TaxTMI Updates e-Newsletter
Feb 15,2016

Definition of royalty - use of a process - data transmission services - transmission by satellite - clarificatory amendment - application of domestic amendments to Double Tax Avoidance Agreements - ambulatory versus static approach to treaty interpretation - deeming provision

Application of domestic amendments to Double Tax Avoidance Agreements - ambulatory versus static approach to treaty interpretation - clarificatory amendment - Whether Explanations 4-6 inserted into Section 9(1)(vi) by the Finance Act, 2012 can be read so as to alter the meaning of 'royalties' in Article 12 of the relevant DTAAs. - HELD THAT: - The Court held that an amendment to domestic law, whether framed as clarificatory or declaratory, cannot be read so as to alter the meaning of a term expressly defined in an international treaty between sovereign States absent a joint amendment of the treaty. Treaties are bargains between States and may be amended only by agreement of the parties; unilateral domestic interpretive amendments cannot be used to rewrite treaty obligations. While domestic law may supply meanings where a treaty is silent, where a DTAA itself contains a definition (as Article 12 does here), subsequent domestic amendments to a similarly worded provision cannot be imported to change the treaty definition. The Court therefore rejected the Revenue's contention that Explanations 4-6 operate to change Article 12's meaning unilaterally and held that such amendments do not affect the DTAAs unless the treaties themselves are amended by the contracting parties. [Paras 51, 52, 53, 59, 60]

Explanations 4-6 to Section 9(1)(vi) do not alter or control the definition of 'royalties' under Article 12 of the relevant DTAAs and cannot be unilaterally applied to change treaty meaning.

Definition of royalty - use of a process - data transmission services - transmission by satellite - Asia Satellite precedent - Whether receipts from provision of space segment capacity / transponder leasing for data transmission services qualify as 'royalty' under Article 12 of the DTAAs. - HELD THAT: - The Court accepted and applied the reasoning in Asia Satellite that payments for access to transponder capacity and for transmission by a satellite operator are payments for services (business profits) because the customer does not obtain control or use of the satellite or of the process itself. The transponder capacity provided to a customer is not independent equipment over which the customer exercises control; the satellite operator retains operation and control. In that factual and legal context, such receipts do not fall within the treaty definition of 'royalties' (which contemplates use or alienation of rights, or the use of a secret process/equipment). Consequently, for assessment years preceding the Finance Act, 2012 and in cases governed by the DTAA, the Asia Satellite interpretation remains authoritative and data transmission receipts do not partake the character of royalty under Article 12. [Paras 28, 58, 59, 60, 61]

Payments for provision of satellite transponder capacity for data transmission services are not 'royalty' under Article 12 of the applicable DTAAs; they are characterised as payments for services (business profits) under the treaties.

Final Conclusion: The appeals are dismissed. The Finance Act, 2012 explanations cannot be read so as to change the meaning of 'royalties' in the Indo Thai and Indo Netherlands DTAAs; accordingly, for the assessment years in issue the receipts from provision of satellite transponder/space segment capacity are not royalties under Article 12 and the Revenue's challenge fails.

Retrospective operation of statutory amendment - prospective operation of statutory amendment - limitation period for proceedings under Section 201(3) - accrued/vested right arising from lapse of limitation - interpretation of fiscal statutes and rule against retrospectivity - writ of prohibition against initiation of time barred proceedings

Limitation period for proceedings under Section 201(3) - retrospective operation of statutory amendment - accrued/vested right arising from lapse of limitation - writ of prohibition against initiation of time barred proceedings - Section 201(3) as amended by Finance Act No.2 of 2014 is not applicable retrospectively to revive or permit initiation of proceedings under Section 201(1) which had become time barred prior to 1/10/2014; the impugned notices/summonses issued in respect of the relevant years are therefore invalid and are quashed. - HELD THAT: - The court examined the chronological amendments to Section 201, noting that subsections (3) and (4) were introduced w.e.f. 1/4/2010, that the 2012 amendment (substituting four years by six years in clause (ii)) was expressly made retrospective w.e.f. 1/4/2010, and that the 2014 amendment (extending the period to seven years and removing the distinction between filed/unfiled statements) is expressly stated to take effect from 1/10/2014. Where Parliament has intended retrospective effect it has done so expressly; absent such clear expression or necessary implication an amendment extending limitation cannot be read to revive rights or liabilities already barred. The court applied settled principles that fiscal statutes affecting limitation must be strictly construed, and that an accrued right to plead a matter as time barred is a vested right which will not be taken away by implication. On the facts the limitation for the petitions' relevant years had already expired (per the unamended or earlier amended provisions) prior to 1/10/2014; consequently the 2014 amendment could not be given retrospective effect to reopen or validate proceedings that were already time barred. The petitions therefore raised a pure question of law appropriate for judicial review and the impugned notices/summonses issued under Section 201(1) in respect of those years were held invalid and quashed. [Paras 11, 12, 15, 16]

Section 201(3) as amended by Finance Act No.2 of 2014 does not operate retrospectively to revive or validate proceedings already barred by limitation before 1/10/2014; the impugned notices/summonses are quashed and a writ of prohibition issued restraining further proceedings thereunder.

Final Conclusion: The petitions succeed: notices/summonses issued under Section 201(1) in respect of the stated years, which were already time barred before the 2014 amendment, are invalid and are quashed; respondents are prohibited from proceeding with those notices; no order as to costs.

Non-compete fees - profit in lieu of salary - finding of fact - perverse or arbitrary - appellate interference standard under Section 260A - evidentiary inference and burden to explain negotiated breakup

Non-compete fees - evidentiary inference and burden to explain negotiated breakup - finding of fact - perverse or arbitrary - appellate interference standard under Section 260A - profit in lieu of salary - Whether the amount of Rs. 3,80,48,100 received by the appellant was a payment of non-compete fees or was properly held not to be so by the authorities - HELD THAT: - The Court applied the settled appellate standard that conclusions of fact based on inferences from evidence will not be interfered with unless they are perverse or arbitrary. Having considered the material relied upon by the authorities, the Court found the following determinative features: the payment was made in tranches before the written agreement; the payee failed to furnish a breakup or explanation for the odd negotiated figure despite specific requests; the advance payment was documented as being against a mix of non-compete, ex gratia and other fees without allocation; the payee accepted TDS without protest; and the payee, despite retirement, was reappointed as adviser immediately after retirement. Taken together, these features furnished a reasonable and possible view for the authorities to conclude that the agreement was a camouflage and the payment was not genuinely a non-compete fee. The Court rejected the appellant's submissions that timing, age, TDS acceptance or the presence of a return obligation in the agreement mandated a different conclusion, holding that none rendered the Tribunal's inference perverse. The Court further noted that the Assessing Officer had classified the amount as profit in lieu of salary, but that classification was not challenged before the appellate authorities and therefore was not a matter for consideration in the present appeal. [Paras 10, 11, 12, 14, 16]

The Tribunal's conclusion that the amount was not a non-compete fee is a possible and reasonable view on the evidence and is not perverse or arbitrary; the appellate court will not interfere.

Final Conclusion: The substantial question is answered in the negative: the Tribunal's finding that the payment was not a non-compete fee is sustained and the appeal is dismissed.

