult is Easiest Thing to Do!

editorial.pdf

Govt needs to create Unified Aviation Regulator;

MIXED BUZZ

mbuzz1098.pdf

Lower denomination notes to be coinised: Govt;

mbuzz1097.pdf

No targets from disinvestment: Govt;

mbuzz1096.pdf

JNPT developing port-based SEZ over 277 hactares;

2009-TIOL-31-ARA-IT.pdf

Geofizyka Torun SP. ZO.O. (Dated: December 7, 2009)

Income tax - Sec 44BB - Applicant is a tax resident of Poland - provides onshore seismic data acquisition and other related services to oil and gas industry - seeks advance ruling on whether the income from its such activities falls within the ambit of Sec 44BB of the I-T Act, 1961

Applicant submits that for any oil and gas exploration activity, seismic survey is the first and important step. It has been providing the seismic data acquisition, processing and interpretation services to various oil and gas exploration and production companies in India. ONGC figures in its list of customers. It contends that its activities related to seismic data acquisition clearly fall within the ambit of Section 44BB of the Income Tax Act, 1961 and therefore the computation of income should be done in terms of that Section.

Revenue contends that the services contemplated in Section 44BB are services other than those coming within the purview of Explanation 2 to Section 9(1)(vii) of the Act. The services extended by the applicant fall under Explanation 2. Secondly, the income by way of fees for technical services chargeable under section 9(1)(vii) has to be computed under Sec. 44DA in a case like this where the service provider has a ‘Permanent establishment' in India. It further argues that the exclusion clause in Explanation 2 does not apply in the case of the applicant because it is not undertaking a mining or like project. Such project is undertaken by someone else and certain technical services are rendered by the applicant to the business enterprise that takes up the project. In short, the Revenue contends that Section 44BB would come into play only if the assessee goes out of the purview of Section 9(1)(vii) read with Explanation 2.

Having heard the parties, the Authority rules that,

++ the applicant neatly fits into Section 44BB and all the ingredients of that section are satisfied. To attract the first part of section 44BB, the non-resident must be (a) engaged in the business of providing services or facilities; (b) such provision of services/facilities must be ‘in connection with' the prospecting for or extraction or production of mineral oils. Both these ingredients are present in relation to the activities undertaken by the applicant in India.

++ The expression ‘in connection with' is important and has to be construed to have expansive meaning. It is crystal clear that the services offered by the applicant is in connection with the prospecting for or extraction of mineral oils. The real, intimate and proximate nexus between the services performed by the applicant in India and the prospecting for or extraction of mineral oils is very much present in the instant case.

++ The existence of PE is a common feature both in 44DA as well as 44BB, though there is an explicit reference to PE under Section 44DA. Thus, rendering of technical services through PE may be a common feature of both the Sections, i.e., 44BB and 44DA, though in the case of Sec 44DA, it is explicitly mentioned. But, what is important is the nature of business and it is that factor which serves as an indicator to apply one of the two sections. If the business is of the specific nature envisaged by 44BB, the computation provision therein would prevail over the computation provision in Section 44DA.

++ Tthe income received by a non-resident businessman for the technical services provided in relation to prospecting and extraction of mineral oil, will be wholly governed by S.44BB for the purposes of computation. If all the services that are in the nature of technical services within the meaning of Explanation 2 to Section 9(1)(vii) are to be computed in accordance with 44DA, very little purpose will be served by incorporating a special provision in 44BB for computing the profits in relation to the services connected with exploration and extraction of mineral oils. The provision will then operate in a very limited field.

++ The income has to be computed in terms of Section 44BB.:ADVANCE RULING;

2009-TIOL-125-SC-IT.pdf

CIT Vs Alom Extrusions Ltd (Dated: November 25, 2009)

The facts : Prior to Finance Act, 2003, the second proviso to Section 43-B of the Income Tax Act, 1961 restricted the deduction in respect of any sum payable by an employer by way of contribution to provident fund/superannuation fund or any other fund for the welfare of employees, unless it stood paid within the specified due date. According to the second proviso, the payment made by the employer towards contribution to provident fund or any other welfare fund was allowable as deduction, if paid before the date for filing the Return of income and necessary evidence of such payment was enclosed with the Return of income. In other words, if contribution stood paid after the date for filing of the Return, it stood disallowed. This resulted in great hardship to the employers. They represented to the Government about their hardship and, consequently, pursuant to the Report of the Kelkar Committee, the Government introduced Finance Act, 2003, by which the second proviso stood deleted with effect from 1st April, 2004, and certain changes were also made in the first proviso by which uniformity was brought about between payment of fees, taxes, cess, etc., on one hand and contribution made to Employees' Provident Fund, etc., on the other.

