TaxTMI Updates e-Newsletter
Jun 21,2014

Allowability of contractual payments as business expenditure - diversion of income by overriding title - burden on revenue under section 40A(2) to prove excessiveness/unreasonableness - distinction between expenditure and loss/discount for purposes of section 40A(2) - definition of "interest" under section 2(28A) and applicability of TDS under section 194A - transaction-specific deeming under section 92B(2) vis-a -vis "international transaction" in section 92B(1) - transfer pricing provisions not attracted to transactions between resident associated enterprises - consequential recomputation of interest following appellate relief

Allowability of contractual payments as business expenditure - diversion of income by overriding title - Whether the guaranteed compensation (portion described as 'anticipated profits') payable to APHB under the development and shareholders agreement is deductible as business expenditure or is an appropriation/distribution of profits - HELD THAT: - The Tribunal examined the terms of the Development & Shareholders Agreement and the role of the agreement in constituting the assessee. The court applied the tests of substance over form, diversion by overriding title and commercial/contractual obligation. It held that the guaranteed compensation payable to APHB was contractually mandated, payable whether or not the assessee made profits, and formed part of the cost structure of the project. The payment was therefore an obligatory business outflow arising from the foundational agreement by virtue of which the assessee was formed; it did not constitute a post fact appropriation of profits. The Tribunal relied on the principle that where an amount is earmarked at source pursuant to an overriding title it never forms part of the assessee's real income and is deductible, and concluded that the AO's characterization as distribution of profits was incorrect. [Paras 6]

Addition of Rs.13,43,96,800 (portion of land compensation treated as distribution of profits) is deleted; the payment is allowable as business expenditure.

Burden on revenue under section 40A(2) to prove excessiveness/unreasonableness - allowability of contractual payments as business expenditure - Whether incentive paid to IJMII is disallowable under section 40A(2) or is otherwise not deductible - HELD THAT: - The Tribunal found the incentive was paid pursuant to shareholders/development agreements and that the AO had accepted (by invoking s.40A(2)) that the expenditure satisfied s.37 tests. To disallow under s.40A(2)(a) the AO must demonstrate with comparables or other evidence that the payment was excessive or unreasonable having regard to fair market value or legitimate business needs; burden lies on the AO. No FMV comparables or proof of excess were placed on record; there was also no evidence of tax evasion motive. The incentive crystallised on accrual under mercantile accounting and was legitimately quantified for the year. Consequently the disallowance under s.40A(2) was unjustified. [Paras 9]

Disallowance of Rs.18,59,85,000 as incentive to IJMII is deleted and the expenditure is allowed.

Definition of "interest" under section 2(28A) and applicability of TDS under section 194A - distinction between expenditure and compensation for delay - Whether 'handing over charges' (compensation for delay paid to buyers) are 'interest' under section 2(28A) attracting TDS non deduction disallowance under section 40(a)(ia) - HELD THAT: - The Tribunal held that the statutory definition of 'interest' in section 2(28A) requires payment in respect of money borrowed or debt incurred; compensation paid to buyers for delay in handing over possession is liquidated damages/compensation and not interest on borrowed money. Precedents were applied to distinguish damages for delay from interest; in addition payments actually made during the year (not outstanding as on year end) cannot be disallowed under s.40(a)(ia). As the payments were not interest within s.2(28A) and were paid during the year, the AO's invocation of s.40(a)(ia) was unsustainable. [Paras 13]

Disallowance of Rs.7,74,36,597 under section 40(a)(ia) is deleted; handing over charges are not interest for TDS disallowance purpose.

Distinction between expenditure and loss/discount for purposes of section 40A(2) - allowability of commercial discounts and pricing decisions - Whether cost of land attributable to 500 LIG houses and the cost of construction of those houses (sold/transferred at concessional price to APHB) are disallowable under section 40A(2) or otherwise to be added back - HELD THAT: - The Tribunal separated two questions. For the land portion (claim that land was not transferred/registered to assessee), the Tribunal found absence of registration and that APHB remained owner, therefore the land cost attributable to those flats could not be claimed by the assessee and rejected that ground. On the cost of construction/discounted sale, the Tribunal held that a trade discount or a transfer at concessional price is a loss or commercial pricing decision and not an 'expenditure' within s.40A(2); s.40A(2) applies to expenditure paid to specified persons and requires actual payment, and cannot be invoked to impute notional income by substituting market value where the position is a discount/loss. The AO failed to discharge burden of proving excessiveness; commercial expediency and contractual pre conditions were relevant and the discount could not be treated as expenditure disallowable under s.40A(2). [Paras 18]

Addition relating to cost of construction of houses handed over to APHB (disallowance under s.40A(2)) is deleted; however addition for land cost attributable to those houses is upheld because land was not registered in assessee's name.

Burden on revenue under section 40A(2) to prove excessiveness/unreasonableness - allowability of voluntary business interest payments under section 37 - Whether interest paid to IJMII for belated payment of work bills is disallowable under section 40A(2) or otherwise - HELD THAT: - The Tribunal found the interest payments were made in the ordinary course of business, paid at prevailing bank rates, tax was deducted where applicable, and the AO did not demonstrate the payments were excessive relative to market rates. Even though not provided in the original construction agreement, the payments were later agreed and were incurred wholly and exclusively for business purpose. The AO failed to show the payments were unreasonable or for evasive tax motives. [Paras 21]

Disallowance of Rs.2,21,95,301 as interest paid to IJMII is deleted and the expenditure is allowed.

Transaction-specific deeming under section 92B(2) vis-a -vis "international transaction" in section 92B(1) - transfer pricing provisions not attracted to transactions between resident associated enterprises - Whether the TPO could treat transactions between the assessee and IJMII as 'deemed international transactions' under section 92B(2) and apply transfer pricing adjustments under Chapter X - HELD THAT: - The Tribunal analysed the statutory scheme: section 92A (associated enterprises), section 92B(1) (international transaction requires associated enterprises with at least one non resident) and the deeming fiction in section 92B(2). It held that section 92B(2) is transaction specific and intended to catch cases where an intermediary hides an international transaction with a non resident; the fiction operates only to treat a transaction as between associated enterprises for the purposes of sect.92B(1). Both assessee and IJMII are resident Indian companies; no non resident associated enterprise was party to the transaction such that an international transaction (as defined in s.92B(1)) arose. The TPO did not demonstrate that IJM Group (non resident) had in substance determined the essential terms so as to attract s.92B(2). The Tribunal therefore held Chapter X inapplicable to these resident to resident transactions and, having decided on this legal issue, declined to examine other transfer pricing contentions. [Paras 28]

Transfer pricing addition of Rs.38,34,39,486 (and constituent TP adjustments) is deleted in entirety as Chapter X does not apply to the resident to resident transactions in question.

Consequential recomputation of interest following appellate relief - Whether interest under sections 234B and 234D should be recomputed consequential to appellate adjustments - HELD THAT: - The Tribunal noted that interest calculations under sections 234B and 234D are consequential on the assessment and adjustments upheld/ deleted. Given the deletions and allowances granted, it directed the Assessing Officer to recompute interest while giving effect to the Tribunal's order. [Paras 29]

Assessing Officer directed to recompute interest under sections 234B and 234D consequentially when giving effect to this order.

Remand for fresh consideration of brought forward losses and unabsorbed depreciation - Whether the claimed set off of brought forward business loss and unabsorbed depreciation should be allowed in computing taxable income for the year - HELD THAT: - The Tribunal observed these additional grounds were raised for the first time before it and the lower authorities had not examined them. It therefore remitted the issue to the Assessing Officer to examine entitlement to set off (including verification of whether returns for relevant years were filed in time and losses quantified), after giving the assessee an opportunity of being heard. [Paras 30]

Issue remanded to the Assessing Officer for fresh consideration and adjudication.

Final Conclusion: The appeal is partly allowed: (i) payment to APHB in terms of the shareholders agreement is allowable as business expenditure; (ii) incentive to IJMII and interest paid to IJMII are allowable; (iii) handing over charges are not "interest" for TDS/disallowance purposes and are allowable; (iv) the AO's disallowance of cost of construction of 500 LIG houses under s.40A(2) is deleted but the addition relating to land cost was upheld because land was not registered in the assessee's name; (v) transfer pricing additions based on treating resident to resident transactions as international transactions are deleted in entirety; (vi) AO to recompute interest under ss.234B/234D consequentially; and (vii) claims for set off of brought forward losses and unabsorbed depreciation are remanded to the Assessing Officer for fresh consideration.

Assessment under section 153A not confined to seized material - Remand to Assessing Officer for verification of source of receipts - Unexplained cash credit and burden under section 68 - Deemed transfer by entering into development agreement under section 2(47)(v) read with Section 53A of the Transfer of Property Act - Part performance requirement - 'has performed or is willing to perform' for application of Section 53A - Benefit of CBDT Instruction/Circular No.1916 for jewellery found on search - Adjustment of seized cash towards tax liability and interest consequences - Requirement of corroborative evidence for additions based on seized documents (blank cheques/ securities)

Assessment under section 153A not confined to seized material - Whether assessments framed under section 153A are confined to incriminating material seized during search or may be completed on other materials in AO's possession. - HELD THAT: - The Tribunal upheld the view that framing of assessment under section 153A is not limited only to material seized during search; the AO may make assessment on the basis of incriminating material as well as other evidence or information in his possession. Accordingly, the contention that assessment was invalid for lack of seized incriminating material was rejected following the jurisdictional precedent relied upon in the orders. [Paras 7]

Grounds challenging validity of assessments under section 153A for want of seized material dismissed.

Unexplained cash credit and burden under section 68 - Whether cash/credits shown in fund-flow or receipts but not substantiated can be treated as unexplained credit under section 68. - HELD THAT: - The Tribunal applied the settled principle that when a credit appears in books the assessee must satisfactorily explain its nature and source. Where the assessee failed to produce contemporaneous or corroborative evidence for advances/receipts shown, the AO's addition under section 68 was upheld. Conversely, where the only basis for a higher consideration was an uncorroborated loose sheet and the registered deed recorded a different consideration, the Tribunal held the registered deed amount is to be accepted and the excess disallowed. [Paras 44, 67]

Additions under section 68 sustained where no documentary corroboration; addition based solely on loose sheet deleted and registered consideration to be accepted.

Remand to Assessing Officer for verification of source of receipts - Whether certain receipts (e.g., amounts claimed as sale of agricultural land) required further verification or should be summarily added. - HELD THAT: - For receipts shown as sale of agricultural land (example amounts noted in the assessment records), the Tribunal declined to either finally sustain or delete additions where the assessee had asserted documentary or other evidence to explain the source but had not had the claim adequately examined. The Tribunal therefore remitted such issues back to the AO for fresh consideration and verification of source, directing the AO to afford the assessee opportunity to substantiate the claim. [Paras 13, 14, 83, 88]

Issues remitted to the AO for fresh verification of source and explanation of the receipts.

Deemed transfer by entering into development agreement under section 2(47)(v) read with Section 53A of the Transfer of Property Act - Part performance requirement - 'has performed or is willing to perform' for application of Section 53A - Whether entering into a development agreement and handing over possession (or granting rights to obtain permissions) amounts to a 'transfer' taxable as capital gains in the year of the agreement under section 2(47)(v) read with Section 53A. - HELD THAT: - The Tribunal applied established tests from prior decisions: transfer may arise where there is part-performance (possession taken and transferee 'has performed or is willing to perform'). The decision was fact-specific. Where the capital gain had already been offered and accepted in the hands of the HUF, the Tribunal held it cannot be taxed again in the hands of the individual (deletion to avoid double taxation). Where the developer had not commenced development and there was evidence or inference that the transferee was not willing or ready to perform (no municipal sanctions, no construction, payments/meagre deposits), the Tribunal followed the principle that mere agreement or delay does not necessarily satisfy Section 53A and deleted additions. In cases where possession and unconditional willingness to perform were established on the facts, earlier decisions supporting taxation in the year of agreement were noted and sustained by lower authorities, but the Tribunal distinguished or followed those decisions as per facts. [Paras 33, 37, 38, 72, 76]

Where HUF had already offered and assessment accepted, addition in individual deleted; where transferee's willingness or commencement of development absent, deemed transfer not attracted and additions deleted; factual findings to be applied to other similar appeals.