Tax deduction at source - provision for contingent liability - income by way of interest - assessee in default under Section 201 - retrospective amendment to Section 201(1)

Tax deduction at source - provision for contingent liability - income by way of interest - Liability to deduct tax at source under the provisions governing interest on provisions for contingent interest which were subsequently reversed - HELD THAT: - Section 194A requires deduction of tax at source on 'any income by way of interest' at the time of credit or payment, and the Explanation treats crediting to an 'Interest payable account' as deemed credit to the payee (para 21). The Court held that the statutory phrase 'any income' must be read harmoniously with 'income tax thereon' so that only interest which ultimately partakes the character of income in the hands of the payee attracts the TDS obligation (para 26). In the present case the amounts were only book provisions for contingent interest which, though shown as expenditure in the profit and loss account, were added back in computing taxable income and were subsequently reversed on the admitted understanding that the interest would not be paid. On these facts the Court concluded that no income accrued to the payees and therefore Section 194A did not impose a duty to deduct TDS in respect of those reversed provisions (paras 20, 26). The Court distinguished authorities dealing with Section 195 and noted that absence of the phrase 'chargeable under the Act' in Section 194A is material to the analysis (para 26). [Paras 20, 21, 26]

No obligation to deduct tax at source arose in respect of the book provisions for contingent interest which were reversed and did not constitute income of the payees.

Assessee in default under Section 201 - retrospective amendment to Section 201(1) - Whether the appellant could be made an assessee in default under the unamended Section 201(1) as it stood when the TDS orders were passed - HELD THAT: - Prior to the Finance Act, 2008 amendment, Section 201(1) referred to 'any such person' as defined by Section 200, which applied to persons who had actually deducted tax and were required to pay the tax so deducted; it did not, in terms, extend to persons who had not deducted tax (para 23). The Finance Act, 2008 introduced, with retrospective effect from 1.6.2002, a broader formulation ('any person ... who is required to deduct any sum') and received Presidential assent on 10.05.2008 (para 24). The TDS orders in the present matters were passed on dates in February and March 2008, i.e., before the Finance Act, 2008 received assent (para 24). The Court held that the amended provision was not in force at the time the TDS Officer passed the orders and therefore the Tribunal erred in applying the expanded scope of Section 201(1) which post dated the orders (paras 24-25). Reliance on the CBDT Circular and on survey/auditor's reports did not cure the absence of statutory coverage under the law as it stood when the orders were passed (paras 25, 27). The Court also invoked Kedarnath Jute to emphasise that accounting entries alone do not displace the statutory entitlement or liability under the law existing at the material time (para 28). [Paras 23, 24, 25, 28]

Assessee could not be deemed an assessee in default under Section 201(1) as it stood when the TDS orders were passed; the retrospective amendment relied upon was not in force at that time and therefore the consequences under Section 201(1) and Section 201(1A) did not apply.

Final Conclusion: The Tribunal's order upholding TDS demands and consequential liability under Sections 201(1) and 201(1A) is unsustainable: (i) the book provisions for contingent interest that were reversed did not give rise to income in the hands of the payees and therefore did not attract TDS under Section 194A, and (ii) the expanded scope of Section 201(1) relied upon by the Revenue was introduced by amendment that was not in force when the TDS orders were passed. Appeals allowed in favour of the assessee.

Deductibility under Section 37(1) - explanation to Section 37(1) - expenditure for an offence or prohibited by law - compensatory versus penal character of payments - capital expenditure versus revenue expenditure - payment for breach of contract as an ordinary incidence of business

Deductibility under Section 37(1) - payment for breach of contract as an ordinary incidence of business - compensatory versus penal character of payments - Payment of Rs. 6,67,266/- made to Calcutta Port Trust was allowable as an expenditure under Section 37(1) of the Income Tax Act, 1961. - HELD THAT: - The Court held that the sum was paid to compensate CPT for occupation of land in excess of the demised area and thus was compensatory in nature. Reliance was placed on authorities which instruct that damages paid for breach of contract, if incurred in the ordinary course of business and not opposed to public policy, are allowable under Section 37(1). Where a payment is composite, the compensatory component is deductible while the penal component is not; here the payment did not partake of a penal character or infraction-of-law element but was wholly compensatory for benefit already received by the assessee through unlawful occupation. Consequently the expenditure was ''laid out or expended wholly and exclusively for the purposes of the business'' and allowable under Section 37(1).

Claim for deduction under Section 37(1) allowed.

Capital expenditure versus revenue expenditure - The payment was not capital in nature and therefore was not a capital expenditure. - HELD THAT: - The Court rejected the Revenue's contention that the payment was capital because it was made to facilitate grant of a long-term lease. The record showed the payment was compensatory for past occupation of CPT land and unrelated to acquisition of a new capital asset; the payment compensated for a benefit already enjoyed and hence did not convert into capital expenditure.

Payment held to be revenue expenditure, not capital.

Explanation to Section 37(1) - expenditure for an offence or prohibited by law - The Tribunal's conclusion that the expenditure was barred by the Explanation to Section 37(1) or was capital in nature was erroneous and the Tribunal misdirected itself. - HELD THAT: - Having found the payment to be compensatory and revenue in nature, the Court concluded that the Explanation - which disallows expenditure incurred for an offence or prohibited by law - did not apply. The Tribunal and lower authorities had erred in treating the payment as falling within the Explanation or as capital; accordingly their concurrent findings were set aside.

Findings of the Tribunal and CIT(A) set aside; appeal allowed.

Final Conclusion: The High Court allowed the appeal, holding that the payment to Calcutta Port Trust was a compensatory, revenue expenditure deductible under Section 37(1) and not a capital outlay or an expenditure barred by the Explanation; the Tribunal's and CIT(A)'s contrary findings were set aside and the parties shall bear their own costs.

Assessment addition - diversion of turnover between units - exemption under section 10B - appreciation of evidence - concurrent findings of fact - perversity

Assessment addition - diversion of turnover between units - exemption under section 10B - appreciation of evidence - concurrent findings of fact - perversity - Validity of the addition made by the Assessing Officer and consequential denial of exemption under section 10B, in view of the claim that turnover and inputs were diverted between an exempted export unit and a non-exempt unit. - HELD THAT: - The Tribunal and the Commissioner of Income-Tax (Appeals) examined the evidentiary material including distinctions in manufacturing processes and concluded there was no basis for the additions made by the Assessing Officer. The Assessing Officer's comparison of turnover, raw material consumption and other parameters was assessed on facts; the appellate authorities found the two units' activities to be entirely different. Since the conclusion rejecting the Assessing Officer's view rests upon appreciation of evidence and concurrent findings of fact by the CIT(A) and the Tribunal, the High Court finds no perversity in those conclusions and no substantial question of law arises out of the factual appreciation. [Paras 2, 3, 4]

The additions and denial of exemption were rightly deleted by the CIT(A) and confirmed by the Tribunal; there is no question of law warranting interference.

Final Conclusion: Appeal dismissed; concurrent factual findings of the appellate authorities upholding deletion of the addition and restoration of exemption under section 10B are not perverse and do not raise a question of law for interference.

