TaxTMI Updates e-Newsletter
Jul 04,2015

Additional depreciation - application of Section 32(1)(iia) for additional depreciation - production of electricity through windmill as production of an article or thing - binding nature of a High Court decision on departmental assessments - effect of dismissal of Special Leave Petition at admission stage

Additional depreciation - production of electricity through windmill as production of an article or thing - application of Section 32(1)(iia) for additional depreciation - binding nature of a High Court decision on departmental assessments - effect of dismissal of Special Leave Petition at admission stage - Assessee entitled to claim additional depreciation for the assessment years 2005-06 and 2006-07 as allowed by the CIT(A). - HELD THAT: - The CIT(A) allowed the claim after applying the Madras High Court decisions holding that setting up windmills for generation of electricity constitutes production of an article or thing and falls within the scope of additional depreciation under Section 32(1)(iia). The CIT(A) observed that the Department's reliance on an unrelated construction decision was misplaced and noted that the Special Leave Petition against the Madras High Court decision in CIT v. VTM Ltd. was dismissed at the admission stage; accordingly the High Court verdict remained binding on the Department. The Tribunal found no material to show that the High Court rulings relied upon had been modified or reversed by the Supreme Court and held that the Assessing Officer was not justified in denying the additional depreciation for the stated years. [Paras 2, 3, 4]

Revenue's appeals dismissed; allowance of additional depreciation directed for both assessment years.

Final Conclusion: The appeals filed by the Revenue are dismissed and the Assessing Officer is directed to allow the additional depreciation claimed by the assessee for AY 2005-06 and AY 2006-07, in accordance with the binding Madras High Court precedents and absence of any reversal by the Supreme Court.

Disallowance under section 36(1)(iii) of the Income-tax Act relating to interest on interest-free advances - application of average cost of debt for computing disallowance where mixed funds are deployed - reasonableness of remuneration and applicability of section 40A(2)(a)/40A(2)(b) to salary paid to specified persons

Disallowance under section 36(1)(iii) of the Income-tax Act relating to interest on interest-free advances - application of average cost of debt for computing disallowance where mixed funds are deployed - Whether interest expenditure debited by the assessee should be disallowed to the extent attributable to interest-free advances to certain parties and the manner of computing any such disallowance - HELD THAT: - The Tribunal accepted that where an assessee has mixed funds (owned and borrowed) and makes interest-free advances, disallowance of interest relatable to such advances is warranted following the ratio of the jurisdictional High Court. The Court observed that the cited High Court decision is silent on the rate to be applied when mixed funds are involved and found merit in the assessee's contention that disallowance, if any, should be limited to the assessee's average cost of debt. The Tribunal followed a Bombay Bench decision which treats total funds (own and borrowed) for working out interest disallowance and therefore directed the Assessing Officer to recompute the disallowance under section 36(1)(iii) by adopting the average cost of debt for the year and applying it to the interest-free advances, granting the assessee a reasonable opportunity of hearing. The matter of quantum was remitted for recomputation only; the principle of applying average cost of debt was accepted. [Paras 13, 14, 15]

Assessee's appeal allowed in part; Assessing Officer directed to recompute disallowance under section 36(1)(iii) using the average cost of debt and apply it to the interest-free advances, after affording opportunity of hearing.

Reasonableness of remuneration and applicability of section 40A(2)(a)/40A(2)(b) to salary paid to specified persons - Whether salary paid to Shri R.S. Saluja, a person covered under section 40A(2)(b), is excessive or unreasonable and therefore to be disallowed - HELD THAT: - The Tribunal upheld the findings of the CIT(A) that the Assessing Officer did not establish that the payment was made with a motive of tax planning or tax advantage. The Tribunal reiterated that under section 40A(2)(a) the test is whether the expenditure is excessive or unreasonable having regard to fair market value and the legitimate needs or benefits to the business. The Assessing Officer doubted genuineness but did not make a finding on excessiveness vis-a -vis market conditions. Given that the individual was an experienced executive engaged in the business and no tax-avoidance motive was shown, the Tribunal found no basis to substitute the partners' commercial judgment and therefore upheld deletion of the disallowance. [Paras 16, 17, 18, 19]

Revenue's appeal dismissed; CIT(A)'s deletion of the disallowance of salary paid to Shri R.S. Saluja upheld.

