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MONTHLY REPORT FOR APRIL, 2007
CHIEF ADVISERPradeep K. Mittal B.Com., LL.B., FCS,
Advocate--9811044365
Central Council MemberThe Institute of Company Secretaries of India
Sh.Anil Kumar Gupta-9810421739
B.Com. (Hons.) FCA, Chartered Accountant
Practicing Chartered Accountant
CONTRIBUTION FOR - DIRECT TAX
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Sh C M Bindal, -9414962454
FCS
Company Secretary in Practice – JAIPUR
CONTRIBUTION FOR – SEBI LAWS
Sh. Rakesh Garg –9810216270
FCA
Practicing Chartered Accountant
CONTRIBUTION FOR - SALES TAX
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HONORARY ASSOCIATES
Dr. Sanjeev Kumar
M.Com. LL.B., Ph.D, PGDPIRL, FICWA, FCS
INCOME TAX BY SHRI ANIL KUMAR GUPTA - 9810421739
Important Amendments in Rules, Notification and
Circulars issued.
Income-tax 2nd Amendment Rules - 2007 (Vide Notifica- tion No.S.O.301(E) dated 28.2.2007 has amended the Rule 17C (relating to Forms or modes of investment or deposits by a charitable or religious trust or institution) by inserting Clause-vi therein as under:-
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"(vi) investment by way of acquiring equity shares of an incubatee by an uncubator.
Explanation - For the purpose of this clause, -
(a)"Incubatee" shall mean such incubatee as may be notified by the Government of India in the Ministry of Science and Technology;
(b)"Incubator" shall mean such Technology Business Incubator or Science and Technology Entrepreneurship Park as may be notified by the Govt.of India in the Ministry of Science and Technology".
Income Tax 3rd Amendment Rules-2007 (Vide Notification No.83/2007 dated 26.3.2007 has amended/substituted, with immediate effect, the Form No.16 & 16A and 27D which represent TDS-Certificates & TCS-Certificate meant to-be-issued by the TDS-deductor to the TDS-deductee. New Certificate(s) have been formatted so as to fall in line the legal provisions amended in the past period. Therefore, TDS Certificate to-be-issued henceforth have to use the new format(s) stipulated in these notified Forms instead of existing-Forms' formats, both for manually as well as electronically.
RECENT JUDGEMENTS
Fringe Benefit Tax (289 ITR 369 reg. R & B. Falcon (A) Pty.Ltd): The Authority for Advance Rulings has rules that the expense incurred in transportation of offshore crew, who were non-residents provided for mobile offshore drilling rig alongwith equipment were liable for FBT because such transportation cost falls either under "conveyance" or "tour and travel (including foreign travel)" under Section 115 WB(2), despite the fact that the transportation cost was pertaining to "airport to helocopter base and then to the rig" and not for "non-residents" residence in foreign country to airport abroad and/or in-India".
Comments:Such ruling is considered controversial for two reasons, firstly in case of drilling-rigs transportation to & fro rigs entails no personal benefit to any employee(s) since each and every person/employee thereat is absolutely in discharge of his duties that too under the extremely risky environs, and secondly, conveyance/travel from residence to & fro office/place-of-work is exempt from levy of FBT under the provisions of said section.
Scholarship by employer to son of employee (289 ITR 218-All-2007 - CIT Vs. B.L.Garg): While such scholarship is exempt U/s 10(16) in the hands of the recipient, the High Court held that recipient was/were sons of employees and not the employees, and, scholarship were paid entirely gratuitously by the employer at its sole discretion, therefore, the amount of scholarship cannot be treated as a perquisite in the hands of employee(s) U/s 17(2) (iii)(c). This ruling is in concurrence with similar ruling in the case of CIT Vs. M.N. Nadkarni (1986) (Bombay) 161 ITR 544.
Tour Expenses (289 ITR 280-P&H-2007-CIT Vs. Oswal Woollen Mills Ltd. would be admissible/deductible as revenue expenditure even though the same might have been incurred for exploring foreign markets and for purchase of machinery for modernization, because these expenses were in relation to the existing unit and not for any new unit/business.