Best judgment assessment - yield of coffee - maintenance of books under Rule 9-A - EB-2 register admissibility - estimation of income from crops - assessment based on average yield of previous seasons - revised return and conduct indicating suppression

Best judgment assessment - yield of coffee - maintenance of books under Rule 9-A - EB-2 register admissibility - assessment based on average yield of previous seasons - revised return and conduct indicating suppression - Addition to coffee income was justified and correctly sustained by the authorities. - HELD THAT: - The Assessing Officer, on verification, found a shortfall between the declared coffee yield and the average yield of the preceding three seasons for the assessee's 84.12 acres. The assessee relied only on an EB-2 register; the Court held that Rule 9-A prescribes the accounts to be maintained and EB-2 alone is not the relevant book required. In the absence of cash book or subsidiary registers to corroborate expenditure and receipts, the declared yield could not be cross-verified. The Assessing Officer applied best judgment assessment principles, taking into account climatic conditions, seasonality, area known for high yield and the average of previous seasons, and the fact of a revised return filed during verification supported the finding of suppression. The factual conclusions reached by the Assessing Officer, confirmed by the First Appellate Authority and the Tribunal after considering the submissions and precedents relied upon, are matters of fact not open to interference. [Paras 9, 11, 12]

Addition made to coffee income was reasonable and is upheld; no infirmity in the Tribunal's affirmation.

Estimation of income from crops - yield of coffee - visit-based assessment - EB-2 register admissibility - Estimation of income from pepper was reasonable and correctly sustained by the authorities. - HELD THAT: - The Assessing Officer's on-site visit on 19.11.2008 (though subsequent to the crop year) recorded 2,000 yielding pepper vines, a fact not disputed by the assessee. The AO elicited information from the Managing Partner and, allowing 20% diseased vines, estimated yield at 5 kgs per vine for 1,600 vines and applied the market value to arrive at the estimate. The Court found this approach to be a reasonable assessment based on information obtained during the inspection, and not mere guesswork; adequacy of corroborative documentary material was not shown by the assessee. [Paras 10]

Estimation of pepper income by the Assessing Officer is reasonable and is upheld.

Final Conclusion: Civil Revision Petition dismissed; no substantial question of law arises and the orders of the Tribunal and the authorities confirming the additions to coffee income and the estimation of pepper income are upheld.

Reliance on statement recorded during search under Section 132 - Admissibility and weight of untested statements not subjected to cross-examination - Protective addition - Assessment of income attributable to a syndicate (AOP) rather than individual members - Seized computerized documents as evidence of syndicate trading transactions

Reliance on statement recorded during search under Section 132 - Admissibility and weight of untested statements not subjected to cross-examination - Validity of deleting additions based on statement of Prakash Chandra Bhutoria and seized documents where the assessee was not permitted to cross-examine Bhutoria - HELD THAT: - The Tribunal declined to rely on the statement recorded from Sri Prakash Chandra Bhutoria during the search because the assessee was not permitted to cross-examine him; accordingly the Tribunal did not place reliance on that untested statement in making additions. The High Court found no illegality in the Tribunal's approach, noting established authorities which restrict reliance on statements obtained during search when the maker is not available for cross-examination. The Tribunal's treatment of the seized material and the accompanying statement as insufficiently tested evidence was upheld as a valid evidentiary conclusion.

Tribunal's deletion of additions founded on Bhutoria's statement and the seized documents was upheld.

Protective addition - Assessment of income attributable to a syndicate (AOP) rather than individual members - Seized computerized documents as evidence of syndicate trading transactions - Sustainability of protective additions where seized computerized sheets indicate trading transactions of a syndicate (AOP) and income should be assessed in the hands of the syndicate - HELD THAT: - On the material seized from the Bhutoria group (computerized sheets) and the related record, the Tribunal concluded that the transactions reflected trading by a syndicate acting as a unit, and that income arising therefrom could be assessed only in the hands of that syndicate (AOP). Consequently, protective additions made against the assessee individually could not be sustained. The High Court found this conclusion tenable on the record and supported by precedent that where seized documents demonstrate collective syndicate activity, assessment belongs to the entity properly characterised as the syndicate rather than to individual members.

Protective additions premised on the seized records could not survive; Tribunal's deletion of such additions was affirmed.

Final Conclusion: The Income Tax Appellate Tribunal's deletion of the challenged additions for Assessment Years 2005-06 and 2006-07 was upheld; no substantial question of law arises and both appeals are dismissed at the admission stage.

Depreciation on goodwill as an intangible asset under Section 32 - admissibility of depreciation on goodwill arising on amalgamation of companies - application of binding precedent from the Apex Court (Smifs Securities Ltd.) - remand for fresh adjudication in light of binding precedent

Depreciation on goodwill as an intangible asset under Section 32 - admissibility of depreciation on goodwill arising on amalgamation of companies - application of binding precedent from the Apex Court (Smifs Securities Ltd.) - Depreciation is allowable on goodwill paid upon amalgamation, treated as an intangible asset for the purposes of Section 32. - HELD THAT: - The Court examined the Apex Court's reasoning in Commissioner of Income-tax, Kolkata v. Smifs Securities Ltd., which interpreted Explanation 3(b) to Section 32(1) as covering 'any other business or commercial rights of similar nature' and held that goodwill falls within that expression. Applying that binding precedent, the Court concluded that depreciation on goodwill paid on amalgamation is a permissible deduction under Section 32. Consequently, the first substantial question of law framed on admission is answered in favour of the appellant. [Paras 6]

First substantial question answered in favour of the appellant; depreciation on goodwill arising on amalgamation is allowable.

Remand for fresh adjudication in light of binding precedent - quashing and setting aside of impugned tribunal order - Impugned Tribunal order is quashed and the matter is remanded for fresh decision in accordance with the Court's observations and the cited authorities. - HELD THAT: - Having found that the legal principle established by the Apex Court governs the question of depreciation on goodwill, the Court determined that it is appropriate in the interests of justice to set aside the impugned Tribunal order and restore the appeal to the Tribunal for fresh adjudication. The Tribunal is directed to decide the appeal anew in light of the observations made by this Court and the judgments relied upon by the appellant. All contentions are left open for reconsideration by the Tribunal. [Paras 7, 8]

Impugned order quashed and set aside; tax appeal restored to the Tribunal for fresh decision in accordance with law.

Final Conclusion: The appeal is partly allowed: the Court holds that depreciation on goodwill arising on amalgamation is allowable under Section 32 and quashes the Tribunal's order, restoring the appeal for fresh consideration in light of the Apex Court's decision and the observations made by this Court.

Transfer pricing - arm's length price - Cost Plus Method - tested party - revenue sharing model - functional and risk profile - allocation of risks - concurrent finding of fact

Transfer pricing - arm's length price - Cost Plus Method - revenue sharing model - functional and risk profile - allocation of risks - concurrent finding of fact - Validity of the TPO's adjustment disallowing the assessee's claimed account management charges and the correctness of the deletion of that addition by the authorities below - HELD THAT: - The authorities below found that the assessee had prepared and maintained a transfer pricing report adopting the Cost Plus Method and had selected the foreign entities as the tested parties. Two revenue sharing models were identified, but in both models the assessee in India retained principal delivery functions, control over and capacity to bear major risks (including bad debts and delivery failure). The First Appellate Authority held that, on the facts and the documents on record, the functional, asset and risk profiles of the associated enterprises remained the same under both models and that the 25% revenue sharing remuneration was substantiated by proper comparability analysis. The TPO's contrary fixation of a lower remuneration in one scenario was held to be without basis. The Second Appellate Authority affirmed these findings. The Department did not challenge the genuineness of the documents relied upon by the assessee. Given these concurrent findings of fact based on the record, the Court found no illegality in the concurrent conclusions of the appellate authorities and no question of law arising from those factual determinations.

