TaxTMI Updates e-Newsletter
Mar 01,2012

Stepping up of pay - administrative decision cannot be sustained by after the fact reasons - comparative pay fixation against admitted junior at each post - time bound implementation of tribunal directions

Administrative decision cannot be sustained by after the fact reasons - The establishment is not entitled to advance new or different reasons to sustain an administrative decision when the reasons stated in that decision are challenged before a tribunal or court. - HELD THAT: - The Court accepted the Tribunal's application of the settled principle that once the reasons recorded in an administrative order are placed in issue, the administration cannot rely upon fresh or different reasons to validate the decision. The Tribunal rightly refused to permit the establishment to supply contrary or additional reasons in proceedings, and this approach was endorsed by the High Court as free from jurisdictional error or legal infirmity.

The Tribunal's rejection of after the fact reasons advanced by the establishment is upheld.

Stepping up of pay - comparative pay fixation against admitted junior at each post - Stepping up of pay in respect of an admitted junior may be effected at each post occupied by the applicant and is not a one time service wide entitlement; where the applicant satisfies the requisite conditions, he is entitled to stepping up. - HELD THAT: - The Tribunal examined the material and concluded that the applicant had fulfilled the conditions necessary for stepping up of pay in comparison with the junior employees mentioned. The High Court found no error in the Tribunal's conclusion that the exercise of stepping up can be undertaken at each post and affirmed the Tribunal's finding that the applicant was entitled to stepping up vis a vis Kamalasanan, subject to compliance with other rules and conditions governing fixation.

The Tribunal's finding that the applicant is entitled to stepping up of pay in comparison with the admitted junior is affirmed, subject to satisfaction of other applicable rules.

Time bound implementation of tribunal directions - The direction of the Tribunal for implementation of stepping up is to be carried out within a specified time frame. - HELD THAT: - The Court endorsed the Tribunal's relief and directed that the writ petitioners implement the Tribunal's directions. A specific deadline was imposed for compliance so that the order is executed in a time bound manner. The High Court found no legal objection to directing implementation by a fixed date.

Implementation of the Tribunal's directions is affirmed and ordered to be carried out by the date directed by the Court.

Final Conclusion: The High Court dismissed the writ petition, upheld the Tribunal's conclusions that (i) after the fact reasons cannot be relied upon to sustain an administrative decision, (ii) stepping up of pay may be effected at each post where conditions are satisfied and the applicant was entitled to such stepping up in comparison with the junior, and (iii) directed time bound implementation of the Tribunal's order; compliance was ordered by the date specified by the Court.

Requirement of a speaking order when disposing objections to reopening under Section 148 - reason to believe - change of opinion - violation of principles of natural justice - alternative remedy not an absolute bar where jurisdictional precondition is in issue - directions in GKN Driveshafts (India) Ltd. regarding disclosure of reasons and disposal of objections

Requirement of a speaking order when disposing objections to reopening under Section 148 - reason to believe - change of opinion - Validity of the order dated 2.11.2010 disposing objections to issuance of notice under Section 148 - HELD THAT: - The order disposing of the objections was held to be non-speaking and cryptic, failing to deal with the specific contentions raised by the petitioner and therefore not meeting the requirement laid down by the Supreme Court in GKN Driveshafts (India) Ltd. The Court recorded that when an assessee challenges the initiation of reassessment proceedings, the Assessing Officer must pass a speaking order disposing of those objections before proceeding with assessment; mere conclusory statements that reasons are reasonable or that belief was held are insufficient. The order dated 2.11.2010 did not apply mind to the petitioner's factual and legal arguments (including that no new material had come to light and that the reopening was a change of opinion) and hence is vitiated for want of reasons and for violation of principles of natural justice. [Paras 8, 11]

Order dated 2.11.2010 quashed and set aside for being non-speaking and contrary to the requirements of law and principles of natural justice.

