TaxTMI Updates e-Newsletter
Mar 15,2012

Charitable purpose - advancement of music and other fine arts as charitable purpose - activity in the nature of trade, commerce or business - application of the first proviso to Section 2(15) (threshold exclusion) - continuing registration under Section 12AA

Activity in the nature of trade, commerce or business - application of the first proviso to Section 2(15) (threshold exclusion) - advancement of music and other fine arts as charitable purpose - Whether the sponsorship fees, sale of tickets and fees for music coaching constituted activities in the nature of trade, commerce or business so as to deprive the assessee of charitable status under the first proviso to Section 2(15). - HELD THAT: - The Tribunal held that the assessee's objects-promotion and advancement of music and traditional arts and conducting related programmes and coaching-were charitable in nature. Sponsorship fees paid to enable music programmes and distributed to artists were not receipts from a commercial or trading activity; they served the charitable object and could not be treated as trading receipts. Fees for imparting music coaching were regarded as educational in character and part of the advancement of the arts, not commercial activity. Only receipts from sale of tickets could prima facie fall within the scope of the first proviso, but those receipts were well below the statutory threshold. Applying the amended proviso to Section 2(15), the Tribunal found that the substantial receipts (sponsorship and coaching fees) did not attract the proviso and, in any event, the ticket receipts did not exceed the threshold that would exclude charitable status. [Paras 5]

Sponsorship fees and music coaching fees are not activities in the nature of trade, commerce or business and do not deprive the assessee of charitable status; ticket receipts alone were below the threshold.

Continuing registration under Section 12AA - charitable purpose - Whether the assessee's continuing registration under Section 12AA supported its entitlement to renewal of approval under Section 80G. - HELD THAT: - The Tribunal noted that the assessee's registration under Section 12AA, granted earlier, remained in force. That continuing registration, together with the conclusion that the activities were charitable and not commercial, supported the assessee's entitlement to renewal of approval under Section 80G. The DIT(Exemptions)'s denial of renewal, in view of the amended proviso, was held to be based on an unduly narrow view of the nature of the receipts. [Paras 5, 6]

The assessee's registration under Section 12AA subsisted and, coupled with the finding that activities were charitable, entitled the assessee to renewal under Section 80G.

Final Conclusion: The appeal is allowed; the order refusing renewal under Section 80G is quashed and the DIT(Exemptions) is directed to grant renewal of approval to the assessee.

Release of re imported goods under bill of entry - writ of mandamus for release of seized goods - re examination of consignment by port health authorities - public health and safety in relation to food imports - Port Health Officer's testing and admissibility of results - unsuitable food for human consumption

Release of re imported goods under bill of entry - writ of mandamus for release of seized goods - public health and safety in relation to food imports - Port Health Officer's testing and admissibility of results - Whether the writ petition seeking release of the re imported food consignment and an order for re examination should be granted - HELD THAT: - The petitioner exported food items which were rejected by the foreign purchaser and returned. Upon re importation the Port Health Officer examined and tested the consignment and found that it did not conform to the prescribed standards under applicable food safety law, rendering it unsuitable for human consumption. The petitioner sought a writ directing release of the goods under the bill of entry and a direction for re examination. The Court noted the public interest in preventing release of food unfit for consumption and accepted the Port Health Officer's testing as a basis for denial of relief. Permitting release would amount to allowing the petitioner to place on the domestic market goods found unsuitable abroad and by the competent health authority, which the Court held cannot be sanctioned. Consequently the writ for release and re examination was refused.

Writ petition dismissed; no direction to release the consignment and no re examination ordered.

Final Conclusion: Petition dismissed: reliefs praying for release of the re imported food consignment and for a direction to re examine it were refused in view of the Port Health Officer's adverse test results and the imperative to protect public health.

Prima facie case for prosecution under Section 454(5) of the Companies Act - duty of directors to file statement of affairs on winding up - scope of inquiry at committal stage versus trial on defence - duty of Official Liquidator to pursue and procure service on absentee directors

Prima facie case for prosecution under Section 454(5) of the Companies Act - scope of inquiry at committal stage versus trial on defence - Whether there was a prima facie case to proceed against the appellant for failure to file the statement of affairs after the company was ordered to be wound up - HELD THAT: - The Court examined the appellant's recorded statement that she signed company documents and the finding of the Learned Company Judge that such signing prima facie indicated participation in the affairs of the company. Reliance placed by the appellant on earlier Full Bench and Division Bench authorities requiring evidence before proceeding under Section 454(5) was considered and distinguished by the Company Judge. The High Court held that at the committal stage the material of signing documents provided sufficient prima facie basis to proceed; the appellant's explanations are matters to be tested at trial, not at the stage of deciding whether to order prosecution. [Paras 1, 5, 6]

Appeal dismissed; there is prima facie material to proceed against the appellant and her defences are to be examined at trial

Duty of directors to file statement of affairs on winding up - duty of Official Liquidator to pursue and procure service on absentee directors - Whether proceedings should be pursued or further steps taken against other directors named in the prosecution and what action the Official Liquidator must take - HELD THAT: - The Court reviewed the Official Liquidator's status report showing that several directors were either nominees, discharged, absent without known addresses, or claimed to have ceased as directors without Form 32 being filed. The Court noted that except for one director (S.L. Chopra) it was not presently possible to proceed against most other directors, and that allowing the appellant and Chopra to escape trial would defeat responsibility for filing statements of affairs. The Court directed the Official Liquidator to place the facts before the Company Judge so appropriate orders may be passed, to take steps to obtain correct addresses and effect service on absent directors, and to proceed specifically against S.L. Chopra. [Paras 4, 6]

Official Liquidator to place facts before the Company Judge, take steps to locate and serve absent directors and pursue proceedings against S.L. Chopra

Final Conclusion: The appeal is dismissed; the High Court held there was prima facie material to proceed against the appellant under Section 454(5) and directed the Official Liquidator to take steps to pursue proceedings and procure service on other directors, including further action in respect of S.L. Chopra.