Benefit of CBDT Instruction/Circular No.1916 for jewellery found on search - Whether weight/value of jewellery found on search may be treated as explained to the extent permitted by the CBDT Instruction/Circular No.1916 having regard to socio-economic status and family members. - HELD THAT: - The Tribunal acknowledged that Instruction No.1916 is a guideline and that various benches have applied it in post-search assessment proceedings after considering the family circumstances. On facts the Tribunal directed remand or directed AO to give benefit where family members staying under same roof could establish ownership; in other instances the Tribunal allowed specified quantum as reasonably explained (for example, 500 grams per married woman etc.) and remitted for verification of documentary proof of family ownership and residence. [Paras 51, 52, 153, 154]

Benefit under Instruction No.1916 allowed subject to verification; issue remitted to AO to give proportionate relief if family-members' ownership and co-residence are proved.

Adjustment of seized cash towards tax liability and interest consequences - Whether seized cash may be adjusted against tax liability and accordingly interest demands revised. - HELD THAT: - The Tribunal endorsed the appellate direction that the AO should examine claims for adjustment of seized cash in light of judicial precedents and section 132B, and revise interest if adjustment is admissible. Where the assessee applied for such adjustment and relevant precedent supported adjustment from the date of application, the Tribunal found no infirmity in the CIT(A)'s direction to the AO to examine and act accordingly. [Paras 109, 110]

Direction issued to AO to consider adjustment of seized cash towards tax dues and revise interest where legally permissible.

Requirement of corroborative evidence for additions based on seized documents (blank cheques/ securities) - Whether cheques found during search and statements denying loans are sufficient to sustain additions as undisclosed loans/investments. - HELD THAT: - The Tribunal held that additions based solely on conjectures and surmises from seized blank or unsigned cheques are not sustainable without corroborative evidence of money-lending activity or other documentary proof. Where the AO relied on human-probability in absence of corroboration, the Tribunal deleted such additions. [Paras 58, 61, 62]

Additions based on seized cheques treated as unsecured conjecture in absence of corroborative evidence; additions deleted.

Opportunity to produce evidence before AO on disputed expenditure/claim - Whether assessee should be given opportunity to substantiate claimed expenditure (development expenses/brokerage) when AO makes addition without allowing proof. - HELD THAT: - Where the assessee alleged non-application or denial of opportunity to produce proof of claimed expenditure, the Tribunal remitted the matter to AO directing that the assessee be given opportunity to produce necessary evidence; final quantification to follow AO's fresh consideration. [Paras 86, 88]

Issue remitted to AO with direction to afford opportunity to assessee to substantiate claimed expenditure.

Final Conclusion: The Tribunal held that assessments under section 153A may be framed on material beyond seized documents; several additions were upheld where assessees failed to produce corroborative evidence, while specific contested items were either remitted for verification by the AO (receipts claimed as sale of agricultural land; certain expenditure claims; jewellery entitlement subject to proof of family ownership) or deleted where double taxation arose (income already assessed in HUF) or where part performance/willingness to perform required by Section 53A was not established. Directions were given for verification of seized-cash adjustments and for application of CBDT Instruction No.1916 where supported by proof.

Jurisdiction to adjudicate service conditions - vires of subordinate legislation - binding effect of High Court precedent on Tribunal - authorized representative under Section 288 - nemo debet esse judex in propria causa - rule-making under Article 309 - retrospective application of service rules

Jurisdiction to adjudicate service conditions - binding effect of High Court precedent on Tribunal - vires of subordinate legislation - Whether the ITAT Special Bench has jurisdiction to decide the applicability or vires of Rule 13E of the Income Tax Appellate Tribunal (Recruitment and Conditions of Service) Rules, 1963. - HELD THAT: - The Special Bench held that it is without jurisdiction to decide the legality or vires of Rule 13E. The Bench treated the interim order of the Hon'ble Allahabad High Court in Dinesh Chandra Agarwal (Service Bench No.62 of 2012) as binding on the Tribunal and noted that the Allahabad High Court had observed that the Concept Creations Special Bench decision exceeded the Tribunal's competence under Sections 253 and 254 of the Income-tax Act. Being a subordinate forum, the Tribunal must follow the view of the High Court unless and until reversed by a higher authority; accordingly the Tribunal cannot adjudicate service-rule challenges falling outside the statutory scope of tax appeals. The Bench accordingly declined to address the merits of Rule 13E (including whether it overrides Section 288 or its applicability to resignation versus retirement), rejected the contention that the Attorney General's opinion amounts to a Central Government decision on the Rule, and observed that the proper forum for service-related grievances and vires challenges lies outside the Tribunal (noting Article 309 and administrative remedies). The Bench recorded that both parties accepted that the question involved the legality of Service Rules and therefore lay beyond the Tribunal's competence, reinforcing the conclusion. [Paras 5, 6, 7, 8, 9]

The question referred is beyond the jurisdiction of the Appellate Tribunal and the vires of Rule 13E will not be adjudicated by this Bench.

Final Conclusion: The Special Bench, by majority, declined to decide the applicability or vires of Rule 13E on the ground that the issue lies outside the Tribunal's jurisdiction in view of the Allahabad High Court's interim order; the matter of Rule 13E's legality was not adjudicated. A separate opinion of one Member (shorn of majority) argued that the Tribunal had jurisdiction and that the ex-Member should not be debarred, but the Special Bench's operative conclusion is that the reference is beyond its competence.

Recognition of tenancy right as a capital asset - surrender of tenancy/occupancy rights constituting transfer giving rise to capital gain - long-term capital gain where surrender/transfer occurs after the requisite period - exemption under section 54EA for investment of long-term capital gain - reliance on statutory records of redevelopment authority/MBRRB (MHADA) to establish tenancy

Recognition of tenancy right as a capital asset - surrender of tenancy/occupancy rights constituting transfer giving rise to capital gain - exemption under section 54EA for investment of long-term capital gain - reliance on statutory records of redevelopment authority/MBRRB (MHADA) to establish tenancy - Whether the amount received on surrender of tenancy and alternative-accommodation rights is capital gain liable to exemption under section 54EA - HELD THAT: - The Tribunal held that the assessee had established tenancy rights by execution of agreement, rent receipts and by production of lists certified by the statutory redevelopment authority (MBRRB/MHADA) and BEST, and that the MOU and subsequent agreement evidenced surrender of tenancy/alternative-accommodation rights to the developer in exchange for built-up accommodation or, alternatively, a lump-sum consideration. The surrender and consequent receipt were therefore proceeds of transfer of a capital asset (tenancy right recognized as a capital asset under the Act). As the final relinquishment occurred in 2000, more than three years after the 1995 agreement and after payment of construction charges, the receipt qualified as long-term capital gain. The assessee invested the proceeds in prescribed units and satisfied the conditions for exemption; reliance was placed on the jurisdictional High Court's decisions accepting tenants' status as per the redevelopment authority's lists (CIT Vs. R.R. Chaturvedi and CIT Vs. Rejendra R. Chaturvedi ). The Assessing Officer's criticisms of typographical corrections in the agreement and alleged deficiencies in receipts were held not to negate genuineness of tenancy or the substance of the transfer. Consequently the amount was to be assessed as capital gain and exemption under section 54EA was allowable. [Paras 7, 8, 9]

The receipt of Rs. 36,00,000 arising from surrender of tenancy/alternative-accommodation rights is long-term capital gain and the assessee is entitled to the exemption under section 54EA.

Mandatory levy of interest under sections 234B and 234C - Whether interest under sections 234B and 234C should be sustained - HELD THAT: - The Tribunal observed that interest under the cited provisions is consequential on an adverse tax liability. Having decided the substantive issue in favour of the assessee by treating the receipt as exempt long-term capital gain, the question of levy of interest became academic and need not be adjudicated on merits. [Paras 10]

The contention on levy of interest is rendered infructuous by the decision on the main issue.

Ancillary contention rendered infructuous by primary decision - Whether the alternate ground (that if tenancy right is not genuine then receipt is a capital receipt not taxable as income from other sources) requires separate adjudication - HELD THAT: - The Tribunal noted that because the primary ground in favour of the assessee has been allowed, the additional/alternative ground pleaded by the assessee does not require independent consideration. [Paras 11, 12]

The additional ground is rendered infructuous by the main decision.

Final Conclusion: Appeal allowed; the amount received on surrender of tenancy/alternative-accommodation rights is held to be long-term capital gain and exemption under section 54EA is granted; consequential claims of interest and the additional alternate ground are rendered infructuous.

Substantial question of law - findings of fact - deduction for expenditure incurred for environmental and development purposes - deduction for replacement of meters - head office expenses - deduction under Section 80IA - market value as determined by regulatory authority - disallowance under Section 14A - Rule 8D and retrospective application - remand for recomputation

Substantial question of law - findings of fact - deduction for expenditure incurred for environmental and development purposes - Claim for deduction in Assessment Year 2006-07 in respect of expenses incurred for development and environmental purposes does not raise a substantial question of law. - HELD THAT: - The Tribunal had found, after referring to earlier assessment years and directing allowance of the claim in prior years, that the expenditure was incurred in the course of the assessee's business of supplying electricity and related to development/environmental measures. The High Court observed that these are findings of fact and that the Revenue offered no satisfactory explanation why earlier factual findings were not challenged. Consequently, reappraisal of those factual findings would not give rise to a substantial question of law.

The claim is a factual finding and does not constitute a substantial question of law; no interference with the Tribunal's conclusion.

Substantial question of law - findings of fact - deduction for replacement of meters - Deduction claimed for replacement of meters in Assessment Year 2006-07 does not raise a substantial question of law. - HELD THAT: - The Tribunal recorded that the same claim had arisen and been considered in assessment years 1999-2000 to 2005-2006 and deployed factual findings summarized in its order. The High Court held that the matter concerns factual appreciation repeated from prior years and that such factual determinations do not amount to a substantial question of law warranting interference.

The Tribunal's factual conclusion on replacement-of-meters deduction stands; no substantial question of law is established.

Substantial question of law - findings of fact - head office expenses - Claim relating to head office expenses in Assessment Year 2006-07 does not raise a substantial question of law. - HELD THAT: - The Tribunal relied on its findings in earlier assessment years and, where necessary, its detailed paragraphs provide complete answers. The High Court treated these as findings of fact and concluded they do not raise any substantial question of law meriting interference.

The Tribunal's factual findings on head office expenses are not disturbed; no substantial question of law is made out.

Substantial question of law - deduction under Section 80IA - market value as determined by regulatory authority - The challenge to the Tribunal's conclusion on the purchase price from Tata Power (for computation under Section 80IA) in Assessment Year 2006-07 does not raise a substantial question of law. - HELD THAT: - The Tribunal examined facts including the Maharashtra Electricity Regulatory Authority's rates and the assessee's contention that MERC rates did not reflect true market value, and applied the proviso/explanation to Section 80IA. The High Court found that the dispute amounted to reappreciation of factual material (including rates and mode of computation) and noted earlier consideration of the issue in prior years; such factual reappraisal does not present a substantial question of law.

No substantial question of law arises from the Tribunal's finding on the Section 80IA computation; the Tribunal's factual conclusion stands.

Disallowance under Section 14A - Rule 8D and retrospective application - remand for recomputation - The Tribunal's direction to the Assessing Officer to rework and recompute the disallowance under Section 14A in accordance with this Court's precedents (including Godrej & Boyce Manufacturing Company Limited ) and to avoid retrospective application of Rule 8D does not constitute a substantial question of law. - HELD THAT: - The High Court noted that a Division Bench decision of this Court laid down principles governing disallowance under Section 14A and held that Rule 8D should not be applied retrospectively. The Tribunal, following that precedent, remanded the matter to the Assessing Officer to adopt a reasonable basis and recompute the disallowance in light of all relevant facts and circumstances. The High Court observed that this remand for recomputation pursuant to settled principles is procedural and fact-specific and therefore does not raise a substantial question of law.

Remand to the Assessing Officer for recomputation under Section 14A in accordance with the Division Bench ruling is appropriate and does not amount to a substantial question of law.

Final Conclusion: The appeal is dismissed. The High Court affirmed that the disputed claims in Assessment Year 2006-07 involve factual determinations and not substantial questions of law, save that the matter under Section 14A is remitted to the Assessing Officer for recomputation in accordance with this Court's authority; no costs.