Civil construction is not manufacture (289 ITR 26-SC-2007-S.A. Builers Ltd. Vs. CIT) has been reaffirmed by the Apex Court, reiterating its view/ruling in the case of CIT Vs. N.C. Budharaja & Co. (1993) (SC) 204 ITR 412.
Interest-income Deductible or Not U/s 80HHC (289 ITR 475 - Delhi-2007-CIT Vs. Shri Ram Honda Power Equip): The Delhi High Court has ruled that even where the interest income was on short-term deposits made for L/Cs and other Credit-facilities, it cannot be treated as part of eligible profits since it is not derived from export-activity. The Court has further held that only where there is direct/close nexus of the income with the activity for which the relief is meant, it could be taken as part of eligible profits. However, the Court has settled an old controversy that where there is both interest-expense and interest-income, only net-interest-income that could be excluded under the Explanation-baa.
Comments: Although the ruling (that interest-income is eligible for relief U/s 80 HHC in case of 100%-Exporter)of the Bombay High Court in the case of CIT vs.Punit Commercial Ltd. (2000) 245 ITR 550 was considered by the Delhi High Court, but the same has not been appreciated/considered in the true spirit of that judgement vis-a-vis the fact/feature of 100%-Exporter (who neither has income and/or had the objective of income from any other source except Exports).
Block Assessment U/s 158BD (289 ITR 341-2007-SC-Manish Maheshwari Vs. Asstt. CIT): The scope of powers U/s 158 BD conferring jurisdiction over the third parties to search, has been settled by the Apex Court laying down that handing over of books of account and other documents and/or assets seized/requisitioned from the premises of the searched person, which are found to relate to third parties, to the Assessing Officer having jurisdiction over such third parties, has to be in pursuance of satisfaction that such income belongs to such third parties. Mere handing over the documents or assets to the concerned Assessing Officer would not be sufficient.
Penalty in case of overstatement of Loss (289 ITR 83 -2007-SC - Virtual Sort Systems Ltd. CIT): The Apex Court after elaborately discussing the ruling in case of CIT Vs. Prithipal Singh & Co. (2001) (SC) 249 ITR 670 has settled the law in this regard that - if the loss gets converted into positive income, there is scope for penalty upto assessment year 2002-03 as held in Modi Cement Ltd. Vs. Union of India (1992) (Delhi) 193 ITR 91, and/but levy of penalty even where final income is not positive, consequent to amendment in 2002, would be valid only from assessment year 2003-04.
Immunity under Explanation-5 from Penalty U/s 271 (1) (c) (289 ITR 77-Raj-2007-CIT Vs. Mishrimal Soni): The High Court held that where the assessee has admitted undisclosed income embedded in Pro-Notes (i.e. even intangible assets are included in its purview in addition to any money, bullion, jewellary or other valuable article or thing) found during search in his premises, would be eligible for immunity from penalty under Explanation-5 to Section 271 (1) (c).
In CIT Vs. Dr.Suresh G.Shah (2007) (Guj.) 289 ITR 110 it has been held, in concurrence with similar rulings in the cases of Addl.CIT vs. Achal Kumar Jain (1983) (Delhi) 142 ITR 606, Addl. CIT vs. J.K.D'Costa (1982)(Delhi) 133 ITR 7, P.C. Puri Vs. CIT (1985) (Delhi) 151 ITR 584, CIT Vs. Keshrimal Parasmal (1986) (Raj.) 157 ITR 484, Surendra Prasad Singh Vs. CIT (1988) (Gauhati) 173 ITR 510, 192 ITR 337 (Cal.) (1991) CIT Vs. Linotype & Machinery Ltd., Addl. CIT Vs. Sudershan Talkies (1993) (Delhi) 200 ITR 153, CIT Vs. Nihal Chand Rekyan (2000) (Delhi) 242 ITR 45 and CIT Vs. C.R.K. Swamy (2002) (Mad.) 254 ITR 158 that Revisional powers U/s 263 are not available for initiation of penalty proceedings.