The disallowance made by the TPO was held to be unsustainable and the deletions made by the First and Second Appellate Authorities were affirmed; the appeals are dismissed.

Final Conclusion: The High Court dismissed the departmental appeals, upholding the concurrent factual findings that the assessee's transfer pricing documentation and the 25% revenue sharing remuneration were substantiated and that the TPO's adjustments were arbitrary; no question of law arises.

Limitation for orders under section 201(1)/201(1A) - Applicability of the proviso to section 201(3) introduced by the Finance Act, 2009 - Reading a reasonable limitation period into a statute where none is prescribed - Temporal effect of statutory amendment - initiation date of proceedings versus date of amendment coming into force

Limitation for orders under section 201(1)/201(1A) - Applicability of the proviso to section 201(3) introduced by the Finance Act, 2009 - Temporal effect of statutory amendment - initiation date of proceedings versus date of amendment coming into force - Reading a reasonable limitation period into a statute where none is prescribed - Whether the order passed by the Assessing Officer on 30/31.3.2011 under section 201(1)/201(1A) for AY 2002-03 was barred by limitation despite the proviso to section 201(3) introduced by the Finance Act, 2009. - HELD THAT: - The Tribunal held that the proviso to the amended section 201(3) (effective 1.4.2010) could not enlarge the limitation for cases in which proceedings were not pending as on 1.4.2007. In the present case proceedings were initiated after search on 16.11.2009 and thus before the amended provision came into force. Relying on the decisions of the jurisdictional High Court (NHK Japan Broadcasting Corporation and Hutchison Essar Telecom Ltd.) the Tribunal applied the settled principle of reading a reasonable limitation period into a provision absent any statutory time bar, namely four years from the end of the relevant financial year. The relevant financial year ended 31.3.2002 and the AO initiated proceedings on 15.11.2010 and passed the order on 30/31.3.2011 - a period well beyond four years. The Tribunal therefore held the AO's order to be time barred and upheld the CIT(A)'s cancellation of the assessment order; contrary High Court decisions from other jurisdictions were noted but found not binding. [Paras 8]

The AO's order under section 201(1)/201(1A) for AY 2002-03 is barred by limitation and the Revenue's appeal is dismissed.

Final Conclusion: Proceedings under section 201(1)/201(1A) initiated after 16.11.2009 for AY 2002-03 were time barred under the reasonable four year limitation read into the statute; the proviso to section 201(3) (Finance Act, 2009) did not apply to enlarge limitation where proceedings were not pending as on 1.4.2007, and the Revenue's appeal is dismissed.

Capital expenditure vs revenue expenditure - allowability under section 37(1) of the Income-tax Act - characterization of expenditure on issue of Foreign Currency Convertible Bonds - loan as liability and not an asset or enduring advantage - effect of conversion option on the character of convertible bonds/debentures - CBDT Circular No.56 and non-override of revenue deduction by amortisation provisions

Characterization of expenditure on issue of Foreign Currency Convertible Bonds - capital expenditure vs revenue expenditure - allowability under section 37(1) of the Income-tax Act - effect of conversion option on the character of convertible bonds/debentures - Expenditure incurred by the assessee on issue of FCCBs is revenue expenditure and allowable under section 37(1) for A.Y. 2007-08. - HELD THAT: - The Tribunal examined whether the expenses on issue of Foreign Currency Convertible Bonds were capital in nature or revenue in nature. Relying on the ratio of the Hon'ble Supreme Court in India Cements that a loan is a liability and not an asset or advantage of an enduring nature and that the purpose for which a loan is raised is irrelevant to classification of expenditure in raising the loan, the Tribunal applied the principle that expenses incurred in raising loan finance are deductible as business expenditure. The Tribunal considered subsequent High Court and Tribunal decisions holding that issue expenses on debentures or convertible instruments retain the character of revenue expenditure even where a conversion option exists, and noted the statutory and administrative position that Section 35D and CBDT Circular No.56 do not oust deductions otherwise allowable as revenue expenditure. On this footing, and having regard to the authorities cited, the Tribunal held that the FCCB issue expenses are revenue expenditure allowable under section 37(1) and are not to be treated as capital expenditure merely because the bonds carried a conversion option or were ultimately used for capital purposes.

Assessee's claim allowed; FCCB issue expenses held to be revenue expenditure deductible under section 37(1).

Final Conclusion: Appeal allowed: expenditure on issue of FCCBs for A.Y. 2007-08 held to be revenue expenditure and allowable under section 37(1) of the Income tax Act.

Fee for defaults in furnishing statements under section 234E - intimation under section 200A - processing of statements of tax deducted at source - permissible adjustments in intimation under section 200A - deletion of levy made by intimation

Intimation under section 200A - fee for defaults in furnishing statements under section 234E - permissible adjustments in intimation under section 200A - Validity of levy of fee under section 234E made through an intimation issued under section 200A in respect of TDS statements filed for F.Y.2012-13 (AY 2013-14). - HELD THAT: - The Tribunal held that, as the law stood prior to the amendment effected w.e.f. 1 June 2015, section 200A permitted adjustment only for arithmetical errors, incorrect claims apparent from the statement and interest computed thereon, and did not permit inclusion of a fee under section 234E while processing TDS statements and issuing intimations under section 200A. Consequently, an adjustment or demand in respect of the fee under section 234E could not be lawfully effected by an intimation under section 200A for the period in question. Relying on the Tribunal precedent which applied the same legal analysis, the Appellate Tribunal deleted the impugned fee levied by the intimation dated 11.12.2013, observing that the statutory enabling provision to include such fee in processing was absent at the relevant time and the limitation for issuing such an intimation had also elapsed. [Paras 6]

Levy of fee under section 234E via intimation under section 200A is unsustainable for the TDS statements of F.Y.2012-13 (AY 2013-14); impugned fee deleted.

Final Conclusion: Both appeals are allowed and the late filing fees imposed under section 234E by the impugned intimations for F.Y.2012-13 (AY 2013-14) are deleted.

