Thursday, 18 December 2014

Article 19(1)(g): Levy of service-tax on Advocates is constitutional

Article 19(1)(g): Levy of service-tax on Advocates is constitutional:- A Writ Petition was filed to challenge the levy of service-tax on advocates. It was claimed that an advocate renders services which cannot be said to be commercial or business like. They cannot be equated with the service providers mentioned in the Finance Act 1994. It was also contended that advocacy is not a business but a profession and a noble one. An advocate is a part and parcel of the administration of justice and which is a sovereign or regal function and hence providing for a Service Tax on advocates would mean that their services will no longer be available or accessible to those seeking justice from a Court of law. That would defeat the constitutional guarantee of free, fair and impartial justice. HELD by the High Court dismissing the Petition: (i) The legislature has neither interfered with the role and function of an advocate nor has it made any inroad and interference in the constitutional guarantee of justice to all. The services provided to a individual client by a individual advocate continues to be exempted from the purview of the Finance Act and consequently Service Tax but when an individual advocate provides service or agrees to provide services to any business entity located in the taxable territory, then, he is included and liable to pay Service Tax. The classification between those who can afford professional legal services and are ready to pay the fees or charges demanded without seeking any reduction or concession and those who cannot pay legal fees but can at best bear meagre expenses has been made. This classification has a reasonable nexus with the object sought to be achieved. (ii) The economic realities are that even, legal services are rendered in an organized manner. When advocates group or organize themselves by making huge investments in acquiring immovable properties for professional work, heavy overheads, in the form of clerical and support staff, with facilities of cabins or rooms, then, legal services are rendered to organized groups or business entities predominantly. These persons can very well pay the fees and charges without any demur or complaint; (iii) What holds good for chartered accountants and architects must equally apply to other professionals such as advocates, and who too are well conscious of their status.

Sunday, 16 November 2014

A Power of Attorney which does not enable enjoyment of property does not result in a "transfer". CBDT Circular No.495 dated 22.9.1987 reads more into s. 2(47)(vi)

Sec. 2(47)(vi):- A Power of Attorney which does not enable enjoyment of property does not result in a "transfer". CBDT Circular No.495 dated 22.9.1987 reads more into s. 2(47)(vi) than warranted (i) There is no transfer to or enabling enjoyment of property in favour of the assessee in any manner and therefore, sub-clause (vi) of Section 2(47) of the Income Tax Act does not get attracted. Clause 21 of the power of attorney, which has been already referred to supra, clearly reveals that no consideration was received from the power agent for appointing him as power of attorney. It also emphasised therein that the property right has not been handed over to the power agent. We are, therefore, unable to accept the plea of the Revenue that there was an element of transfer or enabling enjoyment in favour of the assessee. The letter of the land owner subsequently issued does not come to the aid of the Department. It is the duty of the power of attorney holder to deliver the amount received for the purpose of transfer of property. Therefore, no fault could be found on the part of the assessee. Assuming that he had delivered certain sum to the land owner, it is but the lawful duty of the power of attorney to deliver payment to the land owner. The sale to Dr.Meera Bai is also for the same value. Hence, nothing turns on the letter of the erstwhile owner, in favour of the Department. (ii) We, therefore, now proceed to analyse the meaning behind circular No.495 dated 22.9.1987. The interpretation of the circular as put forward by the Revenue, we are not in agreement. The provisions of sub-clause (vi) of Section 2(47) of the Income Tax Act make it clear that the transaction, which has the effect of transferring or enabling the enjoyment of immovable property alone would come within the ambit of transfer. The circular reads something more into the provision. We are not inclined to accept such an interpretation. The circular also states that the legal ownership would continue with the transferor; but the property rights if it is transferred by way of power of attorney would come within the ambit of sub-clause (vi) of Section 2(47) of the Income Tax Act. Assuming we accept the intention behind the circular, then there should be an element of transfer or enabling enjoyment of property right as stated in paragraph 11.2 of the circular by the power of attorney holder. (iii) We find no such recital in the power of attorney as extracted by the Tribunal and referred to by us. On the contrary, the terms of the power of attorney clearly show that property rights has not been transferred to the power of attorney holder and there is also no provision for enabling enjoyment. It is not the case of the Department that the power of attorney is sham. If they accept the power of attorney is valid, then the plea of capital gains at the hands of the assessee has no legs to stand.