SALES TAX BY SHRI RAKESH GARG -9810216270
CENTRAL SALES TAX (CST) REDUCED TO 3% FROM 1ST APRIL, 2007
The Government of India, Ministry of Finance, Department of Revenue, issued the notification here on 29th March 2007, to bring into force the provisions of the Taxation Laws (Amendment) Act, 2007, w.e.f. 1st April, 2007. Through this Act, the following amendments, inter-alia, have been carried out to the Central Sales Tax Act, 1956 and the Additional Duties of Excise (Goods of Special Importance) Act, 1957:
a) The rate of CST on inter-State sale to registered dealers (against Form ‘C’) has been reduced from 4% to 3% or the rate of VAT/ State Sales Tax applicable in the State of the selling dealer, whichever is lower.
b) The rate of CST on inter-State sale other than sale to registered dealers shall be the rate of VAT/ State Sales Tax applicable in the State of the selling dealer.
c) The rate of CST on inter-State sale to Government Departments shall also be the rate of VAT/ State Sales Tax applicable in the State of the selling dealer, indicated at (b) above. The facility of inter-State purchases by Government Departments against Form ‘D’ has been withdrawn.
d) Enabling provisions have been made for the States to levy VAT on Tobacco. Tobacco has been dropped from the First Schedule of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 as also from the list of declared goods, to enable States to levy VAT on Tobacco, at rate higher than 4%, without losing their share out of 1% devolution from the Divisible Pool of Central Taxes.
SEBI/SECURITIES LAWS BY SHRI C.M.BINDAL-9414962454
NOTIFICATIONS/CIRCULARS/REGULATIONS/RULES:
Securities in demat form – Transfer of – Safeguards to address concerns of investors on transfer of securities in demat mode – SEBI/MRD/Dep/Cir-03/2007 dated 13th February, 2007.
KARVY STOCK BROKING LTD. V SEBI [2007] 77 CLA 50 (SAT):
The word ‘inquiry’ used in sub-section (4) of section (4) refers to the inquiries held under sections 11, 11B, also to the inquiry held under Chapter VIA and it is during the pendency of any of these inquiries that an interim order could be passed with a view to protect the interest of the investors or in the interest of the market. Since the enquiry is pending, the SEBI Board has power to pass the impugned order restraining the appellant from opening fresh demat accounts and from carrying on proprietary trades as stock broker. Therefore, no fault can be found with the said order.
CENTRAL EXICSE, CUSTOMS - BY SHRI P K MITTAL
AND SERVICE TAX-
Where an interest on receivable is inbuilt in the prices so charged by the assessee and has not been charged sepratelym, the assessee is entitled deduction for such interest from the assessable value for the calculating the excise duty payable. CCE Vs. Novapan Industries Ltd 2007 (209) ELT 161 (SC).
The word "Include" is used to enlarge the meaning of words appearing the statute and it must be read to comprehend not only such things as they signify according to their nature and impact but also those things which interpretation clause declares. Commercial Taxation Officer Vs. Rajasthan Taxchem Ltd 2007 (209) ELT 165 (SC).
Mens-rea is normally required to be shown for imposition of penalty and mere violation of any requirement per se does fasten liability for penalty. CCE, Jalandhar Vs. Indo German Fabs 2007 (209) ELT 184 (P&H).
The assessee claiming Cenvat for duty paid on purchase of 5-Star Chocklates weighing 48 gms supplied free of cost alongwith Bournvita of 1 kg pack. Held Cenvat is not allowable as claimed "input" i.e. 5 Star Chocklate has not been used in or in relation to manufacture of final products. Shri Warana Sahakari Dudh Utpadak Prakriya Sangh Ltd Vs. CCE 2007 (209) ELT 196 (Tri).