Violation of principles of natural justice - alternative remedy not an absolute bar where jurisdictional precondition is in issue - Validity of the reassessment order dated 19.11.2010 passed after the non-speaking disposal of objections and the availability of alternative remedies - HELD THAT: - The reassessment order dated 19.11.2010 was quashed as a necessary sequitur of setting aside the non-speaking order disposing objections; the Assessing Officer had proceeded in undue haste without affording a proper hearing after the defective disposal. The Court held that in these circumstances the existence of an alternative remedy (appeal) was not an equally efficacious or adequate remedy and would result in miscarriage of justice if enforced; therefore the plea of availability of alternative remedy was rejected and the reassessment order was set aside. [Paras 11, 12, 13]

Reassessment order dated 19.11.2010 quashed.

Directions in GKN Driveshafts (India) Ltd. regarding disclosure of reasons and disposal of objections - Direction as to further procedure and remand for fresh disposal of objections and possible reassessment - HELD THAT: - The Court directed that a fresh Assessing Officer shall hear the petitioner on the objections and pass a reasoned speaking order in accordance with the Supreme Court's directions in GKN Driveshafts (India) Ltd. A timetable was fixed: the petitioner to appear on the specified date when a hearing date will be fixed and an order disposing objections shall be passed on or before the stated date; in case of an adverse order the Assessing Officer shall grant 15 days' time for further steps and thereafter may pass reassessment on or before the specified extended date. The Court thus remitted the matter for fresh consideration of objections and limited further reassessment within the prescribed timetable. [Paras 14]

Matter remitted for fresh disposal of objections by the Assessing Officer in terms of GKN Driveshafts (India) Ltd.; Assessing Officer permitted thereafter to proceed with reassessment within the timeline fixed by the Court.

Final Conclusion: The order disposing objections dated 2.11.2010 was quashed for being non-speaking and violative of principles of natural justice; the reassessment order dated 19.11.2010 was also quashed. The matter is remitted to a fresh Assessing Officer to dispose of the objections by a speaking order in accordance with the directions in GKN Driveshafts (India) Ltd., after which the Assessing Officer may proceed with reassessment within the timeframe fixed by the Court.

Stay petition - abeyance of recovery proceedings - consideration of stay petitions by appellate authority with notice - statutory remedy of filing stay petition before appellate authority

Stay petition - statutory remedy of filing stay petition before appellate authority - Requirement that petitioners in WP(C) Nos. 3677/12 and 3683/12 file stay petitions before the appellate authority to seek suspension of recovery of tax assessed. - HELD THAT: - The Court noted that the statutory remedy available to the petitioners to avoid payment of tax due under the assessment orders is to file stay petitions before the appellate authority and observed that such stay petitions had not been filed in two of the matters. Taking into account that appeals are pending, the Court directed the petitioners in WP(C) Nos. 3677/12 and 3683/12 to file stay petitions in the respective appeals within two weeks. The direction is procedural and premised on enabling the petitioners to invoke the statutory remedy for suspension of recovery while their appeals are pending. [Paras 6, 7]

Petitioners in WP(C) Nos. 3677/12 and 3683/12 must file stay petitions in the respective appeals within two weeks; failure to have filed such petitions precludes the Court from otherwise staying recovery.

Consideration of stay petitions by appellate authority with notice - abeyance of recovery proceedings - Obligation of the appellate authority to consider the stay petitions (including the already-filed stay in WP(C) No. 3713/12) with notice and to keep recovery proceedings in abeyance pending its orders. - HELD THAT: - On receipt of the stay petitions (and in respect of the stay petition already filed in WP(C) No. 3713/12), the Court directed the 1st respondent appellate authority to consider the stay petitions with notice to the petitioners and to pass orders thereon as expeditiously as possible. Subject to the filing of the stay petitions as directed, the Court ordered that recovery proceedings for realising the tax due in WP(C) Nos. 3677/12 and 3683/12 be kept in abeyance until orders are passed. Similarly, since a stay petition has already been filed in WP(C) No. 3713/12, recovery action in that matter shall be kept in abeyance until the appellate authority disposes of the stay petition. The petitioners are required to produce a copy of this judgment and the writ petition before the appellate authority for compliance. [Paras 8, 9, 10, 11]

The appellate authority shall consider the stay petitions with notice and pass orders expeditiously; meanwhile, recovery proceedings shall be kept in abeyance subject to the filing (or existence) of the stay petitions, and petitioners shall produce this judgment before the appellate authority.