Deduction of tax at source - grossing up where payment is net of tax - remand to assessing officer for fresh adjudication - revenue v. capital expenditure distinction - allowability of business expenses: fees and subscription - comparative year-on-year variation not sole basis for disallowance - disallowance for want of details

Deduction of tax at source - grossing up where payment is net of tax - remand to assessing officer for fresh adjudication - Whether the addition for non-deduction of tax at source on management fee should be sustained or reconsidered. - HELD THAT: - The AO made an addition under the provision for failure to deduct tax at source on management fee paid to a foreign associated enterprise. The CIT(A) deleted the addition after observing that tax was deducted and deposited. The Tribunal examined the payee's account and material on record and found no evidence of actual TDS deduction; the assessee contended the fee was payable net of tax but the law requires grossing up where payment is net of tax for TDS purposes. The Tribunal observed that the assessee appeared to have deducted TDS at 10% of the net amount rather than grossing up, and that details regarding deduction and resultant payment were not furnished or properly examined by the AO. In these circumstances the Tribunal held that the matter was not finally adjudicated on merits and that it would be appropriate to set aside the CIT(A)'s order on this point and restore the issue to the AO for fresh decision in accordance with law after giving the assessee a reasonable opportunity to be heard. [Paras 3]

Order set aside and matter remanded to the assessing officer for fresh decision after affording the assessee a reasonable opportunity of being heard.

Revenue v. capital expenditure distinction - allowability of business expenses: fees and subscription - disallowance for want of details - Whether the addition disallowing fees and subscription claimed as revenue expenditure was justified. - HELD THAT: - The AO disallowed a large sum treating the payments as purchase of software (capital in nature) without examining the specific nature of the payments. The assessee produced details showing the payments related to registration fee, training, website redesign and development, AMC, corporate card annual fee, domain registration and renewal, etc. The CIT(A) accepted these particulars and deleted the addition. The Tribunal noted that the AO, despite being afforded a remand report opportunity, did not comment or examine the detailed evidence and that the AO's conclusion in the assessment order was based on an apparent assumption rather than material scrutiny. In view of the particulars demonstrating revenue nature of the expenses, the Tribunal found no reason to depart from the CIT(A)'s finding that the expenses were revenue in nature and allowable. [Paras 5]

Addition deleted; expenditure held to be revenue in nature and allowable.

Comparative year-on-year variation not sole basis for disallowance - disallowance for want of details - Whether the entire communication and travelling expenses could be disallowed solely because they were higher than in the preceding year. - HELD THAT: - The AO disallowed the total communication and travelling expenses claimed on the ground that they were substantially higher than in the preceding year and noted an alleged lack of details. The assessee, however, furnished particulars of these expenses on various dates, and the CIT(A) considered those particulars along with the remand report and deleted the addition. The Tribunal held that mere increase in expenditure vis-a -vis the prior year, without examination of furnished details, does not justify disallowance of the entire amount. Having regard to the particulars produced and the CIT(A)'s assessment of them, the Tribunal found no infirmity in upholding the deletion. [Paras 7]

Addition deleted; AO's wholesale disallowance for year-on-year increase overturned.

Final Conclusion: Revenue's appeal partly allowed for statistical purposes by remanding the TDS-on-management-fee issue to the AO for fresh adjudication; deletions made by the CIT(A) in respect of fees and subscription and communication and travelling expenses are upheld; cross-objection dismissed.

Rejection of books of account under section 145(3) - estimation of gross profit by applying average GP of earlier years - estimation of suppressed production based on fuel consumption - requirement of material evidence before estimating undisclosed production - classification of electrical installations for depreciation as part of plant and machinery - wholesale rejection of books versus verification of specific accounts

Rejection of books of account under section 145(3) - estimation of gross profit by applying average GP of earlier years - wholesale rejection of books versus verification of specific accounts - Whether the Assessing Officer was justified in rejecting the assessee's regularly maintained books of account and estimating gross profit by applying the average GP of earlier three years, resulting in addition of Rs 60,71,567/-. - HELD THAT: - The Tribunal held that regularly maintained and audited books cannot be wholesale rejected unless they are shown to be incomplete, unreliable, or the method of accounting is such that correct profits cannot be deduced. Although the AO pointed to disproportionate increases in certain expense heads and unexplained variations in breakage and fuel consumption, no material was produced to show that transactions were unrecorded, that the accounting method was irregular, or that entries (other than one admitted capital item) were bogus or non-verifiable. Disproportionate expenses alone create a doubt necessitating careful verification but do not justify rejection of books. The chart on breakage showed the year's breakage (0.61%) compared favourably with earlier accepted percentages, negating addition on that ground. Absent cogent material to impeach the correctness or completeness of audited accounts, wholesale rejection and estimation of GP at the average rate of earlier years was not warranted and the addition was deleted. [Paras 20, 21, 22, 23, 24]

Addition of Rs 60,71,567/- made by rejecting books and estimating GP is deleted; assessee's appeal allowed on this ground.

Estimation of suppressed production based on fuel consumption - requirement of material evidence before estimating undisclosed production - Whether the Assessing Officer was justified in treating alleged excess fuel consumption as indicating undisclosed production and taxing gross profit of Rs 27,20,045/- as concealed income for Assessment Year 2008-09. - HELD THAT: - The Tribunal confirmed that variations in fuel consumption may have many explanations (change of fuel type, change in process, temperature variations, operational factors) and that comparison of absolute fuel expenditure across periods can be misleading. The AO assumed production up to installed capacity and computed undisclosed production from fuel figures, but produced no material to show actual manufacture or undisclosed sales beyond books. The assessee did not at any time admit the projected higher production as actual. In absence of concrete evidence that production exceeded recorded quantities or that sales were unrecorded, the AO's exercise was conjectural. Thus the CIT(A)'s deletion of the addition was affirmed and Revenue's appeal dismissed. [Paras 31, 32, 33, 34, 35]

Addition of Rs 27,20,045/- on account of alleged undisclosed production is deleted; Revenue's appeal dismissed on this ground.

Classification of electrical installations for depreciation as part of plant and machinery - Whether depreciation on electrical installations ought to be allowed at the rate applicable to plant and machinery (15%) rather than at the rate specified for electrical installations (10%). - HELD THAT: - The Tribunal agreed with the CIT(A) reasoning and earlier Benches that where electrical installations form integral part of plant and machinery, depreciation at the rate applicable to plant and machinery is allowable. The Assessing Officer had restricted depreciation to the lower rate for electrical installations, but no contrary precedent or material was shown by Revenue that would call this approach into question. Accordingly the disallowance was deleted. [Paras 36, 37, 38]

Disallowance on account of depreciation recalculated at lower rate is not justified; CIT(A)'s allowance is confirmed and Revenue's ground dismissed.

Final Conclusion: The Tribunal allowed the assessee's appeal by deleting the trading addition based on rejection of books for AY 2009-10, and dismissed the Revenue's appeals by deleting the addition for alleged undisclosed production for AY 2008-09 and confirming the allowance of depreciation on electrical installations at the rate applicable to plant and machinery.

Quantification of gross receipts from bank deposits - treatment of inter-bank withdrawals and bank transfers for determining business receipts - estimation of income by application of a percentage on gross receipts - remand for verification of period applicability of bank deposits - condonation of delay

Treatment of inter-bank withdrawals and bank transfers for determining business receipts - quantification of gross receipts from bank deposits - Whether withdrawals from ICICI Bank could be treated as source for deposits in Syndicate Bank and excluded from gross receipts. - HELD THAT: - The Tribunal examined bank statements and the finding of the CIT(A) that deposits in Syndicate Bank were made by transfer/clearing and not by cash deposits was affirmed. There were no cash deposits in Syndicate Bank to match the cash withdrawals from ICICI Bank, and therefore the asserted duplication of receipts by treating ICICI cash withdrawals as the source of Syndicate Bank deposits was not established. Since the assessment and estimation were based on the receipts as reflected in bank accounts and no books or explanations were furnished by the assessee, the withdrawals from ICICI Bank could not be given credit for excluding the Syndicate Bank deposits from gross receipts. [Paras 10]

Assessee's contention that ICICI Bank withdrawals explain and negate deposits in Syndicate Bank is rejected; deposits in Syndicate Bank are includible in gross receipts.

Quantification of gross receipts from bank deposits - remand for verification of period applicability of bank deposits - Whether deposits in Allahabad Bank (Vivek Nagar Branch) amounting to the identified sum pertain to the impugned assessment year or to prior period(s). - HELD THAT: - The Tribunal noted that the account copy shows deposits in the Allahabad Bank account from 08.11.2006 to 29.03.2008 and that the closing balance as on 29.03.2008 indicates amounts available up to that date. The CIT(A) did not examine this contention and the A.O. had no opportunity to consider it because of non-compliance by the assessee. Given the prima facie indication that those deposits may relate to a period prior to 31.03.2008, the Tribunal directed that the matter be restored to the file of the A.O. for examination and verification, and for exclusion of the amount if it is shown to pertain to period prior to 31.03.2008 (relevant to A.Y. 2008-09). [Paras 9]

Issue restored to the A.O. for verification and necessary action; deposits at Allahabad Bank to be excluded from turnover if shown to pertain to period prior to 31.03.2008.

Estimation of income by application of a percentage on gross receipts - quantification of gross receipts from bank deposits - Whether the estimation of profits at 12.5% of gross receipts is appropriate. - HELD THAT: - The Tribunal observed that the assessee failed to maintain books of account and did not furnish returns despite notices. Having regard to the nature of the real estate business, absence of earlier years' profit ratios on record, and judicial ratios generally placing profits in the range of 8% to 12.5% in similar cases, the CIT(A)'s reduction of the A.O.'s estimate from 15% to 12.5% was considered reasonable and equitable. Given the assessee's non-compliance and lack of evidence to support a lower rate, the Tribunal found no reason to interfere with the CIT(A)'s estimate and confirmed profit at 12.5% on the quantified gross receipts. [Paras 11, 12]

Estimation of income at 12.5% of gross receipts is confirmed.

Condonation of delay - Whether the appeal filed with a delay of 16 days should be admitted. - HELD THAT: - Although the condonation petition was not filed with the appeal memo, an affidavit explaining delay due to illness of the Managing Partner was filed during hearing. On considering the explanation, the Tribunal found reasonable cause for the delay and exercised discretion to condone the 16-day delay. [Paras 3]

Delay of 16 days in filing the appeal condoned and appeal admitted.

Final Conclusion: The appeal is partly allowed: the assertion that ICICI withdrawals negate Syndicate Bank deposits is rejected and those deposits are includible in gross receipts; the CIT(A)'s estimation of income at 12.5% on the quantified receipts is confirmed; however, the question whether certain Allahabad Bank deposits relate to a prior year is remanded to the A.O. for verification. Delay in filing the appeal is condoned.

Allowance of higher depreciation on computer accessories and peripherals - entitlement to 60% depreciation rate on computer accessories and peripherals - Section 14A - disallowance for expenditure relatable to exempt income - computation under Rule 8D(2)(iii) - average value of investments income from which does not form part of total income

Allowance of higher depreciation on computer accessories and peripherals - entitlement to 60% depreciation rate on computer accessories and peripherals - Deletion of addition on account of excess depreciation on computer peripherals upheld. - HELD THAT: - The Tribunal found the matter squarely covered by the decision of the Hon'ble Jurisdictional High Court in CIT v. BSES Rajdhani Powers Ltd., which held that computer accessories and peripherals are eligible for depreciation at the higher rate of 60% instead of the normal rate of 25%. Respectfully following that precedent, the Tribunal upheld the order of the CIT(A) deleting the addition made by the Assessing Officer. [Paras 3]

Order of the CIT(A) deleting the addition for excess depreciation on computer peripherals is upheld; Revenue's ground in this regard is rejected.

Section 14A - disallowance for expenditure relatable to exempt income - computation under Rule 8D(2)(iii) - average value of investments income from which does not form part of total income - Matter remanded to the Assessing Officer to re-examine and compute disallowance under Rule 8D(2)(iii) excluding investments the income from which is taxable. - HELD THAT: - Rule 8D(2)(iii) requires that the average value of investments to be taken into account for computing the expenditure in relation to exempt income must be limited to investments the income from which does not or shall not form part of the total income. Investments whose income is taxable therefore cannot be included in that average. The assessee pointed out errors in the original computation (including inclusion of income-taxable debentures/bonds and investments in foreign companies whose dividends are not exempt) and the AO has already modified his assessment under Section 154. Because the correctness of excluding investments whose income is taxable requires verification, the Tribunal directed the AO to examine the assessee's contentions, exclude taxable-income assets when computing the average investment under Rule 8D(2)(iii), and give the assessee adequate opportunity of being heard. [Paras 5, 7, 8]

Disallowance under Section 14A/Rule 8D remitted to the Assessing Officer for re-computation in accordance with Rule 8D(2)(iii), excluding investments the income from which is taxable, after affording the assessee an opportunity of being heard.

Final Conclusion: The Revenue's appeal is partly allowed: the deletion of the addition for excess depreciation on computer peripherals is upheld, while the Section 14A/Rule 8D disallowance is remitted to the Assessing Officer for re-examination and recomputation excluding investments whose income is taxable.