Revisionary jurisdiction under section 263 - Erroneous and prejudicial to the interests of the revenue - Failure to make necessary inquiries - Acceptance of one possible view by the Assessing Officer - Rejection of books of account under section 145 - Determination of income by applying average past GP/NP rates

Revisionary jurisdiction under section 263 - Erroneous and prejudicial to the interests of the revenue - Failure to make necessary inquiries - Acceptance of one possible view by the Assessing Officer - Validity of the Commissioner's exercise of jurisdiction under section 263 in setting aside the assessment framed by the Assessing Officer. - HELD THAT: - The Tribunal applied settled principles that exercise of power under section 263 requires recorded satisfaction that the assessment order is both erroneous and prejudicial to revenue, and that mere disagreement with a possible view taken by the AO is insufficient. The AO had test-checked the books, considered audited reports and balance sheet, and examined trading results; earlier years' acceptance of accounts and the AO's application of mind indicated that inquiries called for by facts were made. The CIT's conclusion rested on perceived lack of enquiry and on comparisons with other assessment years, but the Tribunal found no demonstrable failure by the AO to investigate the material before him. In these circumstances the AO's adoption of a possible view could not be treated as an erroneous order warranting exercise of revisional power under section 263. [Paras 7]

The Commissioner's order under section 263 was set aside and the assessment order framed by the Assessing Officer was restored.

Rejection of books of account under section 145 - Determination of income by applying average past GP/NP rates - Sustainability of rejecting the assessee's books under section 145 and making an addition by applying an average NP% derived from past years. - HELD THAT: - The Tribunal noted that the AO had accepted and test-checked audited books and balance sheet for the year and that GP in the year under assessment (7.04%) exceeded the previous year's GP (6.42%). The CIT's approach to reject the books and compute income by applying an average NP rate was unsupported where no specific defect in the books was pointed out and where the AO had already applied his mind. Absent demonstrable infirmity in the accounts or failure of enquiry by the AO, rejection under section 145 and the consequential addition based on averaged past profitability was not warranted. [Paras 7, 8]

Rejection of the books of account and the addition computed by applying average GP/NP rates was held to be unsustainable; the AO's assessment was restored on this issue.

Final Conclusion: The assessee's appeal is allowed: the CIT's revisional order under section 263 is set aside and the assessment order passed by the Assessing Officer for AY 2008-09 is restored; the rejection of books under section 145 and the consequential addition based on averaged past profits is held to be unsustainable.

Deductibility of interest under section 36(1)(iii) - Interest on borrowed capital for making strategic investments - Capital expenditure versus revenue expenditure - Business of investment/strategic investment as business activity

Deductibility of interest under section 36(1)(iii) - Interest on borrowed capital for making strategic investments - Business of investment/strategic investment as business activity - Capital expenditure versus revenue expenditure - Whether interest paid on loans raised and used to subscribe to long term unquoted equity of a jointly controlled entity is revenue deductible under section 36(1)(iii) or is a capital expenditure - HELD THAT: - The Tribunal accepted the finding of the CIT(A) that the assessee is an investment company formed to make strategic investments and that during the year it subscribed to equity of Bharti AXA Life, as reflected in its audited accounts and the MOU. The loans were borrowed for the purpose of the assessee's business of making such strategic investments. Applying the principle that interest paid on capital borrowed for the purposes of business is allowable under section 36(1)(iii), the Tribunal held there was no basis to treat the interest as capital expenditure. The Tribunal noted and followed precedents where interest on borrowed funds used by an investment company to acquire shares (including for acquiring/maintaining control) was held deductible, and accepted that the AO's characterization that the assessee had merely 'parked' funds did not negate that the activity constituted the assessee's business. Having regard to the objects of the assessee, the use of borrowed funds for subscribing to shares, and relevant judicial authorities, the Tribunal concluded the interest incurred was for business purposes and deductible as revenue expenditure. [Paras 8]

Interest of Rs. 1,64,53,604/ incurred on loans taken for subscribing to shares of the jointly controlled entity is revenue expenditure deductible under section 36(1)(iii) and not a capital expenditure.

Final Conclusion: The revenue's appeal is dismissed and the order of the Commissioner of Income-tax (Appeals) deleting the addition and allowing the interest as revenue expenditure is upheld.

Refund of Special Additional Duty (SAD) - limitation under Section 27 of the Customs Act - provisional assessment and adjustment of duty - harmonious construction of notification with Section 27 - remand for fresh adjudication and sanction of refund

Refund of Special Additional Duty (SAD) - limitation under Section 27 of the Customs Act - provisional assessment and adjustment of duty - Whether the appellant's SAD refund claims, filed after provisional assessment and following finalisation, were barred by limitation and liable to be rejected without adjudication. - HELD THAT: - The Tribunal noted that the goods were released on provisional assessment and that final assessment adjusted the provisional duty paid. Relying on the ratio of the Hon'ble High Court of Delhi in the appellant's own case, the Tribunal accepted the construction that a claim for refund under the relevant notification must be harmoniously read with Section 27 and applicable circulars so that the claimant may invoke either the period computed from final assessment under Explanation II to Section 27 or the extended period under the notification and circulars - whichever affords the longer period. The High Court held that Section 27 applies to such refunds and that the notification and circular must be construed to permit filing either within the limitation under Section 27 (computed from final assessment in cases of provisional assessment) or within one year from actual payment/release as provided by the notification read with the circular. The Tribunal observed that this ratio has attained finality and been acted upon by the Department, and therefore under that binding construction the appellant's claims could not be rejected solely on limitation grounds without processing. For these reasons the Tribunal did not decide the quantification or merits of individual Bills of Entry but remanded the matter to the adjudicating authority to process and sanction the refund in accordance with the High Court's directions and the applicable statutory scheme.

The appeal is allowed by way of remand; the matter is remitted to the adjudicating authority to process and sanction the SAD refund in accordance with the High Court's construction of Section 27 and the notification/circular.

Final Conclusion: The Tribunal, following the final ratio of the Hon'ble High Court of Delhi, held that the SAD refund claims arising from provisional assessments could not be summarily rejected on limitation grounds and remanded the matter to the adjudicating authority to process and sanction the refund in accordance with that ratio.

Refund of Special Additional Duty (SAD) by re-credit in duty credit scrips - effect of departmental circulars vis a vis rights under an exemption notification - interpretation of Board Circulars and DGFT public notice concerning revalidation and utilization of re credited scrips - procedural re credit versus substantive entitlement under Notification No. 102/07 Cus

Refund of Special Additional Duty (SAD) by re-credit in duty credit scrips - interpretation of Board Circulars and DGFT public notice concerning revalidation and utilization of re credited scrips - procedural re credit versus substantive entitlement under Notification No. 102/07 Cus - Whether denial of refund (by way of re credit in duty credit scrips) solely because SAD was paid using reward scrips after issuance of Board Circulars was legally sustainable, and whether such Circulars can override the refund entitlement under Notification No. 102/07 Cus. - HELD THAT: - The appeal turns on whether departmental Circulars (including Circular No. 27/2010 and subsequent Circulars culminating in Circular No. 18/2013) or the DGFT Public Notice could defeat the statutory entitlement to refund under Notification No. 102/07 Cus when SAD was paid by debiting duty credit/reward scrips. The Tribunal found that the Circulars only advised that, for expeditious refunds, importers should make initial payment of SAD in cash and prescribed procedural limits for utilization/revalidation of re credited scrips, but did not create a substantive bar on filing refund claims where SAD was paid through scrips. The Commissioner (Appeals) analysed the sequence of Board Circulars and the DGFT Public Notice and held that the Circulars reiterate administrative preference for cash payment and set procedural timelines for utilization/revalidation (e.g., deemed revalidation for utilization up to 30.09.2013; consolidated certificates deemed re credit if issued by 30.06.2013), but do not extinguish the substantive right under Notification No. 102/07 to claim refund within one year of payment. Reliance on Tribunal precedents was accepted: the Faxtel and M.B. Enterprise decisions supported allowing re credit notwithstanding expiry of scrips, leaving procedural steps (such as approach to DGFT for re credit or manual filing requirements) to be followed by the importer. Applying these principles, the denial of refund solely on the basis that SAD had been paid through reward scrips and that utilization periods had lapsed was not upheld; re credit should be allowed and any procedural formalities or limitations as to utilization are matters to be pursued with licensing authority and by reference to the administrative timetable, but cannot nullify the refund claim under the Notification. [Paras 3, 5, 7]

The Commissioner (Appeals) order allowing re credit was upheld; denial of refund solely because SAD was paid through reward scrips and on the ground of Circulars' timelines was not sustained.