Final Conclusion: Writ petitions disposed: petitioners directed to file stay petitions in two matters within two weeks; the appellate authority directed to consider all stay petitions (including the already-filed one) with notice and to pass orders expeditiously; recovery proceedings shall be kept in abeyance pending disposal of those stay petitions, and petitioners must place a copy of this judgment and the writ petition before the appellate authority.

Allowance of depreciation to lessor where asset is used by a hotel operator - taxation of licence fee as business income on accrual basis

Allowance of depreciation to lessor where asset is used by a hotel operator - Depreciation on the hotel building was allowable to the assessee (lessor) despite the hotel being operated by ITC Ltd. - HELD THAT: - The Assessing Officer had disallowed depreciation on the ground that the hotel building was not being used for business by the assessee. The CIT(A) held, and the Tribunal upheld, that where the lessor owns the asset and lets it out under a hotel operator agreement, the licence fee received or receivable is the lessor's business receipt and depreciation on the asset is allowable to the lessor even though the lessee (operator) actually uses the asset in running the hotel. The revenue did not dispute the assessee's ownership of the asset or its use in the business carried on by the operator. Consequently the withdrawal of depreciation by the AO was not justified on the facts of these years. [Paras 2]

Depreciation claim allowed to the assessee.

Taxation of licence fee as business income on accrual basis - The licence fee receivable under the hotel operator agreement was rightly treated and taxed as business income of the assessee for the assessment years in question. - HELD THAT: - The Assessing Officer had brought into assessment 23% of the gross turnover as licence fee on accrual basis and taxed it as business income; the assessee did not challenge that addition in the appellate proceedings for the assessment years before the Court. The CIT(A) and the Tribunal recorded that the licence fee had been assessed and that the position for the relevant year had reached finality as the assessee had not raised the issue in the 153A proceedings. The Tribunal therefore upheld the treatment of the licence fee as business income for these years. [Paras 2]

Licence fee included in the assessee's business income and taxed accordingly.

Final Conclusion: The High Court found no substantial question of law arising from the Tribunal's conclusions that the licence fee was properly assessable as the assessee's business income and that depreciation was allowable to the assessee; the Revenue's appeals are dismissed.

Discretionary power to waive interest under Section 220(2A) - waiver of interest under Section 220(2) - judicial interference with administrative discretion - grant of installment payment for tax arrears

Discretionary power to waive interest under Section 220(2A) - judicial interference with administrative discretion - grant of installment payment for tax arrears - Whether the Court should interfere with the Chief Commissioner's order granting a 50% waiver of interest under Section 220(2) and what further relief, if any, should be granted to the appellant. - HELD THAT: - The Single Judge's refusal to interfere with the Chief Commissioner's exercise of discretion under Section 220(2A) was upheld. The court recognised that the waiver granted by the revenue authority was a discretionary relief in favour of the appellant and found no ground to disturb that administrative decision. Separately, having regard to the appellant's personal circumstances (widowhood and financial constraints) the Court exercised its equitable jurisdiction to provide a practical mode of compliance by permitting payment of the outstanding arrears in 12 equal monthly instalments, fixing the first instalment due on or before 10th March, 2012 and subsequent instalments on or before the 10th of each succeeding month.

The Court declined to interfere with the Chief Commissioner's partial waiver under Section 220(2A) and granted leave to pay the balance in 12 monthly instalments commencing 10th March, 2012.

Final Conclusion: Writ Appeal disposed of: the administrative waiver of 50% interest was left undisturbed and the appellant was permitted to clear the remaining arrears by 12 monthly instalments beginning 10 March 2012.