Cash system of accounting - receipt not necessarily income - fiduciary/client's money - consistency of earlier judicial/adjudicatory view - disallowance under Section 14A requires live nexus with exempt income - Rule 8D inapplicable where no material shows expenditure for exempt income

Cash system of accounting - receipt not necessarily income - fiduciary/client's money - consistency of earlier judicial/adjudicatory view - Deletion of addition made by the AO of Rs.10,78,01,478/- representing sundry credit balances/advance receipts shown as current liabilities. - HELD THAT: - The Tribunal accepted that the assessee consistently followed the cash system of accounting and maintained separate client ledger accounts in a fiduciary capacity for advances and out-of-pocket expenses. Relying on the Tribunal's earlier decisions in the assessee's own case and on precedents (noting that every receipt is not necessarily income), it held that advances retained as client balances where the work remained pending cannot be treated as the assessee's income merely because received under a cash system. The principle of consistency requires following the earlier conclusions in similar facts unless law or facts have changed. There was no material to show appropriation or that the assessee had a right to treat those sums as his own fees for AY 2009-10; accordingly the CIT(A)'s deletion of the addition was upheld. [Paras 3, 4, 8, 9, 10]

Addition on account of sundry creditors deleted; departmental grounds 1 to 5 rejected.

Disallowance under Section 14A requires live nexus with exempt income - Rule 8D inapplicable where no material shows expenditure for exempt income - Validity of restricting disallowance under Section 14A from Rs.8,92,738/- to Rs.94,721/- on the ground that no direct or indirect expenditure was shown to be incurred for earning exempt income. - HELD THAT: - The Tribunal found that the AO did not record any finding or produce material establishing that any expenditure claimed by the assessee was incurred for earning exempt income. Applying precedents which hold that Section 14A/Rule 8D cannot be invoked by a notional computation where there is no evidence of expenditure attributable to exempt income, the Tribunal held that only the actual identifiable expenditure (portfolio management fee and STT of Rs.94,721/-) warranted disallowance. Technopak Advisors (distinguished on facts) did not aid the department because no contrary factual finding was made by the AO in the present case. Consequently the CIT(A)'s restriction of the disallowance was confirmed. [Paras 11, 13, 17, 21, 22]

Disallowance under Section 14A restricted to the actual expenditure of Rs.94,721/-; departmental ground 6 rejected.

Final Conclusion: The departmental appeal is dismissed: the Tribunal upheld the deletion of the addition relating to sundry creditors for AY 2009-10 and confirmed the restriction of Section 14A disallowance to the actual identifiable expenditure.

Reassessment under section 147/148 - limitation for notice under section 143(2)(ii) - notice under section 148 not substitute for examination under section 143(2)(ii) - estimation of agricultural income - reason to believe

Reassessment under section 147/148 - limitation for notice under section 143(2)(ii) - notice under section 148 not substitute for examination under section 143(2)(ii) - Validity of reopening assessment by issuance of notice under Section 148 for AY 1998-99 to 2000-01 - HELD THAT: - The Assessing Officer reopened assessments in March 2005 by issuing notices under Section 148 solely to verify the correctness of agricultural income disclosed in returns that had been accepted under Section 143(1). The provision in Section 143(2)(ii) governs the power to call for evidence to examine correctness of the return and contains a proviso prescribing the time limit for issuing such notice. The Tribunal found that the Assessing Officer used Section 148 as a means to obtain extended time for verification which would render the proviso to Section 143(2)(ii) redundant. The Assessing Officer's reasons record enquiries made under Section 133(6) and dissatisfaction with the assessee's explanations, but do not disclose material justifying reopening on the basis that income had escaped assessment beyond mere verification of the return. In these circumstances issuance of notices under Section 148 was not valid and the consequent reassessment could not be sustained. [Paras 5]

Notified notices under Section 148 and the reassessment orders for AY 1998-99, 1999-2000 and 2000-01 quashed; original assessment restored.

Estimation of agricultural income - reason to believe - Appropriate estimation of agricultural income for AY 2001-02 and AY 2003-04 where books were not maintained - HELD THAT: - For AY 2001-02 and AY 2003-04 the Assessing Officer estimated agricultural income at figures substantially lower than the amounts disclosed by the assessee and lower than amounts accepted in earlier years. The assessee had not maintained regular books but produced a Tehsildar certificate indicating agricultural income at a higher level. Considering the pattern of earlier acceptances (including scrutiny acceptance in AY 1996-97) and the Tehsildar certificate, the Tribunal concluded the Assessing Officer's lower estimates were unjustified. In the interests of justice and on the material before it, the Tribunal fixed the agricultural income at Rs.3,50,000 for each of the two years and adjusted the additions accordingly. [Paras 7]

AO's estimates set aside; agricultural income for AY 2001-02 and AY 2003-04 fixed at Rs.3,50,000 each, with consequential adjustments to additions.

Final Conclusion: Appeals for AY 1998-99, 1999-2000 and 2000-01 allowed by quashing notices under Section 148 and reassessments; appeals for AY 2001-02 and 2003-04 partly allowed by revising agricultural income to Rs.3,50,000 for each year and reducing the additions accordingly.

Closing stock - method of accounting - goods sent on approval/consignment basis - disallowance under 40(a)(ia) of the Income tax Act - TDS deduction under section 194C - estimation of household expenditure under section 69C - remand for computation of disallowance

Closing stock - method of accounting - goods sent on approval/consignment basis - Addition of Rs. 3,17,570 as closing stock for the year ended 31.3.2008 - HELD THAT: - The Tribunal accepted the assessee's case that goods were received on approval/consignment-like arrangements from M/s Rabani and that invoices were raised only after finalisation of sale, so sales effectively preceded booking of purchases under the assessee's regular method of accounting. The AO did not point to any quantitative discrepancy in the tally of garments purchased and sold, nor to defects in the books despite impounding and examination. Given the consistent trade practice, documentary confirmation from the supplier, and the assessee's item-wise tally showing purchases and sales (including invoices dated 31.3.2008), the Tribunal held there was no basis to treat the 31.3.2008 purchases as requiring a notional closing stock addition; the CIT(A)'s deletion of the addition was sustained. [Paras 9, 10]

Addition of Rs. 3,17,570 as closing stock is deleted; Revenue's ground is dismissed.

Disallowance under 40(a)(ia) of the Income tax Act - TDS deduction under section 194C - Disallowance of Rs. 12,20,634 on account of alleged failure to deduct TDS, by treating purchases as job work/alteration charges - HELD THAT: - The AO's conclusion that the transactions were entirely in the nature of job work and thus liable to TDS was based on conjecture. The assessee produced purchase bills, evidence of deduction of tax where applicable, and the supplier confirmed both sale of goods and carrying out of alteration/tailoring jobs. A quantitative tally of goods purchased and sold was furnished and no discrepancy was found. The Tribunal found no material to negate the supplier's specific confirmations or to convert the purchases into job work transactions; therefore the CIT(A)'s deletion of the disallowance was upheld. [Paras 15]

Disallowance under section 40(a)(ia) is deleted; Revenue's ground is dismissed.

Estimation of household expenditure under section 69C - remand for computation of disallowance - Addition of Rs. 2,70,000 on account of unsubstantiated household withdrawals (estimation under section 69C) and extent of disallowance - HELD THAT: - The AO estimated household expenditure at a monthly rate and made an addition after the assessee failed to furnish detailed particulars at assessment. The Tribunal observed the AO's estimate was reasonable in principle but that the assessee lived in a joint family and withdrawals by other family members had been shown and supported (records evidencing agricultural income and withdrawals of husband and father in law were filed). Consequently, the Tribunal directed that the AO should recompute the disallowance taking into account the withdrawals of other family members, rather than sustaining the addition in the form originally made. [Paras 16, 18]

AO's estimate sustained in principle but matter remanded to compute disallowance after considering joint family withdrawals; ground partly allowed.

Final Conclusion: The Revenue's appeal is partly allowed: additions/disallowance relating to closing stock and alleged failure to deduct TDS are deleted; the addition for household expenditure is sustained in principle but remanded for recomputation after accounting for joint family withdrawals; A.Y. 2008-09.

Reopening of assessment - validity of notice under section 148 - formation of belief for reassessment - requirement of speaking order - opportunity of being heard - remand for fresh adjudication

Reopening of assessment - validity of notice under section 148 - formation of belief for reassessment - opportunity of being heard - requirement of speaking order - Whether the CIT(A) had adjudicated the specific revised grounds challenging the reassessment proceedings and additions, and the appropriate remedy where such grounds were not decided. - HELD THAT: - The Tribunal observed that the Assessing Officer reopened the assessments and made additions as recorded in the orders under challenge. Before the CIT(A) specific revised grounds were filed which attacked the validity of the reopening and the additions (including absence of mandatory notice within statutory period, lack of satisfaction for reassessment, failure to afford opportunity of cross-examination and to place material before the assessee). The impugned CIT(A) order, while discussing legal propositions, did not dispose of those specific revised grounds and treated earlier grounds as non-specific. Given that the jurisdictional challenges and pleaded grounds were not decided on their merits, the Tribunal found it necessary in these peculiar facts to restore the issue to the file of the CIT(A). The Tribunal directed the CIT(A) to decide the revised grounds by a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard. The Tribunal noted that the department did not oppose restoration and accordingly ordered remand. [Paras 4, 5, 6]

The matters raised by the revised grounds were remitted to the CIT(A) for fresh, speaking adjudication after hearing the assessee; the appeals were allowed for statistical purposes.

Final Conclusion: The Tribunal restored the specific jurisdictional and substantive grounds raised before the CIT(A) for fresh consideration by way of a speaking order after affording the assessee a reasonable opportunity of being heard, and allowed the appeals for statistical purposes.

Arm's length price - transfer pricing adjustment - advertising, marketing and promotion (AMP) expenditure - marketing intangibles - comparability and benchmarking - application of Special Bench precedent in comparability - opportunity of being heard - interest under section 234B and 234C

Advertising, marketing and promotion (AMP) expenditure - marketing intangibles - comparability and benchmarking - application of Special Bench precedent in comparability - Arm's length price - Whether the transfer pricing adjustment made on account of AMP expenditure/brand building (as creating marketing intangibles and constituting an international transaction) was sustainable and whether comparables were correctly selected and benchmarked. - HELD THAT: - The Tribunal found that the DRP/TPO did not record categorical findings in accordance with the parameters laid down by the Special Bench in L.G. Electronics India Pvt. Ltd and that the assessee's contentions on selection of comparables and exclusion of selling and distribution expenses were not objectively considered. Because the question of whether excess AMP expenditure results in creation of marketing intangibles and the correct benchmark depends on proper application of comparability criteria (including the Special Bench guidance), the Tribunal did not decide the merits but set aside the assessment and remitted the matter to the Assessing Officer for fresh adjudication. The Assessing Officer is directed to have regard to the Special Bench judgment, objectively examine comparability (including any exclusion of selling and distribution expenses where appropriate), apply benchmarking consistent with law, pass a speaking order and afford the assessee reasonable and effective opportunity of being heard. [Paras 9]

Order set aside and issue remitted to the Assessing Officer for fresh decision in accordance with law, having regard to the Special Bench judgment and after affording the assessee a reasonable and effective opportunity of being heard.

Interest under section 234B and 234C - consequential interest liability - Whether interest under section 234B and 234C is chargeable consequent to the assessment and the manner of its computation. - HELD THAT: - The Tribunal treated the claim on interest as consequential. It directed that the Assessing Officer shall decide charging of interest under section 234B in accordance with law. With regard to section 234C, the Assessing Officer must have regard to the Explanation below that section when considering the assessee's plea that interest should be charged only on the shortfall in returned income. These matters were not finally adjudicated by the Tribunal and are to be decided by the Assessing Officer by a speaking order. [Paras 10]

Interest issues left for the Assessing Officer to decide afresh in accordance with law, having regard to the Explanation to section 234C; the direction is consequential to the remand.

Final Conclusion: Appeal allowed for statistical purposes; the assessment order is set aside and the matter remitted to the Assessing Officer to re examine the transfer pricing adjustment on AMP expenditure in accordance with the Special Bench guidance, apply proper comparability and benchmarking, pass speaking orders after affording effective hearing to the assessee, and to decide consequential interest under sections 234B/234C in accordance with law.