The question for determination: whether omission [deletion] of the second proviso to Section 43-B of the Income Tax Act, 1961, by the Finance Act, 2003, operated with effect from 1st April, 2004, or whether it operated retrospectively with effect from 1st April, 1988?

The Findings: No merit in these civil appeals filed by the Department for the following reasons: firstly, Section 43-B [main section], which stood inserted by Finance Act, 1983, with effect from 1st April, 1984, expressly commences with a non-obstante clause, the underlying object being to disallow deductions claimed merely by making a Book entry based on Mercantile System of Accounting. At the same time, Section 43-B [main section] made it mandatory for the Department to grant deduction in computing the income under Section 28 in the year in which tax, duty, cess, etc., is actually paid. However, Parliament took cognizance of the fact that accounting year of a company did not always tally with the due dates under the Provident Fund Act, Municipal Corporation Act [ octroi ] and other Tax laws. Therefore, by way of first proviso, an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax, duty, cess or fee is paid before the date of filing of the Return under the Income Tax Act [due date], the assessee(s) then would be entitled to deduction. However, this relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer(s) should not sit on the collected contributions and deprive the workmen of the rightful benefits under Social Welfare legislations by delaying payment of contributions to the welfare funds. However, the second proviso resulted in implementation problems, and which resulted in the enactment of Finance Act, 2003, deleting the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess and fee with contributions to welfare funds. Once this uniformity is brought about in the first proviso, then, the Finance Act, 2003, which is made applicable by the Parliament only with effect from 1st April, 2004, would become curative in nature, hence, it would apply retrospectively with effect from 1st April, 1988. Secondly, it may be noted that, in the case of Allied Motors (P) Limited vs. Commissioner of Income Tax , reported in 2002-TIOL-588-SC-IT , the Scheme of Section 43-B of the Act came to be examined. In that case, the question which arose for determination was, whether sales tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant Sales Tax law should be disallowed under Section 43-B of the Act while computing the business income of the previous year? That was a case which related to Assessment Year 1984-1985. The relevant accounting period ended on June 30, 1983. The Income Tax Officer disallowed the deduction claimed by the assessee which was on account of sales tax collected by the assessee for the last quarter of the relevant accounting year. The deduction was disallowed under Section 43-B which, was inserted with effect from 1st April, 1984. It is also relevant to note that the first proviso which came into force with effect from 1st April, 1988 was not on the statute book when the assessments were made in the case of Allied Motors (P) Limited

Held: - Finance Act, 2003, to the extent indicated above, is curative in nature, hence, it is retrospective and it would operate with effect from 1st April, 1988 [when the first proviso came to be inserted]. No merit in this batch of civil appeals filed by the Department which are dismissed with no order as to costs.: SUPREME COURT;

2009-TIOL-663-HC-DEL-IT.pdf

Legato Systems (India) Pvt Ltd Vs DCIT (Dated: September 24, 2009)

Income Tax – Section 147 – Less than 4 years - Held that proceedings under Section 147/148 vis a vis completed assessments cannot be reopened on a mere change of opinion i.e. on the basis of the same set of facts and material which were in the knowledge of AO – Held that the AO cannot issue notices under Section 148 merely because he felt that a decision which has been taken earlier is not correct and needs to be corrected. The proceedings for reopening of assessment on the ground of income escaping assessment is an exception to the finality of the proceedings arrived at under Section 143(3) of the Act during the regular assessment proceedings of the assessment years.