Final Conclusion: Assessee's appeal partly allowed: interest disallowance under section 36(1)(iii) to be recomputed by AO using the average cost of debt and applied to the interest-free advances; revenue's appeal dismissed and deletion of salary disallowance under section 40A(2) upheld.

Registration under section 12AA - Registration under section 80G(5) - Perpetuity and dissolution clause in trust deed - Amendment of trust deed to provide merger/amalgamation clause - Takeover of net assets by Charity Commissioner on failure of trust

Registration under section 12AA - Registration under section 80G(5) - Perpetuity and dissolution clause in trust deed - Amendment of trust deed to provide merger/amalgamation clause - Takeover of net assets by Charity Commissioner on failure of trust - Whether refusal of registration under section 12AA and section 80G(5) on the ground that the trust deed lacks a dissolution/perpetuity clause was justified - HELD THAT: - The Tribunal found that the sole reason given by the DIT (Exemptions) for refusing registration was absence of a dissolution clause and lack of express perpetuity in the trust deed. Reliance was placed on a coordinate Bench decision of the Delhi Tribunal in Shri Sai Samarpan Trust Co., which held that where a charitable trust is registered with the sub registrar, the net assets would be taken over by the Charity Commissioner in the event of failure and, accordingly, rejection of registration on the ground of absence of a dissolution clause is not sustainable. The assessee had also applied to the Charity Commissioner to amend the trust deed to make the trust irrevocable and to provide that, if it ceases to function, its corpus can only be merged or amalgamated with one or more public charitable trusts/bodies of similar objects subject to the Charity Commissioner's approval. No material was produced by the Revenue to show that the aims and objects of the trust were not charitable. Applying the precedent and having regard to the proposed amendment, the Tribunal held there was no justification for refusing registration under sections 12AA and 80G(5). [Paras 3, 4]

Registration under section 12AA and section 80G(5) refused by the DIT (Exemptions) is unsustainable; the refusals are set aside and the DIT (Exemptions) is directed to grant registration.

Final Conclusion: Both appeals are allowed; the orders of the DIT (Exemptions) refusing registration under section 12AA and section 80G(5) are reversed and the DIT (Exemptions) is directed to grant the registrations.

Definition of 'agricultural land' under Section 2(14)(iii)(b) - measurement of distance by approach road versus straight line (crow's flight) - taxability of sale proceeds of agricultural land - not taxable as capital gain or business income - reliance on revenue record and Patwari certificate to determine character of land - precedent consistency and followability of High Court and Tribunal decisions

Measurement of distance by approach road versus straight line (crow's flight) - definition of 'agricultural land' under Section 2(14)(iii)(b) - precedent consistency and followability of High Court and Tribunal decisions - Distance for determining whether land falls within the ambit of Section 2(14)(iii)(b) is to be measured by approach road and not by straight line (crow's flight). - HELD THAT: - The Tribunal examined competing contentions on whether the statutory prescription of distance for treating land as other than agricultural should be measured by the shortest straight line on the horizontal plane or by the approach road. Having considered the explanatory purpose of Section 2(14)(iii)(b) (which requires regard to extent and scope of urbanization) and a consistent line of decisions of various Benches and the Hon'ble Punjab & Haryana High Court in Satinder Pal Singh, the Tribunal held that straight-line measurement would ignore urbanization and thereby be incongruous with the statutory object. The Tribunal therefore followed the approach-road method of measurement, noting the consistency of judicial and Tribunal authorities on this point and that no contrary binding decision was shown to exist. [Paras 9, 15]

Distance of 8 kms is to be measured by approach road and not by crow's flight; issue decided in favour of the assessees.