Transfer within the meaning of Section 2(47) of the Income-tax Act - capital gains on transfer of agricultural land - vesting of property in Gram Sabha - possession and applicability of Section 53A of the Transfer of Property Act - appeal rendered academic by subsequent refund and cancellation

Transfer within the meaning of Section 2(47) of the Income-tax Act - capital gains on transfer of agricultural land - possession and applicability of Section 53A of the Transfer of Property Act - Whether the receipt of advance consideration gave rise to a taxable transfer and long term capital gain in the previous year relevant to A.Y. 2007-08 - HELD THAT: - The Assessing Officer treated receipt of the full agreed consideration in the previous year as constituting a transfer within the meaning of transfer within the meaning of Section 2(47) of the Income-tax Act and computed long term capital gain. The Commissioner (Appeals) examined the material and recorded that the land remained vested in Gram Sabha for the entire period in question, there was no evidence of possession being given or retained by the buyer, and therefore the protections of possession and applicability of Section 53A of the Transfer of Property Act and rights enabling specific performance did not arise; on that basis the CIT(A) held there was no valid transfer during the year and deleted the capital gains addition. The Tribunal noted that subsequent proceedings for A.Y. 2008-09 show the agreement of sale was cancelled and the advance was refunded, and that the Revenue's appeal against the CIT(A) order for A.Y. 2007-08 was rendered academic. Having regard to the CIT(A)'s factual and legal finding that no transfer occurred in the relevant previous year and the subsequent refund/cancellation, the Tribunal declined to adjudicate afresh on the addition and dismissed the Revenue's appeal as academic.

Revenue's appeal dismissed as academic; the deletion of the capital gains addition for A.Y. 2007-08 upheld.

Final Conclusion: The appeal by the Revenue is dismissed as academic because the CIT(A) found no valid transfer in the year relevant to A.Y. 2007-08 and subsequent records show the agreement was cancelled and the advance refunded, leaving no capital gain to be taxed for that year.

Rectification of typographical mistake - self-assessed bill of entry - appeal against self-assessment - duty paid on self-assessed bill of entry - jurisdiction of appellate authority to correct clerical errors

Rectification of typographical mistake - jurisdiction of appellate authority to correct clerical errors - Whether the Commissioner (Appeals) was justified in rectifying the typographical error in the bill of entry changing the currency from Euro to US Dollar. - HELD THAT: - The Commissioner (Appeals) found that the amount in the bill of entry had been mistakenly shown in Euro although the true value was in US Dollars, and after verification the office corrected the error. The Revenue did not dispute that the consignment's value was in US Dollars. In these circumstances the appellate authority's rectification of the clerical/typographical mistake was sustained as there was no contrary factual or legal finding warranting interference. [Paras 3, 5]

Rectification of the typographical mistake in the bill of entry was upheld.

Self-assessed bill of entry - appeal against self-assessment - duty paid on self-assessed bill of entry - Whether the Revenue's contention that no appeal lies against a self-assessed bill of entry renders the impugned order unsustainable. - HELD THAT: - The Revenue argued that because the bill of entry was self-assessed and no order was passed by the assessing authority, the appellate order could not stand. The Tribunal noted that the Commissioner (Appeals) acted to correct a typographical error and that the Revenue did not dispute the underlying fact - the value was in US Dollars. Given the nature of the correction and absence of opposing factual contention, the Tribunal found no infirmity in the impugned order and rejected the Revenue's submission in the circumstances of the case. [Paras 4, 5]

The Revenue's contention was rejected and the impugned order was held sustainable.

Final Conclusion: The impugned order of the Commissioner (Appeals) allowing rectification of the typographical error is upheld; the appeals and stay applications are dismissed.

Condonation of delay - Maintainability of appeal before the Appellate Tribunal under Section 129A of the Customs Act, 1962 - Jurisdiction of the Tribunal over communications issued by Deputy/Assistant Commissioners conveying the decision of the Commissioner

Condonation of delay - Application for condonation of delay in filing the appeals - HELD THAT: - The appellants sought condonation of delays (9 months and 19 days in one appeal and 2 months and 12 days in the other) on the ground that they awaited a speaking order from the Commissioner after being informed by the Deputy/Assistant Commissioner that the Commissioner would not allow amendment of shipping bills. The Tribunal, having heard both sides and concluded that the appeals could not be entertained on maintainability grounds, nonetheless accepted the explanation for delay and exercised discretion to condone the delays in filing both appeals.

Delay in filing both appeals is condoned.

Maintainability of appeal before the Appellate Tribunal under Section 129A of the Customs Act, 1962 - Jurisdiction of the Tribunal over communications issued by Deputy/Assistant Commissioners conveying the decision of the Commissioner - Whether the Tribunal has jurisdiction to entertain appeals against letters issued by Deputy/Assistant Commissioner communicating the Commissioner's decision not to allow amendment of shipping bills - HELD THAT: - Section 129A of the Customs Act, 1962 provides the appellate jurisdiction in respect of decisions or orders passed by the Commissioner of Customs in his capacity as an adjudicating authority. The appeals before the Tribunal were directed against letters issued by the Deputy/Assistant Commissioner which merely communicated the Commissioner's decision refusing amendment of shipping bills. These communications do not constitute adjudication orders passed by the Commissioner as an adjudicating authority. Consequently, the appeals are not maintainable before the Tribunal because the Tribunal lacks jurisdiction to entertain appeals against such subordinate communications.

Both appeals are rejected for want of jurisdiction/for being not maintainable.

Final Conclusion: Although the Tribunal exercised its discretion to condone the delays in filing the two appeals, both appeals were held not maintainable because they were directed against letters from subordinate officers conveying the Commissioner's decision rather than against adjudication orders of the Commissioner; accordingly the appeals are rejected for want of jurisdiction.

Prima facie illegality of allotment - shareholders' agreement - valuation protection and super majority items - interim injunction restraining exercise of voting rights - balance of convenience and irreparable loss - final adjudication of allotment cancellation

Prima facie illegality of allotment - shareholders' agreement - valuation protection and super majority items - interim injunction restraining exercise of voting rights - balance of convenience and irreparable loss - On prima facie grounds whether the allotment of 50,00,000 Class C equity shares to M/s Cross Links was vulnerable and whether ad interim relief restraining exercise of rights on those shares should be granted - HELD THAT: - The petitions challenged the allotment inter alia because the agenda did not disclose the allotment, interested directors participated and voted, shares of face value were allotted at a much lower consideration, and the allotment was said to contravene valuation protection and super majority clauses in the Share Subscription and Shareholders Agreements. A prima facie examination of clause 3(c)(v) and clause 6 of the 25/09/2007 agreement and clauses 8.5 and 8.6 of the 29/12/2008 agreement indicates that the Ajay Singh group was under an obligation to obtain the prior written consent of the investors and/or the affirmative vote of the investor director before effecting such allotment. The Board meeting of 21/05/2013 is prima facie found not to have followed due process and the respondents for the allottee failed to demonstrate that the allotment complied with law. Considering also the balance of convenience and risk of irreparable loss to the investors (IL & FS Group) if the proposed settlement were to be approved at an EOGM by votes arising from the impugned allotment, the petitioners have established a prima facie case in their favour. On that basis an interim restraint preventing M/s Cross Links from exercising any rights, including voting rights, on the basis of the impugned shares at any EOGM convened for approval of the settlement with ARCIL was ordered. [Paras 22, 23, 24, 25, 26]

Petitioners succeeded prima facie; M/s Cross Links restrained from exercising any rights, including voting rights, on the impugned 50,00,000 shares at any EOGM convened for approval of the ARCIL settlement.

Final adjudication of allotment cancellation - Whether the allotment should be cancelled as an interim measure - HELD THAT: - Although the allotment was found prima facie vulnerable, the shares had already been allotted. The Board therefore declined to order interim cancellation of the allotment at this stage and held that cancellation will be considered in the final order in the company petitions. The interim prayer for cancellation was treated as infructuous and rejected, with the substantive question of cancellation reserved for final adjudication on merits at the scheduled hearing. [Paras 26]

Interim prayer for cancellation of allotment rejected as infructuous; cancellation of allotment left open for consideration in the final order of the company petitions.

Final Conclusion: Ad interim relief granted restraining M/s Cross Links from exercising any rights, including voting rights, on the 50,00,000 Class C equity shares at any EOGM convened for approval of the ARCIL settlement; interim prayer for cancellation of allotment rejected as infructuous and reserved for final adjudication at the rehearing listed on April 24, 2014.

Right against self-incrimination under Article 20(3) of the Constitution - adverse inference under Section 114 of the Indian Evidence Act - books of account and probative value under Section 34 of the Indian Evidence Act - burden of proof and inadmissibility of shifting burden on analogy of Section 106 of the Indian Evidence Act - scope of appeal under Section 35 of FEMA - perverse findings constituting question of law

Right against self-incrimination under Article 20(3) of the Constitution - adverse inference under Section 114 of the Indian Evidence Act - Whether the noticees could validly invoke Article 20(3) while making statements under Section 40 FERA and whether an adverse inference could be drawn for such invocation - HELD THAT: - The Court held that at the time the statements were recorded in April 1995 no proceedings under FERA had commenced and the FIR then in existence made the noticees 'accused' for purposes of Article 20(3). Consequently the noticees were entitled to invoke the privilege against self-incrimination and no adverse inference could be drawn against them for exercising that right. This position continued even after filing of CBI charge sheets because criminal proceedings under Section 56 FERA were also launched; therefore refusal to answer questions tending to incriminate could not be treated as contravention of FERA or justify an adverse inference. The Court rejected the ED's contention that statements to ED officers could bypass Article 20(3) protections. The AO and AT were therefore wrong to infer guilt from the noticees' invocation or exercise of Article 20(3). [Paras 32, 33, 34, 35, 36]

The noticees validly invoked Article 20(3) when examined and no adverse inference could be drawn against them for doing so.

Books of account and probative value under Section 34 of the Indian Evidence Act - burden of proof and inadmissibility of shifting burden on analogy of Section 106 of the Indian Evidence Act - Whether the entries in the seized diaries, including the 'mother diary', constituted substantive evidence proving contraventions of FERA or justified shifting the burden on the Appellant to explain them - HELD THAT: - The Court analysed the diary entries and the Supreme Court's observations in the V.C. Shukla case, and held that while MR 71/91 may be a 'book of account' admissible under Section 34 IEA, its entries are corroborative and their probative value depends on independent evidence of trustworthiness. The ED failed to produce credible independent substantive evidence (for example, by investigation abroad) to show that the entries related to facts in issue under the SCNs. The AT's invocation of an analogy to Section 106 IEA to shift the burden to the Appellant was erroneous: absent prima facie evidence proving that the entries concerned the alleged foreign exchange transactions, it was impermissible to compel the Appellant to disprove the allegations. The AO's conclusion that the Appellant had illegally acquired specified foreign exchange (including finding of payment of USD 10,000 to 'somebody') was not supported by the SCNs or evidence on record. [Paras 42, 43, 44, 45, 46]

Diary entries alone were insufficient to prove the alleged FERA contraventions and the burden could not be shifted to the Appellant on the basis adopted by the AO and AT.

Scope of appeal under Section 35 of FEMA - perverse findings constituting question of law - Whether this Court could interfere under Section 35 FEMA with the AO and AT orders on the ground that findings were perverse or contrary to law - HELD THAT: - The Court observed that Section 35 FEMA permits appellate interference on questions of law and that perverse findings of fact may give rise to questions of law. Having found that the AO and AT had reached conclusions not supported by the evidence and contrary to settled legal principles regarding self incrimination and probative value of entries, the Court concluded that interference was warranted under Section 35 FEMA. [Paras 48]

The appeal under Section 35 FEMA was maintainable and interference was justified because the impugned findings were perverse and legally unsustainable.

Final Conclusion: The impugned adjudication order dated 7th November 2001 of the Special Director, ED and the appellate order dated 3rd January 2008 of the Appellate Tribunal are set aside. The appeal is allowed, with deposit refunded to the Appellant in accordance with law within eight weeks; no order as to costs.

Taxability of services received from offshore service providers under reverse charge - prospective operation of a newly introduced taxable entry - classification of web hosting as support service of business or commerce - revenue share in a joint venture is not commission for business auxiliary services - pre deposit and interim stay pending appeal

Taxability of services received from offshore service providers under reverse charge - Service tax cannot be demanded from the appellant as recipient in respect of maintenance/repair and management consultancy services received from offshore providers prior to introduction of reverse charge provision. - HELD THAT: - The services of maintenance/repair of software and management consultancy were received during periods prior to 18/04/06 when the statutory provision for charging service tax from a person in India as recipient of service from an offshore service provider was not in force. Relying on the principle applied by the Bombay High Court in Indian National Shipowners Association vs. Union of India, the Tribunal held that demands for service tax in respect of such services received before 18/04/06 are not sustainable and the appellant has a strong prima facie case in this regard. [Paras 6]

Demands in respect of offshore maintenance/repair and management consultancy services for the stated pre 18/04/06 periods are not sustainable on the merits.