Held that a reference to the reasons recorded shows that there is no new material for reopening, of the assessments and the officer issuing the notices relied upon the record and the correspondence on the very subject in the regular assessment proceedings. Also held that if such harassment to a citizen is allowed, then, the conclusiveness of the regular assessment proceedings will have no meaning because the very issue which was considered and mind applied, would lose its finality.:DELHI HIGH COURT;

2009-TIOL-662-HC-ALL-IT.pdf

CIT Vs M/s Kohli Brothers Color Lab (Pvt) Ltd (Dated: November 5, 2009)

Income tax - Sec 36(1)(vii), 143(2) - Assessee is in the business of developing and printing of photos - claims deduction for 'amounts written off' - AO makes inquiry and disallows the same for the assessee's failure to furnish information - CIT(A) agrees with the AO - Tribunal goes by Special Bench decision in Oman International Bank SAOG and holds that after the amendment to Sec 36(1)(vii) w.e.f 1.4.1989 it is not obligatory for the assessee to establish that the efforts to recover the same were made and the sums have indeed become bad debts - held,

++ In view of the amendment in the relevant Section, mere writing off of the debt as not recoverable is sufficient;

++ But the AO is, at the same time, not barred from probing into whether the entries made in the books are genuine and not fanciful. The AO has powers u/s 143(2) to make inquiry.

++ However, the wisdom of the assessee need not be questioned and no infallible proof is required. The commercial expediency is to be seen from the assessee's eyes.

++ The provision of Section 143 (2) viz-aviz section 36(1)(vii) read with section 36(1) both would be harmonized to give purposeful meaning to both the statutory provisions, as one extends benefit to the respondent-assessee of deduction for their debt or part thereof becoming bad and other authorizes Assessing Officer to see that provision of Income Tax Act are not flouted by any means.: ALLAHABAD HIGH COURT;

2009-TIOL-758-ITAT-DEL.pdf + ongc story.pdf

M/s ONGC Videsh Ltd Vs DCIT, New Delhi (Dated: October 30, 2009)

Income-tax - section 32, 37(1) - whether license acquired by ONGC Videsh for exploration in Sakhalin for 20 years is entitled to depreciation - whether the same can be treated as deferred revenue expenditure - whether expenditure of seismic data of foreign blocks amounts to capital expenditure

ONGC Videsh is a subsidiary of ONGC and is engaged in exploration of oil and gas in fields outside India. The income earned from such activities are governed by profit sharing contracts that are entered into by the company with the foreign governments. In so far as India is concerned, the same is governed by section 42 read with section 293A of the Income-tax Act. ONGC videsh, in the case under review had entered into a contract with other consortium members and the Russian Government for acquiring a 20% participating interest in Sakhalin islands belonging to Russia for a consideration of Rs.15,590.96 corres. By acquiring the participating interest, it acquired proportionate share in rights and licence granted by the Russian State for the Sakhalin Block and became entitled to carry on hydrocarbon operations in the Block. The contention of assessee before the Assessing officer was that the rights and licences, being intangible assets, were entitled to depreciation @ 25% in view of the amended provisions of section 32 of the Act. The claim was negatived by the A.O for the following three reasons:

+ Depreciation on intangible assets granted by section 32 should be for assets which are in the nature of intellectual property rights.

+ Acceptance of the claim of the assessee would amount to unwarranted broadening of the ambit of depreciation to even participation right in a business and even a partnership agreement between various entities would then fall within the purview of business rights and depreciation could be claimed on any amount of a capital nature including for investment made for the purpose of any partnership, joint venture agreement or any other agreement.

+ The commercial production did not start in the year of acquisition of interest and, therefore, the expenditure was pre-commencement.

In the first appeal, the CIT(A), considered the expenditure as deferred revenue and allowed 1/19th of the same to be amortised during the year. On further appeal, it was argued that the entire amount of Rs.1559.10 crores should have been allowed under section 42 of the IT Act along with the production sharing contract and the agreement entered into by the appellant with the Central Government. Without prejudice, it was argued that the claim of depreciation @25% should have been allowed.

Tribunal observed that,

++ hydrocarbons in their natural habitat embedded in a particular territory are the property of the state government and that jurisdiction over such hydrocarbons does not lie with any private person and that a person cannot carry out hydrocarbons operations unless the person had entered into a production sharing agreement with the government. By entering into the PCA, the Russian government granted rights to the assessee along with license for carrying on hydrocarbons operations. The business rights in the license are owned by the assessee entering into PCA and such right and license can be assigned and transferred to other parties subject to the terms and conditions of the PCA and with the approval of the government. The assessee, by virtue of acquisition of 20% participating interest, became the member of the consortium and acquired proportionate share in rights and licenses granted by the Russian state for Sakhalin Block and became entitled to carry on hydrocarbon operations in the Sakhalin project.

++ The right had been granted to the assessee by way of licence and the assessee became owner of such right i.e. license to have an access and to carry on of business of exploration and development of mineral oil. Accordingly, such an asset is entitled to depreciation u/s.32(1)(ii) of the IT Act.