Pre-deposit condition for filing an appeal - assessment of excess production on account of addition of water - adoption of findings of the Settlement Commission as guiding criterion - stay of recovery of balance duty and penalty pending appeal

Assessment of excess production on account of addition of water - adoption of findings of the Settlement Commission as guiding criterion - Extent of excess production to be applied for fixing duty demand where lime is dissolved in water and other ingredients are subsequently added - HELD THAT: - The Tribunal noted competing positions: Revenue enhanced recorded production by 50% on the basis that dissolving lime in water increases final product output, while an earlier order of the Settlement Commission in a closely related period had held that a 50% enhancement was not appropriate and applied a 10% increase. The Tribunal observed that the Settlement Commission's order on this specific technical question remains extant and has not been stayed, and that the writ against it is admitted and pending. On a prima facie consideration, the Tribunal found it appropriate to adopt the criterion applied by the Settlement Commission (10% excess production) rather than the Revenue's 50% enhancement, noting the parties' common factual matrix and the absence of conclusive contrary evidence before the Tribunal at this stage. [Paras 2, 3, 4, 8]

Excess production to be taken at 10% for the purpose of provisional adjudication of duty demand.

Pre-deposit condition for filing an appeal - stay of recovery of balance duty and penalty pending appeal - Quantum of provisional pre-deposit to be directed and treatment of balance duty and penalty during pendency of appeal - HELD THAT: - Having adopted the Settlement Commission's 10% criterion and noting the parties' concession that applying 10% would reduce the confirmed demand substantially, the Tribunal exercised its power to modify the pre-deposit requirement. The appellants had not placed before the Tribunal cogent evidence of financial hardship. Balancing the prima facie view on merits with the need for provisional security, the Tribunal directed a specific reduced pre-deposit to be made within a fixed period. Upon deposit of the directed amount, the Tribunal ordered waiver of the balance pre-deposit of duty and a stay on recovery of the entire penalty until disposal of the appeal. [Paras 8, 9]

Appellant directed to deposit a reduced pre-deposit of Rs. 3.50 crores within 12 weeks; on such deposit the balance pre-deposit of duty and recovery of the entire penalty are waived/stayed pending the appeal.

Final Conclusion: The Tribunal, on a prima facie assessment, adopted the Settlement Commission's 10% enhancement of production (instead of Revenue's 50%) and directed a reduced pre-deposit of Rs. 3.50 crores within 12 weeks; on deposit the balance duty pre-deposit and recovery of the penalty are waived/stayed during the appeal.

Liability for excise duty collected from customers but not deposited with Revenue - application of Section 11D to collections made prior to its enactment as held in Godrej Industries - quantification of demand after giving credit for duty actually paid under a slab-based exemption notification - remand to adjudicating authority for verification of documentary evidence and recomputation of demand

Liability for excise duty collected from customers but not deposited with Revenue - application of Section 11D to collections made prior to its enactment as held in Godrej Industries - The appellants are liable to deposit excise duty collected from the purchaser but not deposited with Revenue; Section 11D applies to the period in question. - HELD THAT: - The Tribunal accepted the appellants' concession that collection of excise duty from customers which was not deposited with Revenue attracts the obligation to deposit under Section 11D. Although Section 11D was introduced w.e.f. 20.09.91, the Tribunal applied the declaratory pronouncement in Godrej Industries to hold that Section 11D covers the entire relevant period. The Adjudicating Authority's factual finding that no evidence of payment to Revenue was produced by the appellants was noted, and there was no dispute between the parties on the existence of liability for such collections. [Paras 2, 6]

Liability to pay excise duty collected but not deposited is upheld and Section 11D is held applicable to the period under adjudication.

Quantification of demand after giving credit for duty actually paid under a slab-based exemption notification - remand to adjudicating authority for verification of documentary evidence and recomputation of demand - The quantification of the demand must exclude duty actually paid by the appellants under Notification No.175/86 and is remanded for verification and recomputation. - HELD THAT: - The appellants contended that, under Notification No.175/86, clearances falling within initial nil or concessional slabs had duty paid by them and that the department erred in treating the entire amount collected from the purchaser as unpaid duty. The Tribunal observed that no evidence proving payment (such as RT12 returns) was produced before the Adjudicating Authority, and the dispute as to quantification was not previously raised. Given that the factual material to compute correct liability is absent from the record before the Tribunal, and that slab-crossing determinations can be verified from returns, the Tribunal set aside the impugned order and remanded the matter to the Commissioner for correct quantification after permitting the appellants to place documentary evidence and to raise submissions, including on penalty. [Paras 3, 4, 7, 8]

Impugned order set aside to the extent of quantification; matter remanded to the Commissioner for verification of evidence, recomputation of demand excluding duty already paid, and consideration of penalty submissions.

Final Conclusion: The Tribunal upheld the appellants' liability to deposit excise duty collected but not remitted and applied Section 11D to the relevant period, but set aside the impugned order on quantification and remanded the matter to the Commissioner for verification of documentary evidence, recomputation of the demand taking credit for duty actually paid under Notification No.175/86, and consideration of penalty submissions.