Prospective operation of a newly introduced taxable entry - taxability of supply of content for telecommunication services - Supply of software content for use in telecommunication services could not be taxed prior to insertion of the specific entry; it became taxable only from the date the new clause was introduced. - HELD THAT: - A specific taxable entry for development or supply of content for use in telecommunication services was introduced by insertion of clause (zzzzb) in Section 65(105) with effect from 01/06/07. The Tribunal adopted the settled presumption that where Parliament introduces a new entry to tax a service from a particular date, that service was not taxable prior to that date. Consequently, treating supply of such software content as business support service and levying service tax for periods before 01/06/07 is prima facie unsustainable. [Paras 7]

Service tax demand in respect of supply of software content for periods prior to 01/06/07 is not sustainable.

Revenue share in a joint venture is not commission for business auxiliary services - Amounts paid by the appellant to its joint venture partner as their share of joint venture revenues are not commission for Business Auxiliary Services and are not taxable as such. - HELD THAT: - The agreement between the appellant and TASK, Kuwait established a joint venture to operate the wireless instant messenger application and provided for sharing of joint venture revenues in fixed proportions (54.45% to the appellant; 45.55% to TASK). There is no material in the joint venture agreement from which it can be inferred that TASK was providing marketing or promotional services to the appellant as a service provider to a recipient. On this prima facie view, the payments made to TASK represent its share of joint venture earnings rather than commission for business auxiliary services, and therefore the demand treating them as taxable receipts for Business Auxiliary Service is not sustainable. [Paras 8]

Service tax demand based on treating the TASK revenue share as commission for Business Auxiliary Service is not sustainable.

Classification of web hosting as support service of business or commerce - Web hosting services received by the appellant from foreign providers are prima facie classifiable as support services of business or commerce and therefore taxable under the relevant head for the stated period. - HELD THAT: - The web hosting service involved provision of virtual space on servers allowing the appellant to upload business information accessible via the internet, a service used for marketing of products and business presence. Clause (zzzze) introduced to cover information technology software services does not prima facie encompass web hosting of this nature. Given the definition of 'support services of business or commerce', the Tribunal took the view that web hosting falls within that category and is taxable w.e.f. 01/05/06 under the business support service entry; accordingly the appellant does not have a prima facie case on this demand. The contention regarding limitation was noted as a mixed question of fact and law to be considered at final hearing. [Paras 9, 10]

Service tax demand in respect of web hosting received from foreign providers is prima facie sustainable; limitation plea to be examined at final hearing.

Final Conclusion: The Tribunal granted partial relief on merits: demands relating to pre 18/04/06 offshore maintenance/consultancy, supply of telecommunication content prior to 01/06/07, and the TASK revenue share were held prima facie unsustainable; the demand in respect of web hosting was held prima facie sustainable. The appellant was directed to make a pre deposit of Rs. 30,00,000 within eight weeks, on which balance demands, interest and penalty were stayed pending final disposal.

Refund of CENVAT credit under Rule 5 - Limitation under Section 11B - Relevant date for export of services - Notification No.5/2006-CE(NT) clause (6) - Export of Services Rules - invoice date versus date of receipt of payment

Refund of CENVAT credit under Rule 5 - Limitation under Section 11B - Relevant date for export of services - Notification No.5/2006-CE(NT) clause (6) - Export of Services Rules - invoice date versus date of receipt of payment - Applicability of the one year limitation under Section 11B to refund claims made under Rule 5 and the relevant date from which the one year period is to be computed in case of exported services. - HELD THAT: - The notification (Appendix clause (6) to Notfn. No.5/2006-CE(NT)) makes refund applications under Rule 5 subject to the period specified in Section 11B. Section 11B prescribes a one year limitation computed from the 'relevant date' as explained therein; although the Explanation to Section 11B expressly addresses exports of goods, a harmonious reading of Rule 5, Section 11B and the Notification requires that the one year period be applied to refund of CENVAT credit. The Tribunal follows the view in CCE, Coimbatore v. GTN Engineering (Madras High Court) that the relevant date for refunds connected with export is the date of export. Applying the Export of Services Rules, the provision of service is treated as export when it is provided from India and used outside India and where payment terms require convertible foreign exchange; however, the requirement of receipt of payment in convertible foreign exchange is a condition for characterising the transaction as export and does not delay the fact of export until payment is actually received. Therefore, for exported services the relevant date for limitation is the date of export (for services, the date when the service is provided/when invoice is raised), and the one year limitation under Section 11B is to be computed from that date. [Paras 7, 9]

The one year limitation under Section 11B applies to refund claims under Rule 5, and the period is to be computed from the date of export of the service (or the date the invoice is raised).

Refund of CENVAT credit under Rule 5 - Entitlement of specific input/input service refunds - Entitlement to refund of specified input/input service credits which were disallowed by the original authority (custom house agent services, meal coupons, air travel agent services, courier, photocopying charges, and transport charges). - HELD THAT: - The appellants explained the use of the challenged services in relation to their exported output services. On the explanations and authorities relied on (including relevant High Court guidance on business relation use), the Tribunal found that the appellants are entitled to refund of the amounts disallowed in respect of custom house agent services, meal coupons, air travel agent services, courier services, and photocopying charges. With respect to transport charges, the appellants furnished details and explained recoveries from employees; the Tribunal directed the original authority to consider those details and grant refund of service tax corresponding to the expenditure actually incurred by the appellants. [Paras 11]

Refunds for the listed service items are allowed as explained; transport related refund to be granted by the original authority after considering the particulars and recovery adjustment furnished by the appellants.

Final Conclusion: The appeal is allowed: the Tribunal holds that refund claims under Rule 5 are subject to the one year limitation of Section 11B computed from the date of export (for services, the date of export/invoice), and directs grant of the specified refunds, leaving quantification/adjustment on transport charges to the original authority.

Business Auxiliary Service - classification of services - show cause notice - sufficiency - cum-tax benefit - extended period of limitation - suppression of facts - penalties under sections 76, 77 and 78 of the Finance Act, 1994 - remand for re-quantification

Business Auxiliary Service - classification of services - Whether the services rendered by the appellant fell within the definition of Business Auxiliary Service and from which date - HELD THAT: - The Tribunal examined the statutory definition of Business Auxiliary Service as it stood in the successive periods and matched the activities charged by the appellant (bill of lading fees, LCL consolidation, amendments, facilitation/processing, delivery order fees, documentation, hazardous handling, surrender charges, manifest correction, detention waiver/refund processing) to the sub-clauses of clause (19). It held that such activities fell within sub-clause (iv) (procurement of goods or services which are inputs for the client) as from 10-9-2004 and, in any event, within sub-clause (vii) as services incidental or auxiliary to activities in sub-clauses (i)-(vi). The Tribunal also rejected the appellant's contention that BAS required services to be rendered "on behalf of" the client as a condition applicable to all sub-clauses, observing that the "on behalf of" requirement applies only to certain sub-clauses and not to sub-clause (iv) or to (i) and (ii). Consequently the appellant was not liable under BAS prior to 10-9-2004 but was liable from 10-9-2004 onwards. [Paras 5, 6]

Services are taxable as Business Auxiliary Service from 10-9-2004 onwards; no liability prior to 10-9-2004.

Show cause notice - sufficiency - Whether the absence of a specific reference to the sub-clause of section 65(19) in the show cause notice vitiated the proceedings - HELD THAT: - The Tribunal observed that the show cause notice set out the activities in detail and explained how those activities fell within the statutory definition. It held that a notice need not recite the precise sub-clause number so long as the exercise of power is traceable to a legitimate source and the assessee is put on notice of the case against it. Reliance was placed on settled authority that misnaming the power does not vitiate the action when the source for the power exists and the assessee is adequately informed. [Paras 5]

Non-mention of the specific sub-clause does not vitiate the show cause notice or proceedings.

Cum-tax benefit - Whether the appellant is entitled to treat the consideration received as inclusive of service tax (cum-tax) while computing liability - HELD THAT: - The Tribunal accepted that the appellant entertained a belief that services were not taxable during the relevant earlier period and found merit in treating the gross receipts as inclusive of tax. It directed re-computation of service tax liability on the basis that the consideration received shall be treated as cum-tax, applying the Tribunal's and the Apex Court's precedent in Advantage Media Consultant. [Paras 5, 6]

Consideration shall be treated as cum-tax and service tax liability re-computed accordingly from 10-9-2004.

Extended period of limitation - suppression of facts - Whether invocation of the extended period of limitation for confirming demand was justified - HELD THAT: - The Tribunal considered the appellant's claim of bona fide belief but held that the appellant, being a registered steamer agent and having been issued clarificatory circulars and budgetary amendments expanding BAS, failed to take reasonable precautions or make disclosures to the department. The omission to declare the receipts in statutory returns and absence of any inquiry to the department amounted to suppression of facts. Applying precedent on suppression and extended limitation, the Tribunal upheld the invocation of the extended period to confirm the demand. [Paras 5]

Extended period of limitation was rightly invoked due to suppression of facts; invocation is upheld.

Penalties under sections 76, 77 and 78 of the Finance Act, 1994 - Whether penalties imposed under sections 76, 77 and 78 were sustainable and whether they could be levied simultaneously - HELD THAT: - The Tribunal analysed the nature of the penalties: section 76 for delay/default in payment (no mens rea), section 77 for violation of statutory provisions (no mens rea), and section 78 for suppression/willful mis-statement (mens rea element). Given its finding of suppression, section 78 was sustainable; sections 76 and 77 were also sustainable as penalties for non-payment/delay and statutory violation. The Tribunal accepted judicial precedents permitting concurrent imposition and clarified that for periods from 10-5-2008 onwards only section 78 (as amended) would be leviable instead of section 76. [Paras 5, 6]

Penalties under sections 76, 77 and 78 are sustainable; concurrent imposition permitted, but from 10-5-2008 only section 78 applies.

Remand for re-quantification - Whether the matter should be remanded for re-quantification of service tax, interest and penalties - HELD THAT: - In view of findings on classification, cum-tax treatment, extended limitation and sustainment of penalties, the Tribunal directed remand to the adjudicating authority to re-compute the service tax liability with effect from 10-9-2004, apply cum-tax treatment, determine consequential interest and quantify penal liabilities in accordance with law and the statutory amendments affecting penalty applicability from 10-5-2008. [Paras 6]

Matter remanded to adjudicating authority for re-quantification of tax, interest and penalties from 10-9-2004 (with penalty-rule modification from 10-5-2008).

Final Conclusion: The appeal is allowed in part: services of the appellant are held taxable as Business Auxiliary Service from 10-9-2004 (not prior thereto); consideration is to be treated as cum-tax and service tax recomputed with interest; penalties under sections 76, 77 and 78 are sustained (with only section 78 applying from 10-5-2008); the matter is remanded to the adjudicating authority for re-quantification and consequential determinations.

Business Auxiliary Service - ancillary services - taxability of services received from non-resident service providers - effect of insertion of Section 66A of the Finance Act, 1994 - pre-deposit for stay of recovery - balance of convenience - limitation as mixed question of fact and law - Cargo Handling Service

Business Auxiliary Service - ancillary services - taxability of services received from non-resident service providers - Whether services provided by Overseas Logistics Service Providers (OLSPs) to the appellant fall within the definition of Business Auxiliary Service and are taxable when received by the appellant. - HELD THAT: - The Tribunal found on the material and admissions that OLSPs entered into agreements to perform the overseas part of clearing and forwarding and performed activities falling within clauses (vi) and (vii) of the definition of Business Auxiliary Service. OLSPs not only undertook freight forwarding but also rendered incidental/auxiliary tasks (collection of payments, management/supervision, incurring freight/port and statutory charges abroad) and acted on behalf of the appellant in relation to dispatch and handling of cargo. The Tribunal concluded that the principal supply by OLSPs was Business Auxiliary Service and the clearing/forwarding acts were ancillary, making the receipts taxable as services obtained from the OLSPs. [Paras 6]

OLSPs' activities are Business Auxiliary Services and taxable when received by the appellant.

Effect of insertion of Section 66A of the Finance Act, 1994 - taxability before 18.04.2006 - Whether service tax is payable in respect of services rendered by non-resident OLSPs to the appellant for the period prior to 18.04.2006. - HELD THAT: - Relying on the legal position as reflected in earlier decisions of the High Court and the Apex Court (as noted by the Tribunal), the Tribunal accepted the appellant's submission that service tax was not payable for the amount attributable to the period prior to the insertion of Section 66A (with effect from 18.04.2006). Consequently the Tribunal held that the Service Tax amount of Rs.2,11,90,438.00 for the period up to 18.04.2006 should be deducted from the total demand. [Paras 6]

Service tax amounting to the portion relating to the period up to 18.04.2006 is not payable and is to be deducted from the total demand.