Final Conclusion: Appeals dismissed; the appellate authority's order permitting re credit of SAD paid through duty credit/reward scrips is upheld, subject to procedural steps for obtaining/utilizing the re credit being pursued before the licensing authority.

Appropriation of deposits made prior to issuance of show cause notice - principles of natural justice - right to cross examination and supply of examination reports - transaction value and valuation methodology - reliance on confessional statements and market price determination - corroboration of statements and evidentiary sufficiency in valuation proceedings

Appropriation of deposits made prior to issuance of show cause notice - Appropriateness of adjusting/appropriating amounts deposited by the importer before issuance of the show cause notice against duty and interest claimed for imports beyond five years from the date of the SCN. - HELD THAT: - The Tribunal held that the Commissioner was not justified in appropriating the amount deposited during investigation as duty/interest attributable to consignments imported beyond five years from the date of the SCN. There was no finding or proof to show how the deposit was apportioned to specific earlier consignments, nor any admission by the importer that the deposit related to those earlier imports. The factual distinction from India Cements (relied upon by the Commissioner) was noted, and reliance was placed on Photokina and Pilmen Agents. Where a deposit arises on persuasion or alleged coercion, appropriation against demands for periods beyond limitation cannot be assumed without clear proof of allocation. [Paras 7]

Deposit made before issuance of the show cause notice cannot be appropriated against duty/interest claimed for imports beyond five years unless it is proved that the deposit specifically related to those earlier consignments; appropriation in the present case was not permissible.

Principles of natural justice - right to cross examination and supply of examination reports - corroboration of statements and evidentiary sufficiency in valuation proceedings - Whether denial of opportunity to cross examine witnesses whose statements were relied upon, and refusal to supply examination orders/reports, violated principles of natural justice and vitiated the adjudication. - HELD THAT: - The Tribunal found multiple procedural infirmities. The adjudicating authority dismissed requests for cross examination without recording specific reasons; crucial links in the prosecution (notably Shri Brijesh Gala) were not made noticees despite their centrality to the allegations; and copies of examination reports were denied without adequate justification. The Commissioner's terse dismissal that cross examination is not a right was held to be misplaced absent specific reasoning. These omissions left unexplained gaps in the material relied upon and amounted to violation of natural justice and undermined the evidentiary basis of the order. [Paras 7]

Denial of cross examination and refusal to furnish examination reports, without recorded reasons or addressing crucial missing links, violated principles of natural justice and rendered the adjudication unsustainable.

Transaction value and valuation methodology - reliance on confessional statements and market price determination - Validity of the Commissioner's method of determining transaction value by relying primarily on confessional statements and unspecified market price comparisons, without independent verification or enquiry. - HELD THAT: - The Tribunal concluded that the Commissioner did not apply a proper or verifiable methodology in fixing assessable value. Reliance on Shri Karim Jaria's recollection of values over several years, without documentary backing, without enquiries from auction houses (e.g. Ritchie Bros.) or evidence of how market prices were ascertained, and without considering valuation by year of manufacture and depreciation, was impermissible. The adjudicating authority failed to identify or produce the documentary evidence it claimed, did not interrogate the chartered engineer certificates or invoices, and did not follow accepted valuation procedures under the Valuation Rules and Section 14(1). Consequently, the valuation findings lacked requisite verification and legal basis. [Paras 7]

The valuation recorded by the Commissioner is not sustainable; the matter requires fresh adjudication with proper application of valuation principles, independent verification and evidentiary support.

Liability of clearing and forwarding agent/CHA - requirement of corroboration - Whether the record established involvement of the CHA employee (Shri Madan Lalwani) in undervaluation so as to sustain penalty and confiscation findings against him. - HELD THAT: - The Tribunal observed that merely advising importers about customary benchmark practices or receiving clearing/agency charges does not, without corroborative evidence, establish complicity in undervaluation. The statements relied on did not sufficiently implicate Shri Madan Lalwani, and his request for cross examination and for production of examination reports was not addressed. In absence of corroborative material, imposition of penalties on the CHA employee could not be sustained without fresh scrutiny. [Paras 7]

Liability of the CHA employee was not established on the record; the matter is remanded for verification and fresh adjudication with attention to corroboration and natural justice.

Final Conclusion: The appeals are allowed by remanding the matter to the adjudicating authority for de novo consideration: the impugned order is quashed to the extent indicated, the appropriation of pre SCN deposit against demands beyond five years is disallowed unless specifically proved, and the authority must re adjudicate valuation, corroboration of statements, and any penalty after properly applying valuation principles and observing principles of natural justice.

Extension of time under Section 110(2) of the Customs Act - seizure and restoration of imported goods when show cause notice not issued within statutory period - investigation into past imports cannot justify continued detention of live consignment - requirement of sufficient cause and opportunity of hearing before extension under the proviso to Section 110(2) - retention of samples pending adjudication and supply of sealed sample to affected party

Extension of time under Section 110(2) of the Customs Act - investigation into past imports cannot justify continued detention of live consignment - Validity of the Commissioner's order extending time under Section 110(2) for issuing a show cause notice in respect of the live consignment imported on 8-4-2014. - HELD THAT: - The Tribunal found that the inquiry concerning the live consignment (Bill of Entry dated 8-4-2014) was effectively completed by May-June 2014 when laboratory reports were available and shown in the Panchanama of 29-5-2014. The grounds relied upon for extension were vague and primarily referred to inquiries into past imports and an overseas inquiry whose details were neither particularised nor shown to be essential to adjudication of the live consignment. The Tribunal held that verification of past Bills of Entry or overseas inquiries, without specific facts demonstrating why those inquiries are indispensable to decide the live consignment, cannot justify continued detention of goods which are neither restricted nor prohibited. The Commissioner's satisfaction for extension was therefore held to be unsupported by sufficient cause and constituted a colourable exercise of power, additionally resulting in insufficient time being made available to the appellant to prepare a proper reply. [Paras 6]

Extension of time granted under Section 110(2) in respect of the live consignment dated 8-4-2014 is set aside.