Friday, 31 October 2014

Capital Gain Matter under Suraj Lamp and Industries (SC)

Section 2(47): Transfer takes place in year of execution of sale deed, handing over of possession & receipt of sale consideration & is not deferred to year of registration. Verdict in Suraj Lamp and Industries 340 ITR 1 (SC) explained The Tribunal had to consider whether capital gains are assessable in AY 2008-09, being the year when the sale deed was executed and possession handed over and most of the sale consideration was received or in AY 2009-10 when the sale deed was registered. Held by the Tribunal: The transaction relates to the date when the sale-deed was executed, sale consideration was paid and the possession was handed over but not on the date when the document was presented before the Registrar for registration of the sale-deed. Moreover, the issue whether the transaction would relate to the date when the assessee has received sale consideration, handed over the possession and executed sale agreement or the date when the sale agreement is presented before the concerned Registrar for registration of the document was not before the Apex Court in Suraj Lamp and Industries Pvt.Ltd. vs. State of Haryana (2012) 340 ITR 1 (SC). Also, the judgement in Suraj Lamp and Industries was delivered on 11.10.2011, but the sale agreement in the present case was executed on 31.03.2008. The Apex Court has observed that “It is also submitted that this decision should be made applicable prospectively to avoid hardship. We have merely drawn attention to and reiterated the well-settled legal position that SA/GPA/WILL transactions are not “transfers” or “sales” and that such transactions cannot be treated as completed transfers or conveyances. They can continue to be treated as existing agreement of sale. Nothing prevents affected parties from getting registered deeds of conveyance to complete their title. The said “SA/GPA/WILL transactions” may also be used to obtain specific performance or to defend possession under section 53A of the Transfer of Property Act. If they are entered before this day, they may be relied upon to apply for regularization of allotments/leases by development authorities. We make it clear that if the documents relating to “SA/GPA/WILL transactions” has been accepted acted upon by the DDA or other developmental authorities or by the Municipal or Revenue authorities to effect mutation, they need not be disturbed, merely on account of this decision.” In the case in hand, the agreement to sell dated 31/03/2008 had already been acted upon the parties by delivery possession and registering sale-deed. Therefore, for this reason also, the judgement of the Apex Court in the case of Suraj Lamp and Industries Pvt.Ltd. vs. State of Haryana and Another (supra), would not help the Revenue.

Sunday, 1 September 2013

Assessing Officers to give credit for TDS mismatch if deductor has deposited amount

Assessing Officers to give credit for TDS mismatch if deductor has deposited amount – Result of images (1)HC Ruling 1. The CBDT issues INSTRUCTION NO. 5/2013 [F.NO.275/03/2013-IT(B)], DATED 8-7-2013 with respect to processing of Income-tax returns and giving credit for TDS thereon in the case of TDS mismatch. A few of the instructions on this subject issued in previous years are Instruction No. 1/2010 (25-2-2010) for returns pertaining to A.Y, 2008-09; Instruction No. 05/2010 (21-7-2010), Instruction No. 07/2010 (16-8-2010) and Instruction No. 09/2010 (9-12-2010) for returns pertaining to AY. 2009-10; Instruction No. 02/2011 (9-2-2011) for returns pertaining to A.Y. 2010-11; and Instruction No. 1/2012 (2-2-2012) and Instruction No. 04/2012 (25-5-2012) for returns pertaining to A.Y. 2011-12. The instructions gave decisions and the manner in which the TDS claims were to be given credit while clearing the backlog of returns pending processing. In the cases that did not fall under the specific TDS amount limit or refund amount computed, the residuary clause in these instructions gave the manner of processing those returns and it stated that “TDS credit shall be given after due verification “. 2. The Hon’ble Delhi High Court vide its judgment in the case ‘Court On its Own Motion v. UOI and Ors. (W.P. (C) 2659/2012 & W.P. (C) 5443/2012 dated 14-3-2013) has issued seven mandamuses for necessary action by Income-tax Department, one of which is regarding the issue of non-credit of TDS to the taxpayer due to TDS mismatch despite the assessee furnishing before the Assessing Officer, TDS certificate issued by the deductor. 3. In view of the order of the Hon’ble Delhi High Court (reference: para 50 of the order); it has been decided by the Board that when an assessee approaches the Assessing Officer with requisite details and particulars in the form of TDS certificate as an evidence against any mismatched amount, the said Assessing Officer will verify whether or not the deductor has made payment of the TDS in the Government Account and if the payment has been made, credit of the same should be given to the assessee. However, the Assessing Officer is at liberty to ascertain and verify the true and correct position about the TDS with the relevant AO (TDS). The AO may also, if deemed necessary, issue a notice to the deductor to compel him to file correction statement as per the procedure laid down.