Procurement of orders, collections of payments and C Forms do not fall in the category of " C&F Agent". Raghuvee Metal Ind. Ltd Vsa. CCE 2007 (5) STR 339 (Tri).
Enagement of CA in the service of billing of electricity and other related work cannot be held to be service of CA and not liable to Service Tax. Jaded Siddappa & Co Vs. CCE 2007 (5) STR 356 (Tri)
Service Tax not leviable on "out of pocket expenses" and also not on consideration which has not been received by the service provider. Jones Lang Lasalle Property Consultants India Pvt Ltd Vs. CCE 2007 (5) STR 370 (Tri)
The activities of collecting advertising materials, providing information regarding displays, collecting payments from advertisers and remitting to foreign commpanies does not fall in the service of "Advertising and Broadcasting" and, therefore, not liable to Service Tax. MTV Network India Pvt ltd Vs. CCE 2007 (5) STR 374 (Tri).
The services of "Research, engineering development etc" for manufacture of a product has been assigned by a foreign Co to an India, Foreign Company is not liable to pay Service Tax as Consulting Engineer (prior to 10.9.2004). CIBA Speciality Chemicals Inc. Vs. CCE 2007 (5) STR 390 (Tri).
INDUSTRIAL & LABOUR LAWS – BY SHRI P K MITTAL
Promotion by way of Right. Employee has only a right to be considered for promotion. Suitability for promotion to be considered by the Management and Industrial Tribunal cannot usurp jurisdiction and direct the bank to promote an employee. Delhi Nagarik Sahakari Bank Ltd. Vs. Delhi Nagarik Sahakari Bank Officers Association 2007 (137) DLT 729.
Grant of back wages is not a rule, if the Industrial Tribunal has not given any findings that the workman was not gainfully employed from the date of his termination till passing of award. The award of full back wages will not be justified merely because termination of service is held to be illegal. Nai Dunia Urdu Weekly Vs. Presiding Officer, Labour Court 2007 (137) DLT 234.
Gowrishankar Vs.Joshi Amba Shanakr Family Trust, II (1996) CLT 172 (SC)=(1996) 3 SCC 310.
Roshan Den Vs. Preeti Lal, VIII (2001) SLT 437=(2002) 1 SCC 100.
Ram Chandra Singh Vs. Savitri Devi, VI (2003) SLT 202=(2003) 8 SCC 319.
Ram Preeti Yadav Vs. U.P.Board of High School and Intermediate Education and Others,V (2003) SLT 394-(2003) 8 SCC 311.
Bahaurao Dagdu Puralkar V. State of Maharashtra and Others, VI (2005) SLT 550=(2005) 7 SCC 605.
Bank of India and Another Vs. Avinash D.Mandivikar and Others (Supra).
State of A.P. Vs. T.Suryachandra Rao, V (2005) SLT 531=(2005) 5 Scale 621.
COMPANY LAW, MRTP LAWS – BY SHRI P K MITTAL
Where a person entrusts goods to a common carrier for transportation and the carrier accepts the same, there is a contract for "service", within the meaning of Consumer Protection Act. Therefore, when the goods are not delivered, there is a deficiency in service. It is no doubt true that "service" for purposes of Consumer Protection Act does not include rendering of service free of charge. Where the contract for transportation is for a consideration (freight charges), the mere fact that such consideration is not paid, would not make the service "free of charge". There is a difference between contract without consideration and contract for consideration, which is not paid. If there is non-payment of freight lawfully due, the carrier may sue for the charges, or withhold the consignment and call upon the owner/consignor/consignee to pay the freight charges and take delivery, or on failure to pay the freight charges, even sell the goodsd with due notice to recover its dues. But where the common carrier has misplaced or lost the goods, carrier cannot demand the freight charges nor contend that non-payment of freight charges exonerates it from liability for the loss or non-delivery. Transport Corporation of India Vs. Veljan Hydraier Ltd 2007 CTJ 333 (SC) (CP).