Disallowance under Section 14A - Application of Rule 8D - Expenditure incurred in relation to exempt income - Principle under Section 57 applied mutatis mutandis - Requirement of nexus between expenditure and exempt income - Remand for factual examination

Disallowance under Section 14A - Application of Rule 8D - Principle under Section 57 applied mutatis mutandis - Requirement of nexus between expenditure and exempt income - Interpretation and applicability of Section 14A (read with Rule 8D) where investments did not yield exempt income in the year and whether actual receipt of exempt income is sine qua non for disallowance. - HELD THAT: - The Tribunal held that precedents under Section 57-where expenditure incurred wholly and exclusively for earning income is deductible even if no such income is actually earned-apply mutatis mutandis to Section 14A. Thus, actual receipt of exempt income is not an absolute prerequisite to examine disallowance; what is required is some nexus, direct or indirect, between the expenditure and the exempt income. The CIT(A) and AO were entitled to infer that significant investments made during the year made it unlikely that no expenditure had been incurred in relation to exempt income. However, the Tribunal found that neither the AO nor the CIT(A) carried out a proper, detailed enquiry into factual aspects (such as managerial time devoted to investment or disinvestment decisions and the nature of particular investments) before computing the disallowance under Rule 8D. Consequently, although the legal position was clarified, the factual determination was left open and the matter was remanded to the AO for fresh examination and quantification of disallowance in the light of relevant authorities, with the assessee being given adequate opportunity of being heard. [Paras 3, 4]

Legal principle under Section 14A/Rule 8D clarified (actual earning not sine qua non; nexus required) and matter remanded to the Assessing Officer for fresh factual examination and computation of any disallowance, with opportunity to the assessee.

Final Conclusion: The appeal is treated as allowed for statistical purposes; the question of disallowance under Section 14A read with Rule 8D is remitted to the Assessing Officer for fresh consideration and quantification after proper enquiry, in accordance with the legal principles stated, and after granting the assessee an opportunity of being heard.

Mistake apparent from the record - Precedence of Supreme Court decisions over subordinate orders - Rectification of erroneous Tribunal order in conformity with later Supreme Court precedent - Deductibility of employees' contribution to PF and ESI in light of section 36(1)(va) read with principles under section 43B - Restoration to Assessing Officer for verification of whether payments were made before the due date of filing the return

Mistake apparent from the record - Precedence of Supreme Court decisions over subordinate orders - Rectification of erroneous Tribunal order in conformity with later Supreme Court precedent - Tribunal's order required modification to conform with the decision of the Hon'ble Supreme Court in Vinay Cement Ltd. and subsequent jurisdictional High Court authority. - HELD THAT: - The Tribunal's earlier order was modified because where a decision of a subordinate forum is at variance with the law declared by the Hon'ble Supreme Court, the earlier order must be rectified to conform with that declaration of law. The Court applied established principle that a subsequent decision of the Supreme Court (or the jurisdictional High Court declaring what the law always was) constitutes a mistake apparent from the record and warrants rectification. On that basis the Tribunal incorporated the Supreme Court's holding from Vinay Cement Ltd. and the jurisdictional High Court's decision in Vijay Shree Ltd. into its order and amended its reasoning accordingly. [Paras 3, 4]

Tribunal's order dated 23.11.2007 is modified to align with the Supreme Court decision in Vinay Cement Ltd. and the jurisdictional High Court authority; the modified reasoning is recorded in para 14 of the order.

Deductibility of employees' contribution to PF and ESI in light of section 36(1)(va) read with principles under section 43B - Restoration to Assessing Officer for verification of whether payments were made before the due date of filing the return - Whether the question of deductibility should be remitted to the Assessing Officer to determine if employees' contributions were paid before the due date of filing the return. - HELD THAT: - Having applied the legal principle from Vinay Cement Ltd. and allied authorities that payments made before the due date of filing the return are eligible for deduction, the Tribunal restored the matter to the file of the Assessing Officer. The Assessing Officer is directed to examine and determine, after affording the assessee an opportunity of being heard, whether the employees' contributions to PF and ESI were paid before the due date of filing the return, as this factual determination is necessary to give effect to the legal conclusion. [Paras 4]

Matter remanded to the Assessing Officer for verification of whether the employees' contributions were paid before the due date of filing the return; Grounds Nos. 2, 3 and 4 of the assessee's appeal are treated as allowed for statistical purposes.