Seizure and restoration of imported goods when show cause notice not issued within statutory period - requirement of sufficient cause and opportunity of hearing before extension under the proviso to Section 110(2) - Relief to be granted consequent to setting aside the extension order and the manner of disposal of the seized pearls. - HELD THAT: - Having held that the extension was unjustified and that the appellants were not afforded sufficient opportunity, the Tribunal directed immediate restoration of the seized goods. The order followed the principle that where no valid extension is made, the statutory right to restoration accrues and detention cannot be prolonged. The Tribunal therefore required the Revenue to return the pearls seized under the live Bill of Entry forthwith, within seven days of receipt of the Tribunal's order. [Paras 6]

Seized pearls under Bill of Entry No. 5144770 dated 8-4-2014 are to be returned to the appellant within seven days.

Retention of samples pending adjudication and supply of sealed sample to affected party - separate proceeding under Section 124 permissible despite restoration - Whether the subsequent show cause notice dated 25-5-2015 may be proceeded with and treatment of samples pending such proceedings. - HELD THAT: - The Tribunal held that the Revenue is entitled to proceed with the show cause notice dated 25-5-2015 in accordance with the law as explained in Harbans Lal. While ordering restoration of the bulk consignment, the Tribunal directed the Revenue to retain appropriate sample(s) of the pearls and to provide one set of sealed samples to the appellant, thereby balancing the appellant's right to restoration with the Revenue's interest in adjudication of disputed description and valuation. [Paras 7]

The show cause notice dated 25-5-2015 may be proceeded with; Revenue to retain and provide sealed samples to the appellant in accordance with law.

Final Conclusion: Impugned order granting a six-month extension under Section 110(2) in respect of the live consignment is set aside; seized pearls are to be returned to the appellant within seven days; the show cause notice dated 25-5-2015 may proceed and the Revenue shall retain appropriate samples while supplying one set of sealed samples to the appellant.

Fraud and forgery of DEPB licences and TRAs - Caveat emptor - Extended period of limitation in cases of fraud - Liability of transferee/recipient of forged licences - Cross-examination of departmental witnesses

Fraud and forgery of DEPB licences and TRAs - Use of nine DEPB licences and corresponding TRAs for clearance was forged and amounted to fraud; demand of customs duty on goods cleared duty free was correctly raised. - HELD THAT: - The licensing authority (Jt. DGFT, Kanpur) confirmed the nine DEPB licences were not issued by it and the corresponding TRAs were not issued by Kanpur Customs Commissionerate; the investigation and statements established a scheme of forgery and supply of forged licences through brokers and intermediaries. On this factual and evidentiary basis the Tribunal upheld the adjudicating authority's finding that the licences and TRAs were forged and that the duty demand under Section 28(1) of the Customs Act was sustainable. [Paras 9]

Demand of customs duty on goods cleared using the forged DEPB licences and TRAs is upheld.

Extended period of limitation in cases of fraud - Liability of transferee/recipient of forged licences - Extended period of limitation is invocable where forgery/fraud is established and a transferee/recipient of forged licences is liable to duty despite being a purchaser in the market. - HELD THAT: - The Tribunal applied the Supreme Court's reasoning in Aafloat Textiles and TISCO, which treat fraud and forgery as vitiating documents and permit invocation of the extended limitation period against transferees/recipients. The decisions explain that where fraud on statute is proved and forged documents have no legal existence, the consequence is to permit recovery notwithstanding those who purchased licences in the market; the buyer must show he made requisite enquiries. [Paras 12, 13]

Extended period of limitation and liability of the transferee/recipient are applicable where forgery/fraud of licences and TRAs is established.

Caveat emptor - The buyer of DEPB licences bears the onus to establish that it exercised requisite diligence; absence of such enquiry disentitles the buyer from relief. - HELD THAT: - Relying on the Supreme Court's exposition of caveat emptor, the Tribunal recorded that the purchaser must demonstrate enquiries and precautions to verify genuineness of licences. The appellant dealt habitually with the broker, transacted frequently by telephone, and did not make adequate enquiries; filing an FIR after departmental detection was treated as an afterthought and insufficient to negative the buyer's responsibility. [Paras 11, 12]

Appellant failed to establish requisite diligence; caveat emptor applies and consequences follow.

Cross-examination of departmental witnesses - Appellant's contention that cross examination of departmental witnesses was not allowed does not vitiate the findings because official verifications established forgery. - HELD THAT: - The adjudicating authority's record shows verification by Jt. DGFT and Customs officials certifying licences and TRAs were not issued by them; in those circumstances the Tribunal found no justification for the appellant's contention that denial of cross examination undermined the finding of forgery. The factual certifications by competent authorities were treated as decisive. [Paras 10]

Objection to non allowance of cross examination does not negate the finding of forgery and the resulting duty demand.

Fraud and forgery of DEPB licences and TRAs - Penalty imposed on the appellant under Section 112(a) is waived in view of overall facts and circumstances despite upholding the duty demand. - HELD THAT: - Although the Tribunal sustained the duty demand on merits, it exercised discretion on penalty having considered the record, the appellant's conduct and surrounding circumstances and accordingly waived the penalty amount earlier imposed by the adjudicating authority. [Paras 14]

Penalty is waived; impugned order upheld except for waiver of penalty.

Final Conclusion: The Tribunal upheld the adjudication that goods cleared in April 2004 using nine forged DEPB licences and corresponding forged TRAs involved fraud and sustained the customs duty demand, held the extended limitation and transferee liability applicable, rejected the appellant's challenge based on alleged denial of cross examination, but in exercise of discretion waived the penalty; appeal dismissed except for waiver of penalty.

Winding up petition under Section 433(e) of the Companies Act, 1956 - inability to pay debts - Statutory notice under Section 434(1)(a) of the Companies Act, 1956 - Bonafide dispute on substantial grounds as a defence to winding up - Effect of parallel recovery proceedings under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 on a winding up petition - Public interest in winding up a company unable to pay its debts

Winding up petition under Section 433(e) of the Companies Act, 1956 - inability to pay debts - Statutory notice under Section 434(1)(a) of the Companies Act, 1956 - Bonafide dispute on substantial grounds as a defence to winding up - Whether the winding up petition should be admitted on the ground that the respondent company is unable to pay its debt despite statutory notice and has no bona fide dispute on substantial grounds. - HELD THAT: - The Court found on the material before it that the respondent company obtained a loan from the petitioner bank and, despite service of the statutory notice under the Companies Act, did not discharge the liability; the company did not raise any bona fide dispute on substantial grounds in its reply. Applying the test articulated by the Supreme Court, the determinative inquiries are whether there is a crystallised debt and whether the respondent has neglected to pay it despite statutory notice. On the facts, both conditions were satisfied and the respondent was accordingly prima facie deemed insolvent. The Court therefore entertained and admitted the petition as provided by law, directing publication of the citation and communication to the Official Liquidator.

Winding up petition admitted as the respondent company is prima facie unable to pay its debt and has not established a bona fide dispute on substantial grounds.

Effect of parallel recovery proceedings under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 on a winding up petition - Distinct jurisdictions of Company Court and Debt Recovery Tribunal - Whether prior or pending recovery proceedings before the Debt Recovery Tribunal under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 operate as a bar to the filing or admission of a winding up petition under the Companies Act, 1956. - HELD THAT: - The Court rejected the respondent's contention that recourse to the Tribunal bars a winding up petition. Reliance was placed on earlier decisions which hold that proceedings under the Recovery of Debts Act and winding up proceedings under the Companies Act involve distinct jurisdictions and remedial schemes; filing of an application before the Tribunal does not automatically preclude a Company Court from admitting a winding up petition where the statutory conditions for winding up are made out. Accordingly, the existence of recovery proceedings before the Tribunal did not defeat the winding up petition in the present case.