The Builder shall normally be liable to compensate the allotee if there is a unjustifiable delay in completing the construction and handing over its possession to him. Vinod Tandon Vs. Field Springs Builders Pvt Ltd 2007 CTJ 102 MRTP Commission.
If during the pendency of the petition under Section 397 for Oppression & mis-management, if the properties of the company have been sold by the respondent, the aggrieved petitioner has a civil remdy for filing of Suit for Declaration seeking declaration that sale of such properties are illegal in that suit. P Narayanasamy & another Vs. Neela Spinning Mills (P) Ltd 2007 (77) CLA 12 (CLB).
If the allegation of oppression and mis-management, set out in the petition, have not been established, yet the CLB has a power to mould to relief in favour of the aggrieved party to do complete justice between the parties by virtue of powers under Section 402 of the Companies Act, 1956. Nagin M Doshi & others Vs. Echjay Forgins (P) Ltd 2007 (77) CLA 15 (CLB).
The corporate veil can be lifted where the court is of the view that the Corporate Entity is merely a sham and is for the purpose of indulging in fraud and to fraduluently avoid liability and effect of either a contract or under a law. Yella Construction Ltd Vs. East Coast Railway & others 2007 (77) CLA 34 (AP).
For seeking an investigation into the affairs of the Company by the Central Government in a petition under Section 237 before CLB, the petitioner has to establish beyond slightest doubt, and not for conducting roving enquiry, prayer for ordering Investigation cannot be allowed. K S Mothilal Vs. K S Kasimaris Ceramique (P) Ltd 2007 (77) CLA 70 (CLB)
The Section 22 of Sick Industrial (Special Provisions) Act, 1985 does not grant protection to Sick Industrial Company from the liability to pay back the Fixed Deposit. 2007 (77) CLA (Snr) 1 (Karnataka).
CORPORATE LAWS - BY SHRI P K MITTAL
For dishonour of cheque, aggrieved party is entitled to proceed with (i)filing of complaint U/s 138 of the Negotiable Instrument Act for dishonour of cheque (ii). civil suit for Recovery of Money. Delinquent party has no right to seek an order of injunction against complainant from pursuing proceedings U/s 138 of the Negotiable Instrument Act. Anuj Trading Co. Vs. Electrolux Kelvinator Ltd. 2007 (138) DLT 95 DB (DHC).
After the passing of order of winding up of the Company, if the notice under Section 138 of Negotiable Instrument Act has been sent for dishonour of cheque, no complaint shall lie against the company and its directors. The creditors have a right to claim as per Scheme of Companies Act, 1956. M L Gupta Vs. Ceat Financial Services Ltd 2007 (77) CLA 1 (Delhi).
In the absence of specific averment in the complaint under Section 138 of NI Act or specific evidence against a particular Director, he cannot be made liable for dishonour of cheque. N K Wahi Vs. Shekhar Siongh 2007 (138) DLT 783 (SC).
CIVIL LAWS AND ARBITRATION LAWS – BY SHRI P K MITTAL
Fraud vitiates every solemn Act. Fraud and justice never dwell together. Krishna Kumar Vs. Management of DPS 2007 (138) DLT 87 (DHC).
- Writ Petition will not be maintainable challenging the order of cancellation of a contract (when the petitioner failed to submit bank guarantee within the stipulated time and also within the extended time allowed by the Principal) and for forfeiture of earnest money deposit unless the order is wholly arbitrary and whimsical. The aggrieved party has a right to initiate civil proceedings U/s 14(1) & 41(e) of the Specific Relief Act before civil court for seeking compensation by alleging wrongful termination of contract. Nawab Consultants Vs. Govt. of NCT of Delhi 138 (2007) DLT 5 (DHC).
Dispute arises between the parties when claim is raised, which is repudiated or denied by the other side - It is only upon the refusal and/or neglect or default in making payment of the bill, cause of action for invoking arbitration clause arises. Radical Builders India Pvt. Ltd. Vs. Pharmaceutical Employees Corporate Group Housing Society Ltd. 2007 (137) DLT 709 (DHC).