Mistake apparent from the record - Disposition of the assessee's Miscellaneous Applications under section 254(2). - HELD THAT: - The Miscellaneous Applications sought amendment of the Tribunal's order to correct the mistake of not applying the Supreme Court's decision. Having found that the Tribunal's order should be modified and the matter remanded as above, the applications were allowed. [Paras 5]

Miscellaneous Applications allowed for statistical purposes.

Final Conclusion: The Tribunal's order dated 23.11.2007 is modified to incorporate the Supreme Court's decision in Vinay Cement Ltd. and the jurisdictional High Court authority; the matter is restored to the Assessing Officer to verify whether employees' PF and ESI contributions were paid before the due date of filing the return, and the miscellaneous applications are allowed for statistical purposes.

Production of documents seized during search - supply of seized electronic data - direction to furnish backup copies of electronic storage devices - search and seizure in customs investigation

Supply of seized electronic data - production of documents seized during search - direction to furnish backup copies of electronic storage devices - Direction to respondents to furnish backup copies of data contained in the seized laptop and hard disks and remaining files sought by the petitioner. - HELD THAT: - The respondents, through their counter-affidavit, acknowledged that most documents relied upon by the petitioner were already supplied and expressly agreed to furnish the backup copies of the two hard disks and the laptop seized during the search. In view of this concession and the petitioner's expressed willingness to have those documents considered, the Court recorded the agreement and issued a direction. The respondents are directed to furnish the documents sought in the writ petition within one week of receipt of this order, and upon receipt the petitioner is to furnish his reply within two weeks and to cooperate with the respondents for expeditious disposal. [Paras 6, 8]

Respondents directed to furnish the backup copies and remaining files within one week; petitioner to file reply within two weeks and cooperate for expeditious disposal.

Final Conclusion: Writ petition disposed of by consent: respondents ordered to produce the backup copies and remaining files within one week; petitioner to reply within two weeks; connected miscellaneous petition closed; no costs.

Refund of service tax on export-related handling and terminal charges - benefit of exporter in absence of contrary finding - procedural rigidity not to defeat substantive entitlement - stay application infructuous in absence of executable order

Refund of service tax on export-related handling and terminal charges - benefit of exporter in absence of contrary finding - procedural rigidity not to defeat substantive entitlement - Entitlement to refund of service tax paid on handling and terminal charges incurred in respect of goods exported. - HELD THAT: - The Tribunal accepted the appellant's submission that service tax was paid on expenses incurred for road, rail and port handling and terminal charges in respect of goods sent for export. The Revenue contested on the ground of absence of evidence, but the impugned order contained no finding that the goods were not received at the port for export nor any finding that handling and terminal charges were not incurred. In those circumstances, and because export remained undisputed, the Tribunal held that the exporter should not be denied the refund claimed merely by insistence on procedural formalities where no contrary factual finding had been recorded. The appeal was therefore allowed on the peculiar facts and circumstances of the case. [Paras 4]

Refund claim allowed; appellant entitled to benefit where export and incurrence of handling and terminal charges were not controverted and no adverse finding was recorded.

Stay application infructuous in absence of executable order - Maintainability of the stay application. - HELD THAT: - The Tribunal observed that the stay application had become infructuous because there was no executable order to be stayed, and therefore proceeded to decide the appeal on merits. [Paras 1, 5]

Stay petition dismissed as infructuous and disposed; appeal taken up and decided on merits.

Final Conclusion: The appeal was allowed and the refund claim in respect of service tax paid on export-related handling and terminal charges was permitted, the stay application being dismissed as infructuous and the matter disposed on merits.