Pending or prior recovery proceedings before the Debt Recovery Tribunal do not bar admission of a winding up petition where the statutory conditions for winding up are established.

Final Conclusion: The Company Court admitted the winding up petition: the respondent company was prima facie unable to pay its debt despite statutory notice and raised no bona fide dispute on substantial grounds; the existence of recovery proceedings before the Debt Recovery Tribunal did not bar admission. Citation to be published and the Official Liquidator informed; costs to the petitioner.

CENVAT credit admissibility of inputs and input services used for providing a taxable output service - Definition of input and input service - requirement of use in providing output service - Renting of immovable property as a taxable output service - Invalidity of administrative circular to deny credit contrary to Cenvat Credit Rules - Penalty not leviable where demand of duty/credit is unsustainable

CENVAT credit admissibility of inputs and input services used for providing a taxable output service - Definition of input and input service - requirement of use in providing output service - Renting of immovable property as a taxable output service - Invalidity of administrative circular to deny credit contrary to Cenvat Credit Rules - Penalty not leviable where demand of duty/credit is unsustainable - Whether CENVAT credit of service tax paid on input services and goods used in construction of a commercial complex, and utilized for discharging service tax liability on renting of immovable property for April 2007 to March 2009, was admissible and whether resulting demand and penalty were sustainable - HELD THAT: - The Tribunal held that the appellant, who constructed a commercial complex and discharged service tax under the category of renting of immovable property, was entitled to avail CENVAT credit of the service tax paid on input services and goods used in that construction. The decision rests on the statutory definitions of input and input service, which require that goods or services be used by a provider of a taxable service for providing an output service; without use of those inputs/services the taxable output (here, renting of constructed premises) could not have been provided. Applying that principle, the Court found that the construction-related inputs and input services were used in providing the renting service and therefore credit was admissible. The Tribunal rejected the adjudicating authority's reliance on CBEC Circular No. 98/1/2008-ST to deny credit where it conflicted with the Cenvat Credit Rules. In consequence, because the service tax demand itself was held unsustainable, any penalty founded on that demand was also not leviable. The Tribunal noted and applied consistent earlier decisions (including the Tribunal's and High Court's reasoning in cases concerning storage/warehousing and malls) to support its conclusion and, having decided the substantive issue on merits, did not examine other contentions. [Paras 6]

Impugned order confirmed by the adjudicating authority set aside; appellant entitled to CENVAT credit for the period April 2007 to March 2009 and relieved from the demand and penalty with consequential relief, appeal allowed

Final Conclusion: The appeal is allowed: CENVAT credit of service tax paid on inputs and input services used for construction of the commercial complex and applied against service tax on renting of immovable property for April 2007-March 2009 is held admissible; the demand and penalty based on denial of such credit are set aside.

Levy of service tax on handling charges - treatment of handling charges as part of sale consideration - transactions treated as sale of goods and excluded from service tax where subject to sales tax/VAT

Levy of service tax on handling charges - treatment of handling charges as part of sale consideration - transactions treated as sale of goods and excluded from service tax where subject to sales tax/VAT - Handling charges of 1% recovered on spare parts are not liable to service tax as they relate to sale of goods and form part of the invoice value subject to sales tax/VAT. - HELD THAT: - The appellant recovered handling charges at 1% both for spares used in repairs and for spares sold across the counter. The Tribunal accepted the Commissioner (Appeals) finding that the handling charges in relation to counter sales were connected to sale of goods and not to provision of any taxable service. The impugned order noted that the handling charges formed part of the invoice value of the spares and were subject to sales tax. The Tribunal found this conclusion consistent with earlier decisions of the CESTAT holding that handling charges forming part of sale consideration are not exigible to service tax (Automotive Manufacturers Private Limited vs. Commissioner of Central Excise, Nagpur ; and Krishna Swaroop Agarwal where transactions treated as sale of goods and subjected to sales tax/VAT were held not liable to service tax). On this basis, there was no infirmity in the Commissioner (Appeals) order setting aside the original demand for service tax on the handling charges.

Revenue's demand for service tax on the handling charges is set aside; appeal dismissed.

Final Conclusion: The Tribunal dismissed the Revenue's appeal and upheld the Commissioner (Appeals) finding that the handling charges recovered on sale of spare parts are part of the sale consideration subject to sales tax/VAT and are not leviable to service tax.

Anticipatory bail - presumption of innocence - personal liberty under Article 21 - delay in prosecutorial action and laches - seriousness of offence not by itself determinative - possibility of tampering with witnesses - feasibility of grant of anticipatory bail - expeditious trial

Anticipatory bail - presumption of innocence - seriousness of offence not by itself determinative - delay in prosecutorial action and laches - possibility of tampering with witnesses - Validity of the High Court's cancellation of the anticipatory bail granted to the appellant - HELD THAT: - The Court set aside the High Court's cancellation and restored the anticipatory bail granted by the Sessions Judge. While recognising that a charge under Section 376 IPC had been added, the Court emphasised that anticipatory bail under Section 438 CrPC must be construed liberally in the light of Article 21 and the presumption of innocence. The Court found that the rape allegations dated back many years, that the original FIR and charge-sheet initially proceeded only under a different provision and that the prosecutrix did not press for the sexual offence for a long period; these circumstances and prolonged inaction weighed in favour of bail. The Court rejected the High Court's reasoning that the complainant had to "run a marathon" to get the FIR registered and observed that the Sessions Court had given the very reasons relied upon by this Court when granting anticipatory bail. The Court noted there was no material to show likelihood of the appellant fleeing or tampering with witnesses during the long course of proceedings, and held that the mere gravity of the newly added charge was not a sufficient ground to deny anticipatory bail where other factors pointed towards grant being appropriate. The Court clarified that it did not decide the merits of the charge, leaving factual determinations for trial, and observed that any subsequent allegation of breach of bail conditions can be pursued before the trial court. [Paras 17, 18, 24, 27]

Impugned judgment cancelling anticipatory bail set aside; order dated 18.05.2013 granting anticipatory bail restored on the conditions recorded in that order.

Expeditious trial - feasibility of grant of anticipatory bail - Direction regarding conduct and completion of trial - HELD THAT: - To balance equities the Court directed that the trial should be expeditiously conducted and that the trial court should endeavour to complete the trial within one year. This direction was given without adjudicating merits of the charge and subject to the trial court's discretion to deal with any application for cancellation of bail or other incidental matters in accordance with law. [Paras 26]

Trial directed to be conducted expeditiously with endeavour to complete within one year; trial court free to entertain applications regarding bail or alleged breaches in accordance with law.

Final Conclusion: The appeals are allowed; the High Court's order cancelling anticipatory bail is set aside and the Sessions Court's anticipatory bail order dated 18.05.2013 is restored on the conditions contained therein; the trial is directed to be expeditiously concluded with an endeavour to complete it within one year.