++ there being no concept of deferred revenue expenditure and the expenditure being capital in nature, the assessee was entitled to depreciation alone.

++ Purchase and evaluation of the seismic data of foreign blocks: The expenditure incurred by the assessee was for furtherance of activities undertaken by it in the normal course of its business. The same are incurred on continuous basis for evaluation of business activities. In view of the decision of Bombay High Court in the case of Essar Oil Ltd. 2008-TIOL-530-HC-MUM-IT , such expenditure is to be allowed as revenue expenditure. :DELHI ITAT;

SERVICE TAX SECTION

2009-TIOL-2006-CESTAT-MAD.pdf

M/s Pricol Ltd (Plant I) Vs CCE, Coimbatore (Dated: August 17, 2009)

Service tax – Stay / dispensation of Pre-deposit – Technical know- how received from outside India – Pre-deposit waived as the liability is only with effect from 18.4.2006 as per Bombay High Court order. :CHENNAI CESTAT;

2009-TIOL-2005-CESTAT-MAD.pdf

M/s LCS City Makers Pvt Ltd Vs CST, Chennai (Dated: August 31, 2009)

Service Tax – construction of residential complexes – demand of Service tax – matter remanded to pass fresh orders after considering CBEC circular No 108/02/2009 – ST dated 29.1.2009.:CHENNAI CESTAT;

2009-TIOL-2004-CESTAT-BANG.pdf

M/s American Quality Assessors ( India ) Pvt Ltd Vs Assistant Commissioner (Service Tax), Hyderabad-II (Dated: June 23, 2009)

Service Tax – Certification of management processes or management systems not liable to tax under Technical Inspection and Certification Agency Service – Quality audit of processes not akin to physical or chemical processes – Word ‘process' in definition should be read with the company it keeps – Principle of noscitur a socis applies – Impugned order set aside :BANGALORE CESTAT;

CENTRAL EXCISE SECTION

CIRCULAR

excircular907.pdf

CBEC clarifies on reversal of Cenvat credit on goods written off in books;

NOTIFICATION

etariff09_27.pdf

Excise exemption to Uttrakhand: Amendment made under sub-heading Pauri Garhwal;

CASE LAWS

2009-TIOL-665-HC-MUM-CX.pdf + tata story.pdf

Tata Motors Ltd Vs UoI (Dated: November 19, 2009)

Central Excise – Job work – CENVAT Credit - It is settled law that even in the case of job work, CENVAT credit can be availed. The law as settled is that even in respect of job work where the final product is dutiable, Cenvat Credit can be availed of.

High Court at pains to understand the approach of the Tribunal; Judicial Discipline – failure would result in judicial mayhem – All Courts and Tribunals within the jurisdiction of this Court are bound to follow the law as laid down by this Court. We are at pains to understand the approach of the learned Tribunal. Judgments of higher Courts considering judicial discipline have to be followed by the Courts subordinate to the higher court . Failure to do so would result in judicial mayhem. Subordinate courts are bound to follow the judgments unless there be a subsequent judgment of a Higher Court which has taken a view different from the view earlier expressed.

pre – deposit waived: considering the Judgments of this Court, as the petitioners have strong prima facie case, and the law decided by the Supreme Court was of pre-deposit, the impugned order is set aside. There will be no pre-deposit:BOMBAY HIGH COURT;

2009-TIOL-2009-CESTAT-KOL.pdf

CCE, JSR Vs M/s Tata Motors Ltd (Dated: July 9, 2009)

Central Excise - CENVAT - Input Invoices - Duty not paid by the supplier of inputs - The supplier of inputs issued the invoices showing payment of duty whereas actually no duty has been paid. In the appeal filed by the revenue before the Commissioner (Appeals), matter was remanded in the same SCN. Therefore, the present impugned order is set aside and the matter is remanded to the adjudicating authority to decide afresh after affording an opportunity of hearing to both sides.(Para 6) :KOLKATA CESTAT;

2009-TIOL-2008-CESTAT-MUM.pdf

Lumax Auto Technologies Ltd Vs CCE, Pune-I (Dated: July 24, 2009)

Supplementary invoice - Interest on differential duty – Respondent revenue relies on SC decision in Commissioner V/s. SKF India Ltd. [ 2009-TIOL-82-SC-CX ] for recovery of interest under Section 11AB - No prima facie case - Appellant directed to pre-deposit interest amount within 4 weeks and report compliance.:MUMBAI CESTAT;