Limitation as mixed question of fact and law - Whether the demand for the period (notably April 1, 2005 to March 31, 2009) is barred by limitation. - HELD THAT: - The Tribunal recorded that question of limitation is a mixed question of fact and law and therefore is to be considered during the regular hearing of the appeal. No final adjudication on limitation was undertaken; the matter requires examination of facts and evidence on record during the appeal. [Paras 6]

Limitation issue is not finally adjudicated and is left for consideration during the regular hearing of the appeal.

Pre-deposit for stay of recovery - balance of convenience - financial hardship - Whether the appellant's application for waiver of pre-deposit of service tax and penalties should be granted. - HELD THAT: - The appellant sought complete waiver of pre-deposit and penalties, pleading financial hardship but produced no supporting evidence. Applying the balance of convenience (and following the approach in the cited High Court decision), the Tribunal found that the balance favoured the Department. The Tribunal therefore declined full waiver but directed a limited pre-deposit as condition for stay of recovery: 25% of the Service Tax amount after deducting the pre-18.04.2006 portion. On compliance, the remaining adjudged dues were ordered to be waived and recovery stayed during the pendency of the appeal; failure to comply would result in dismissal of the appeal. [Paras 6]

Applicant's prayer for total waiver refused; directed to pre-deposit 25% of the assessed Service Tax (after deduction of the pre-18.04.2006 portion) within eight weeks, on compliance remaining dues stayed and penalties waived; non compliance to result in dismissal of the appeal.

Final Conclusion: The Tribunal held that the services received from OLSPs are Business Auxiliary Services and generally taxable; service tax relating to the period up to 18.04.2006 is not payable and is to be deducted from the demand; the limitation plea is left to be considered during the appeal; the appellant's request for complete waiver of pre deposit was refused but a conditional stay was granted subject to a 25% pre deposit of the adjusted Service Tax within the stipulated time.

Taxable value - gross amount charged - discount/commission to distributors treated as consideration - Service Tax (Determination of Value) Rules, 2006 - Explanation to Rule 5(1) - waiver of pre-deposit - balance of convenience

Taxable value - gross amount charged - discount/commission to distributors treated as consideration - Service Tax (Determination of Value) Rules, 2006 - Explanation to Rule 5(1) - Whether the discount given to distributors (difference between MRP of recharge vouchers and amount remitted to the appellant) forms part of the taxable value of telecommunication service for the period April, 2008 to March, 2009. - HELD THAT: - The Tribunal found as a fact that recharge vouchers (RCVs) were sold at MRP to end users and the appellant deducted a discount paid to distributors when computing service tax. With effect from 18.04.2006 Section 67 was amended and the Service Tax (Determination of Value) Rules, 2006 were introduced; an explanation to Rule 5(1) clarifies that the value of telecommunication service is the gross amount paid by the person to whom service is provided. The Tribunal held that the service is provided to the ultimate consumer and not to the distributor, and that the amount collected from the consumer in lieu of RCVs represents service consideration; the discount retained by distributors is thereby commission/expenditure incurred in providing the service and ought to be included in the assessable value. Prior decisions relied upon by the appellant related to periods before the statutory amendment and were therefore not applicable. On the prima facie material before it, the Tribunal concluded the department's case for addition of the discount to assessable value is tenable.

Discounts paid to distributors are prima facie includible in the taxable value of the telecommunication service for April, 2008 to March, 2009; earlier case law pre-amendment is inapplicable.

Waiver of pre-deposit - balance of convenience - Whether the application for total waiver of pre-deposit of service tax and penalty should be allowed. - HELD THAT: - The Tribunal observed that the appellant failed to make out a case for complete waiver: the factual and legal position favoured the Revenue on a prima facie basis, the appellant did not plead financial hardship, and the balance of convenience lay with the department. Reliance was placed on precedent requiring consideration of financial hardship and balance of convenience. Consequently, the Tribunal declined full waiver but exercised its discretion to moderate the pre-deposit.

Application for total waiver dismissed; appellant directed to deposit 25% of the duty involved within eight weeks, failing which the appeals will be dismissed.

Final Conclusion: On the facts and law applicable to April, 2008 to March, 2009, the discount/commission retained by distributors is prima facie includible in the taxable value of telecommunication services under the post 2006 provisions and rules; the request for complete waiver of pre deposit is refused, but the appellant is directed to remit 25% of the duty involved within eight weeks or face dismissal of the appeals.

Eligibility of CENVAT credit for input services in relation to manufacture of final products - Non-eligibility of CENVAT credit for services attributable to trading activities - Definition of "input service" under Rule 2(l) of the CENVAT Credit Rules - Limitation where availment is not disclosed and facts are discovered on verification

Eligibility of CENVAT credit for input services in relation to manufacture of final products - Non-eligibility of CENVAT credit for services attributable to trading activities - Definition of "input service" under Rule 2(l) of the CENVAT Credit Rules - CENVAT credit claimed on commission paid for procurement of trading goods is not eligible as input service - HELD THAT: - The Tribunal examined the definition of "input service" under Rule 2(l) of the CENVAT Credit Rules and applied it to the facts. Rule 2(l) confines "input service" to services used by a manufacturer "in or in relation to the manufacture of final products and clearance of final products." The appellant admitted availment of credit on commission paid in respect of trading goods. Such commission related to trading activities which are not "in or in relation to the manufacture of final products." Precedents cited and considered support the proposition that activities not integrally connected with the manufacture cannot qualify as input service. The Tribunal therefore held that the portion of service tax credit attributable to commission on trading goods was rightly denied by the original authorities and the appellate authority. [Paras 5, 6, 8]

Appeal rejected insofar as CENVAT credit on commission paid for trading goods was denied.

Limitation where availment is not disclosed and facts are discovered on verification - The demand is not time-barred because the availment of credit on trading-related commission was not disclosed and came to light on departmental verification - HELD THAT: - The Tribunal accepted the adjudicating authority's finding that the appellant had not disclosed the availment of input service credit attributable to trading activities. The relevant facts were discovered only upon examination of contracts and commission agreements during verification. In such circumstances, the plea of limitation was rejected and the demand, interest and penalty sustained. [Paras 7]

Limitation defence dismissed; demand upheld on the basis of non-disclosure and discovery during verification.

Final Conclusion: The Tribunal upheld the denial of CENVAT credit on commission paid for trading goods and rejected the limitation defence; the appeal was dismissed and the stay application rendered infructuous.

Valuation under Section 4A of the Central Excise Act, 1944 - valuation under Section 4 of the Central Excise Act, 1944 - MRP declaration exemption for packages below ten grams under packaged commodities rules - waiver of pre-deposit for grant of stay of recovery - debatable question of law

Waiver of pre-deposit for grant of stay of recovery - debatable question of law - Application for waiver of pre-deposit and stay of recovery - HELD THAT: - The Tribunal found that the central controversy on valuation (whether valuation under Section 4A or Section 4 applies) is a debatable question of law. In exercise of its discretion on the application for waiver of pre-deposit, the Tribunal considered the parties' contentions, the disputed computation of differential duty, and the offer made by the appellant. Viewing the controversy as arguable, the Tribunal directed conditional relief by requiring a part pre-deposit. The order confines relief to payment of the specified deposit and provides that on such deposit the balance adjudged dues would stand waived and recovery stayed during the appeal's pendency. [Paras 4]

Deposit of Rs.25.00 lakhs to be made within four weeks; on such deposit the balance dues stand waived and recovery stayed during pendency of the appeal.

Valuation under Section 4A of the Central Excise Act, 1944 - valuation under Section 4 of the Central Excise Act, 1944 - MRP declaration exemption for packages below ten grams under packaged commodities rules - Whether valuation is to be determined under Section 4A or under Section 4 (including effect of MRP declaration on sachets below 10 gms) - HELD THAT: - The Tribunal recognised that the substantive question as to whether the assessee's goods should be valued under Section 4A (MRP-based valuation on the multi-pack carton) or under Section 4 (treatment given that individual sachets bear MRP and are below 10 gms and thereby fall within the exemption under packaged commodities rules) is a debatable legal issue. The Tribunal did not resolve this substantive controversy on merits and noted that the appellant has challenged the adjudicating authority's computation of differential duty. Because the question remains arguable, the Tribunal did not decide the valuation issue but granted interim relief conditioned on the pre-deposit directed in the other issue. [Paras 4]

Substantive valuation dispute held to be debatable and left for adjudication in the appeal; no final decision on applicability of Section 4A versus Section 4 was made.

Final Conclusion: The Tribunal, treating the valuation question as a debatable point of law, allowed conditional interim relief by directing the appellant to deposit the specified sum within four weeks; upon such deposit the remaining adjudged dues are waived and recovery is stayed pending disposal of the appeal, while the substantive valuation issue remains to be decided in the appeal.

CENVAT credit on input services - valid document under Rule 9(1) of the CENVAT Credit Rules, 2004 - Rule 4A(1) of the Service Tax Rules, 1994 - invoice/bill/challan requirements - use of debit notes as documentary basis for availment of credit - verification of documentary compliance before allowing credit - remand for fresh adjudication on limitation and penalty

Use of debit notes as documentary basis for availment of credit - Rule 4A(1) of the Service Tax Rules, 1994 - invoice/bill/challan requirements - valid document under Rule 9(1) of the CENVAT Credit Rules, 2004 - Debit notes issued by the service provider which fulfil the requirements of Rule 4A(1) of the Service Tax Rules, 1994 can constitute the document on which CENVAT credit may be availed under Rule 9(1) of the CENVAT Credit Rules, 2004, subject to verification. - HELD THAT: - The Tribunal examined Rule 4A(1) of the Service Tax Rules and observed that it prescribes serial numbering and specific particulars for invoices, bills or challans. The debit notes placed on record were found to satisfy the conditions prescribed under Rule 4A(1). Prior Tribunal decisions relied upon by the appellant support treating debit notes issued by the service provider as a permissible documentary basis for credit. The Tribunal accordingly held that there is no reason in principle to deny credit merely because the document is titled a debit note, provided the statutory requirements are met; however, the allowance of credit is subject to verification of the documents by the original authority. [Paras 5, 6, 7]

Credit may be allowed on the basis of debit notes that meet Rule 4A(1) requirements; matter remanded for verification of documents by the original authority.

Verification of documentary compliance before allowing credit - CENVAT credit on input services - Whether the debit notes placed on record were issued in the ordinary course by the service provider (i.e., whether they are the regular form in which the CHA issues debit notes) was not decided on merits and is to be verified by the original authority. - HELD THAT: - The Commissioner (Appeals) had observed that the appellant did not establish whether the debit notes were issued by the service provider in general or only for this appellant. The appellant subsequently produced a certificate from the CHA which the Tribunal accepted as material now placed before it, but noted that this evidence was not part of the original adjudication. Consequently, the Tribunal declined to make a final factual finding on that question and remanded the matter for the original authority to examine and verify whether the debit notes comply with the statutory form and are regularly issued by the service provider. [Paras 5, 7]

Remanded to the original authority to verify documentary compliance and the regularity/authenticity of the debit notes.

Remand for fresh adjudication on limitation and penalty - The questions of applicability of extended period of limitation and the imposition of penalty were not finally adjudicated and are to be considered afresh by the original authority. - HELD THAT: - The original authority had taken a view on invocation of extended limitation and had imposed penalty; the Commissioner (Appeals) did not record detailed findings on limitation and penalty. The Tribunal directed that these issues be reconsidered by the original authority in the remand exercise, taking into account submissions, evidence and relevant decisions referred to before the Tribunal, and after affording the appellant adequate opportunity of hearing. [Paras 2, 7, 8]

Remanded to the original authority to decide the issues of limitation and imposition of penalty afresh after hearing the parties.

Precedential applicability of prior authority - The decision in Universal Chemicals (cash memo issue) relied upon by the Revenue was held inapplicable to the facts of the present case. - HELD THAT: - The Tribunal distinguished Universal Chemicals as dealing with admissibility of credit on the strength of cash memos, which is different in legal character from the present issue concerning debit notes and compliance with Rule 4A(1). On that basis the Tribunal found the cited authority not applicable. [Paras 6]

Universal Chemicals decision not applicable to the present facts.

Final Conclusion: Appeal allowed by way of remand; impugned orders set aside and the matter remitted to the original authority to re-adjudicate all issues (including verification of debit notes, limitation and penalty) after considering the appellant's submissions, the evidence and the Tribunal decisions referred to, and after affording the appellant an opportunity of hearing.