Wednesday, 30 January 2013

Satya Nand Munjal vs. CGT (Supreme Court)

Satya Nand Munjal vs. CGT (Supreme Court)

January 28th, 2013


Taxability of a revocable transfer as deemed gift u/s 4(1)(c) of the Gift-tax Act


The assessee owned 6000 shares of Hero Cycles. On 20.02.1982, he executed a deed of revocable transfer in favour of M/s Yogesh Chandra. The deed permitted the assessee to, after completion of 74 months from the date of transfer but before the expiry of 82 months from the said date, exercise the power of revoking the gift. In other words, there was a window of 8 months within which the gift could be revoked. The deed of revocable transfer specifically stated that the gift shall not include any bonus shares or right shares received and/or accruing or coming to the transferee from Hero Cycles by virtue of ownership of the said shares. Effectively, therefore, only a gift of 6000 equity shares was made by the assessee to the transferee. On 29.09.1982 & 31.5.1986, the company issued 4000 and 10,000 bonus shares to the transferee. On 15.6.1988, the assessee revoked the gift with the result that the 6000 shares gifted to the transferee came back to the assessee. However, the 14,000 bonus shares allotted to the transferee while it was the holder of the equity shares of the company continued with the transferee. In AY 1982-83, the GTO relied on McDowell 154 ITR 148 (SC) and held that the revocable transfer was only for the purpose of reducing the wealth tax liability and was void. He, however, made a protective gift-tax assessment. The Tribunal and the High Court (CGT vs. Satya Nand Munjal 256 ITR 516 (P&H)) reversed the AO and held that a revocable transfer was valid even if its object was to avoid wealth-tax. The assessee was held liable to pay gift-tax u/r 11 of the Gift-tax Act. In AY 1989-90 the AO & CIT(A) held that the 14,000 shares belonged to the assessee and as the revocation was only with respect to the 6,000 shares and the 14,000 bonus shares continued with the transferee, there was a chargeable gift to that extent. The Tribunal reversed the AO & CIT(A). On appeal by the department, the High Court reversed the Tribunal and held that the assessee was liable to gift tax on the value of the bonus shares gifted by him to the transferee applying the principles of Escorts Farms (Ramgarh) 222 ITR 509 (SC). On appeal by the assessee to the Supreme Court, HELD:

The fundamental question is whether there was in fact a gift of 14,000 bonus shares made by the assessee to the transferee. The answer to this question lies in s. 4(1)(c) of the Gift-tax Act which provides that “where there is a release, discharge, surrender, forfeiture or abandonment of any debt, contract or other actionable claim or of any interest in property by any person, the value of the release, discharge, surrender, forfeiture or abandonment to the extent to which it has not been found to the satisfaction of the AO to have been bona fide, shall be deemed to be a gift made by the person responsible for the release, discharge, surrender, forfeiture or abandonment“. On facts, the assessee had made a valid revocable gift of 6000 equity shares in the company on 20.2.1982 to the transferee. The only event that took place in AY 1989-90 was the revocation of the gift by the assessee on 15.6.1988. The question whether the revocation of the gift of the original shares in AY 1989-90 constitutes a gift of the bonus shares that were allotted to the transferee on 29.09.1982 and 31.05.1986 requires to be answered in the light of s.4(1)(c). The question of applicability of Escorts Farms has to be decided after a finding is reached on the applicability of the first part of s. 4(1)(c) (matter remanded).