2009-TIOL-2007-CESTAT-MAD.pdf

M/s Laxmi Impex Vs CCE, Chennai (Dated: September 3, 2009)

Central Excise – Interest for delayed payment of duty under Rule 8 (3) of the Central Excise rules – Interest cannot be higher than the amount payable under Section 11AB:CHENNAI CESTAT;

2009-TIOL-2000-CESTAT-DEL,pdf

M/s Hind Lamps Ltd Vs CCE, Kanpur (Dated: August 27, 2009)

Central Excise - CENVAT - Common inputs - Dutiable and exempted goods - Credit reversed after clearance of final products  - The manufacturer who has availed credit on the inputs utilised in the manufacture of final products which are exempt from the duty or which are chargeable to nil rate of duty and because he has reversed the credit at the end of the month and after the clearance of the final product, the manufacturer cannot avoid the obligation to pay the amount in terms of the Rule 57CC(1).  (Para 16)

Interpretation of a decision - The ratio of a decision is to understood in the factual matrix involved therein and is to be culled out from the facts of the case, the point which arises in the matter and the decision based on the reasoning and the findings arrived at in that case. A decision in an authority for what it decides and not what can be logically deduced there from, Hence, every judgment has to be understood in the light of the facts of the case and nothing beyond what is stated therein can be read into it.   (Para 12)

Penalty - The matter relates to the interpretation of rule and, therefore, there is no justification for imposition of any penalty in the matter.  (Para 19) :DELHI CESTAT;

2009-TIOL-1999-CESTAT-BANG.pdf

M/s Lanco Industries Limited Vs CCE, Tirupathi (Dated: July 2, 2009)

Central Excise - Commission paid to commission agents in pursuance of promotion of products manufactured by assessee - Service tax paid thereon eligible as CENVAT Credit - Excess credit taken erroneously reversed subsequently, order of original authority confirming demand on this count upheld - Penalty set aside: BANGALORE CESTAT;

CUSTOMS SECTION

CIRCULAR

dgft09cir018.pdf

Admissibility of DEPB benefit under DEPB entry number 507 meant for the export product “Rubber Compounded Sheets/Rings/Gasket” falling under the product Group “Chemicals” (Product Code: 62).

NOTIFICATION

dgft09not020.pdf

Foreign Trade policy - Organic rice also allowed to be Exported;

dgft09not019.pdf

Foreign Trade policy - Organic Wheat allowed to be Exported;

dgft09pn022.pdf

Appendix 4D - List of Certification Agencies amended;

CASE LAWS

2009-TIOL-664-HC-DEL-CUS.pdf + cus story.pdf

Directorate Of Revenue Intelligence Vs Moni & Anr (Dated: December 2, 2009)

Customs – If the case of the prosecution is based solely on the statement of the accused, which is retracted, there can be no conviction: if the case of the prosecution whether launched by Custom Authorities, FERA Authorities or by Directorate of Revenue Intelligence is solely based upon the statement of the accused recorded by the Department pursuant to issuance of a notice given by them only, which stands retracted and there is no corroboration of the same, then the said statement cannot be the basis of conviction of the accused whether it is a statement recorded under Section 40 of the Foreign Exchange Regulation Act or under Section 67 of the NDPS Act or under Section 108 of the Customs Act. In the present case, no recovery has been affected from the respondents. The car from where some seizure of contraband has taken place does not belong to either of the respondents. The case of the petitioners is solely rest upon the statement of the accused recorded under Section 108 of the Customs Act which stands retracted and which is not supported by any other evidence led by the prosecution.

When two views are possible, the accused should get the benefit: when two views are possible, the view which favours the accused persons is required to be adopted in terms of the legal position which stands well settled.:DELHI HIGH COURT;

2009-TIOL-2003-CESTAT-BANG.pdf

M/s ZZ Trading Establishment Vs CC & CCE, Hyderabad (Dated: June 17, 2009)

Customs – Undervaluation of tyres imported from China – Adjudicating authority cannot discard alternatives suggested by assessee and adopt valuation proposed in show cause notice when there are evidences for such alternatives – Undervaluation of import consignments upheld – Matter remanded for re-quantification of value and determine duty and interest liability and imposition of penalty :BANGALORE CESTAT;