Availment of CENVAT Credit of Service Tax on input services rendered at off-site windmill farms - Conflict of Tribunal decisions - Reference to Larger Bench - Binding effect of Division Bench decisions and co ordinate Bench divergence - Avoidance of judicial uncertainty

Availment of CENVAT Credit of Service Tax on input services rendered at off-site windmill farms - Conflict of Tribunal decisions - Existence of conflicting decisions of the Tribunal on eligibility to avail CENVAT credit of Service Tax paid on services at windmill farms situated away from factory premises and the need for authoritative resolution. - HELD THAT: - The Bench recorded that divergent views have been taken by various Benches of the Tribunal on whether Service Tax paid by a service provider for installation, erection, maintenance or other services at windmills located away from factory premises - where electricity generated is surrendered to the common grid and equivalent quantum withdrawn at the factory - is eligible for CENVAT credit. The Tribunal's earlier decision in Rajhans Metals Pvt. Ltd. was followed by some Benches and by a Division Bench in Lanxess ABS Ltd., whereas other Benches (including Rajratan Global Wires Ltd. and Endurance Technologies Pvt. Ltd.) have taken an opposite view even after noting Rajhans. The Bench observed that the competing Tribunal precedents, and a relevant decision of the High Court of Bombay (Deepak Fertilizers & Petrochemicals Corporation Ltd.) in a similar situation, create a legal controversy requiring resolution by a Larger Bench to secure consistency and avoid judicial uncertainty. Consequently the matter was referred for constitution of a Larger Bench so that the conflict may be authoritatively settled. [Paras 6, 8, 10]

The question is not decided on merits; the matter is referred to a Larger Bench for authoritative determination of the conflict between Tribunal Benches.

Final Conclusion: There are conflicting Tribunal decisions on the availability of CENVAT credit of Service Tax in respect of services rendered at off site windmill farms; the matter is referred to a Larger Bench for definitive adjudication and to remove the existing judicial divergence.

Waiver of pre-deposit - Cenvat credit on input services - Rule 6(3) of the Cenvat Credit Rules, 2004 - Input Service Distributor credit utilisation - Reversal of credit as substantial compliance - Prima facie case for grant of stay

Waiver of pre-deposit - Rule 6(3) of the Cenvat Credit Rules, 2004 - Reversal of credit as substantial compliance - Input Service Distributor credit utilisation - Whether the applications for waiver of pre-deposit and stay of recovery should be allowed where the assessee claims reversal of Cenvat credit attributable to exempted goods and has produced a Chartered Accountant's certificate - HELD THAT: - The Tribunal found it undisputed that the appellant availed Cenvat credit of service tax on input services distributed by its Head Office as an Input Service Distributor and utilised such credit for discharge of central excise duty on manufactured goods. The appellant produced a Chartered Accountant's certificate and claimed reversal of the amount attributable to input services used in manufacture of exempted products in terms of Rule 6(3) of the Cenvat Credit Rules, 2004. Although the departmental authority was not intimated of the option of reversal prior to reversal, the Tribunal held that having reversed the amount and produced the CA certificate, the appellant made out a prima facie case. Reliance was placed on the principle that post-amendment reversal under Rule 6(3) constitutes substantial compliance. On that basis the Tribunal concluded that the requirements for granting waiver of pre-deposit and stay of recovery pending disposal of the appeals were satisfied. [Paras 6, 7]

Applications for waiver of pre-deposit and stay of recovery are allowed and recovery is stayed until disposal of the appeals.

Final Conclusion: The Tribunal allowed the stay petitions and waived the pre-deposit and recovery pending disposal of the appeals on the basis that the appellant had reversed the credit attributable to exempted goods and produced a Chartered Accountant's certificate, thereby making out a prima facie case.

Manufacture includes packing or labelling - classification of goods under the Third Schedule of the Central Excise Tariff - affixing or alteration of Maximum Retail Price as constituting manufacture - requirement under DGFT Notification to declare Maximum Retail Price before customs clearance - waiver of pre-deposit and stay of recovery pending appeal

Manufacture includes packing or labelling - affixing or alteration of Maximum Retail Price as constituting manufacture - requirement under DGFT Notification to declare Maximum Retail Price before customs clearance - Whether affixing Maximum Retail Price (MRP) on imported pre packaged cosmetic products before customs clearance, as required by DGFT Notification, amounts to 'manufacture' attracting central excise duty under the Third Schedule and Section 2(f) of the Central Excise Act, 1944 - HELD THAT: - The Tribunal observed that the appellants affixed the retail sale price on imported pre packaged cosmetics prior to clearance from the customs in compliance with Notification No. 44 (RE 2000)/1997 2002 issued by the Director General of Foreign Trade, which mandates declaration of MRP on imported pre packaged commodities. The appellants paid Countervailing Duty at the time of customs clearance based on the declared retail price. There is no evidence that any labelling, relabelling, declaration or alteration of retail sale price took place after customs clearance or that any post clearance process amounting to packing, repacking, labelling or other treatment was undertaken by the appellants. Since the pricing declaration occurred prior to customs clearance pursuant to statutory requirement and no post clearance activity constituting 'manufacture' was shown, the Tribunal found that the Revenue's characterisation of the activity as manufacture was not established on the record and the appellants had made out a strong case for interim relief. [Paras 7]

Pre deposit of the disputed duty, interest and penalty waived and recovery stayed during the pendency of the appeal.

Final Conclusion: The Tribunal allowed the stay applications, holding that affixation of MRP on imported, pre packaged cosmetics prior to customs clearance in compliance with the DGFT notification, with CVD paid at customs, did not constitute post clearance 'manufacture' on the evidence before it; accordingly, pre deposit was waived and recovery stayed pending appeal.

Tax on transfer of property in goods involved in execution of works contract - taxable turnover excludes turnover in the course of inter-State trade or commerce - movement of goods incidental to or occasioned by contract (inter-State sale) - constitutional limitation under Entry 54 and Article 286 on State taxing power

Tax on transfer of property in goods involved in execution of works contract - taxable turnover excludes turnover in the course of inter-State trade or commerce - movement of goods incidental to or occasioned by contract (inter-State sale) - constitutional limitation under Entry 54 and Article 286 on State taxing power - Whether turnover pertaining to inter State purchases of goods used in execution of the works contract was exigible to tax under Section 5 B of the Karnataka Sales Tax Act, 1957 - HELD THAT: - The Court examined Section 5 B (levy on transfer of property in goods involved in works contracts) read with the definition of "taxable turnover" in Section 2(1)(u 1), and concluded that the statutory scheme expressly excludes turnover of purchase or sale in the course of inter State trade or commerce from "taxable turnover". Applying the settled jurisprudence that a sale occasions movement of goods when the movement is the result of or incidental to the contract (and that the contract need not expressly stipulate inter State movement), the Court held that where goods procured outside the State were approved by the contractee, inspected, dispatched and delivered for exclusive use in the turnkey project and central sales tax had been paid to the States of origin, such transactions amounted to inter State sales. The Court further observed that the Forty sixth Amendment and consequent insertion of Article 366(29 A)(b) and Section 5 B do not enlarge State power to tax transactions that constitutionally fall in the course of inter State trade or are outside the State; Entry 54 and Article 286 continue to limit the States' power to levy tax. Applying these principles to the facts - permission by KPTCL to procure specified items from out of State suppliers, approval/inspection by KPTCL, delivery to the project site and payment of central tax at source - the Court found the inter State character of the purchases and held that such turnover could not be brought within the taxable turnover under Section 5 B. [Paras 30, 31, 32]

The Second Revisional Authority's order bringing inter State purchases used in execution of the works contract to tax under Section 5 B is set aside; the First Revisional Authority's order dropping the proposal to levy tax on those purchases is confirmed.

Final Conclusion: Appeal allowed; assessment revisional order dated 2nd March 2010 set aside and the earlier revision order dropping tax on inter State purchases used in the works contract is confirmed; no order as to costs.

Legislative competence under Entry 62 of List II - tax on luxuries as levy on activity of enjoyment or indulgence - taxable event - actual enjoyment/availment versus notional liability - charging section conformity with statutory scheme and prohibition of double taxation - interpretation to uphold constitutionality where possible

Legislative competence under Entry 62 of List II - tax on luxuries as levy on activity of enjoyment or indulgence - Validity of section 3D of the Karnataka Tax on Luxuries Act, 1979 as a legislative exercise under Entry 62 of List II - HELD THAT: - The court examined whether section 3D, as introduced by Karnataka Act No. 3 of 2004, impermissibly taxed non-luxuries or otherwise exceeded the State's taxing power under Entry 62. Applying and reconciling the principles in Express Hotels and Godfrey Phillips, the court held that a valid tax on 'luxuries' must have nexus with an activity of enjoyment or indulgence that is beyond the ordinary requirement of an average member of society. Section 3D, when read with Explanation I, requires more than one of the specified facilities to be provided and a member who is required to pay (by way of fee, deposit, donation or similar charge) for such facilities. Thus construed, the charge targets provision of luxuries to a member who is required to pay for them and falls within the State's competence under Entry 62. The court preferred an interpretation that would render the provision constitutional where such a reading is available.

Section 3D is not ultra vires the State's taxing power under Entry 62 when interpreted to tax provision of combined specified facilities enjoyed by a member who is required to pay for them.

Taxable event - actual enjoyment/availment versus notional liability - taxable event - Whether the taxable event under section 3D requires actual utilisation of the facility by a member or whether mere availability suffices - HELD THAT: - The court considered the competing precedents: Express Hotels (which permits notional/constructive bases for taxation where nexus exists) and Godfrey Phillips (which emphasizes taxation of the activity of enjoyment or indulgence). Construing section 3D with Explanation I, the court found the section does not impose tax merely on the existence of a facility. The taxing event is the provision of more than one specified facility to a member who is required to pay for it. Consequently, the provision contemplates charging where the member is provided and charged for luxuries (and not mere, passive availability), and the levy is not invalid on the sole ground that it may be imposed without actual utilisation in every case.

Section 3D's taxable event is the provision of combined specified facilities to a member who is required to pay therefor; the section is not a blanket levy merely on availability irrespective of charging.

Charging section conformity with statutory scheme and prohibition of double taxation - interpretation to uphold constitutionality where possible - Whether section 3D is misfit in the scheme of the Act or results impermissibly in double taxation in relation to sections 3, 3B and 3C - HELD THAT: - Petitioners argued section 3D is inconsistent with sections 3B/3C (which tax on percentage of actual charges) and amounts to double taxation. The court held that section 3D constitutes an independent charging provision with a distinct measure (per-member rate linked to members provided and required to pay for combined facilities) and is not automatically displaced by other charging provisions. Read coherently with Explanation I, section 3D taxes a specified form of provision of luxuries and does not necessarily produce impermissible double taxation; questions as to particular assessments and whether a given activity was already taxed under another provision are matters for assessment, not constitutional invalidation of section 3D.

Section 3D is an independent charging provision within the Act and is not invalid merely because other provisions tax luxuries by different measures; potential overlap must be addressed in assessment, not by striking down the section.

Assessment and remedial redetermination - interpretation to uphold constitutionality where possible - Validity of assessments and notices made on the basis of total club membership irrespective of members actually provided and charged for specified luxuries; remedy in respect of Annexure G in W.P. No. 992 of 2006 - HELD THAT: - The court found that certain assessments (including the assessment underlying the notice at annexure G in W.P. No. 992 of 2006) proceeded on an incorrect understanding of section 3D by computing tax on total membership rather than on those members provided and required to pay for the combined specified facilities. Such assessments are contrary to the statutory scheme as interpreted in this decision. The court quashed the annexure G notice in W.P. No. 992 of 2006 and granted liberty to respondents to redo assessments in conformity with the interpretation laid down. For other petitioners where orders were passed in variance with this interpretation, the court directed reassessment in accordance with law.

Assessments and notices based on total membership irrespective of which members were provided and charged for luxuries are incorrect; annexure G in W.P. No. 992 of 2006 is quashed with liberty to reassess, and other inconsistent orders are to be redone in conformity with this interpretation.

Final Conclusion: Section 3D of the Karnataka Tax on Luxuries Act, 1979, as introduced by Karnataka Act No. 3 of 2004, is constitutionally sustainable when read with Explanation I to tax the provision of specified combined facilities to a club member who is required to pay; the provision does not operate as a blanket levy on mere availability of facilities or on total membership irrespective of charging. Assessment orders premised on the contrary understanding are quashed or directed to be redone in accordance with this interpretation; annexure G in W.P. No. 992 of 2006 is quashed with liberty to reassess.