Tuesday, 22 January 2013

M/s Bangalore Club vs. CIT (Supreme Court)

 
M/s Bangalore Club vs. CIT (Supreme Court)
 
January 15th, 2013

Interest earned by a mutual association from deposits placed with member banks is not exempt on the ground of “mutuality”


The assessee, a mutual association, claimed that the interest earned by it on fixed deposits kept with the bank (which was a corporate member) was not taxable on the basis of mutuality. The AO rejected the claim though the CIT(A) and Tribunal upheld the claim. The High Court reversed the Tribunal and upheld the stand of the AO. On appeal by the assessee to the Supreme Court, HELD dismissing the appeal:

For a receipt to be exempt on the principles of Mutuality, three conditions have to be satisfied. The first is that there must be a complete identity between the contributors and participators. The second is that the actions of the participators and contributors must be in furtherance of the mandate of the association. The third is that there must be no scope of profiteering by the contributors from a fund made by them which could only be expended or returned to themselves. On facts, though the interest was earned from banks which were corporate members of the club, it was not exempt on the ground of mutuality because (i) the arrangement lacks a complete identity between the contributors and participators. With the funds of the club, member banks engaged in commercial operations with third parties outside of the mutuality, rupturing the ‘privity of mutuality’, and consequently, violating the one to one identity between the contributors and participators, (ii) the surplus funds were not used in furtherance of the object of the club but were taken out of mutuality when the member banks placed the same at the disposal of third parties, thus, initiating an independent contract between the bank and the clients of the bank, a third party, not privy to the mutuality & (iii) The Banks generated revenue by paying a lower rate of interest to the assessee-club and loaning the funds to third parties. The interest accrued on the surplus deposited by the club like in the case of any other deposit made by an account holder with the bank. A fa├žade of a club cannot be constructed over commercial transactions to avoid liability to tax. Such setups cannot be permitted to claim double benefit of mutuality.

Monday, 21 January 2013

Judgement for Depreciation on case of I. C. D. S. Ltd vs. CIT (Supreme Court)

I. C. D. S. Ltd vs. CIT (Supreme Court)

January 15th, 2013


Section 32: A “Financier” satisfies the “ownership” & “user” test for depreciation


The assessee, a NBFC, bought vehicles and leased it out to its customers. The vehicles were registered in the names of the customers. The AO held that as the vehicles were registered in the names of the customers and were used by them, the assessee was not eligible for depreciation u/s 32 as it was not the “owner” of the vehicles nor had it “used” the vehicles for purposes of business. The CIT(A) & Tribunal allowed the assessee’s claim. However, the High Court reversed the Tribunal on the ground that the assessee was only a financier and not the owner of the vehicles and so was not eligible to claim depreciation. On appeal by the assessee to the Supreme Court, HELD reversing the High Court:

(i) S. 32 requires that the asset must be “owned, wholly or partly, by the assessee and used for the purposes of the business”. The Department’s argument that the assessee is not the “owner” of the vehicles is not acceptable because the lease agreement specifically provided that the assessee was the exclusive owner of the vehicle at all points of time and that it was empowered to repossess the vehicle (and not merely recover money) if the lessee committed a default. At the conclusion of the lease period, the lessee was obliged to return the vehicle to the assessee. Also, the assessee had the right of inspection of the vehicle at all times. As the assessee has a right to retain the legal title of the vehicle against the rest of the world, it would be the owner of the vehicle in the eyes of law. The fact that at the end of the lease period, the ownership of the vehicle is transferred to the lessee at a nominal value not exceeding 1% of the original cost of the vehicle does not make a difference. Also the fact that the Motor Vehicles Act deems the lessee to be the “owner” has no relevance;

(ii) The Department’s argument that the assessee had not “used” the vehicles is also not acceptable because the vehicle was “used” by the assessee in its’ business of leasing. Once it is held that leasing out of the vehicles is one mode of doing business by the assessee and the income derived from leasing out is treated as business income it would be contradictory, in terms, to say that the vehicles are not used wholly for the purpose of the assessee’s business. The physical user of the vehicles is not necessary (Shaan Finance 231 ITR 308 (SC) followed)