Taxability of sale proceeds of agricultural land - not taxable as capital gain or business income - reliance on revenue record and Patwari certificate to determine character of land - precedent consistency and followability of High Court and Tribunal decisions - Consideration received on sale of the lands held to be agricultural in revenue records and located beyond the prescribed distance is not taxable either as capital gain or as business income. - HELD THAT: - On the facts the lands were shown as agricultural in revenue records and certified by the Patwari; having held (for measurement by approach road) that the lands were beyond the specified distance and therefore agricultural within Section 2(14), the Tribunal found it unnecessary to treat the surplus as business income. The Tribunal relied on precedent, including decisions of High Courts and the Supreme Court (confirming DLF United Limited), which establish that land shown as agricultural in revenue records and not used for non-agricultural purposes until sale retains its agricultural character and sale consideration is not taxable as capital gain or business income. Consequently the CIT(A)'s direction to treat the surplus as business income was set aside. [Paras 16, 17, 21]

Sale consideration is not assessable as capital gain or business income; ground allowed in favour of the assessees.

Consequential relief on interest - Interest charged consequential to the impugned assessment is to be adjusted in accordance with the decision allowing the appeals. - HELD THAT: - The Tribunal noted that interest implications arise only consequentially from the reversal of taxability and directed the Assessing Officer to grant consequential relief to the assessees in respect of interest. [Paras 22]

Assessees entitled to consequential relief on interest; AO directed to allow relief.

Final Conclusion: Appeals allowed: distance to be measured by approach road (favouring assessees), lands held agricultural and sale proceeds not taxable as capital gain or business income, and consequential relief on interest to be granted.

Indexation of cost of acquisition - date of accrual of rights on allotment/payment for capital asset - possession and execution of conveyance versus allotment/payment dates for computation of indexed cost - cost of acquisition includes incidental expenses such as stamp duty, registration fees, brokerage and interest on delayed payments

Indexation of cost of acquisition - date of accrual of rights on allotment/payment for capital asset - possession and execution of conveyance versus allotment/payment dates for computation of indexed cost - Assessee entitled to claim indexation from the respective dates of payments/allotment and not from the date of execution of the conveyance or physical possession. - HELD THAT: - The Tribunal found that the assessee requested and received an allotment letter dated 24-02-1994 and made substantial payments in 1993-1996 in terms of the builder's payment schedule. On these facts the right in the allotted flat accrued on allotment/payment and not only upon execution of the final agreement or physical possession in 1999. Reliance on earlier Tribunal and High Court decisions supports grant of indexation from the dates on which the payments were made. The Tribunal therefore directed that indexation be allowed for respective amounts from the dates when they were paid. [Paras 8]

Indexation to be allowed from the respective dates of payment/allotment; Assessing Officer to apply indexation from those dates.

Cost of acquisition includes incidental expenses such as stamp duty, registration fees, brokerage and interest on delayed payments - Expenses incurred in relation to purchase (stamp duty, registration fees, brokerage, interest on delayed payments and similar charges) are to be included in the cost of acquisition of the flat. - HELD THAT: - The Tribunal rejected the view that the cost of acquisition is confined to the price stated in the agreement. Having found that the various expenses were incurred in connection with the purchase, the Tribunal held they form part of the cost of the flat and directed the Assessing Officer to treat those expenses as part of cost and recompute the capital gain/loss accordingly. [Paras 14]

Stamp duty, registration fees, brokerage, interest on delayed payments and other purchase-related expenses to be included in the cost of acquisition; Assessing Officer to recompute gain/loss.

Final Conclusion: Appeal allowed: indexation to be applied from the respective dates of payment/allotment and incidental purchase expenses (stamp duty, registration fees, brokerage, interest, etc.) to be included in cost of acquisition; Assessing Officer directed to recompute capital gain/loss accordingly.

Disallowance under Section 14A read with Rule 8D - nexus of expenditure with exempt income - apportionment of expenditure for earning exempt income - rebate under Section 88E - interaction of Section 88E with Section 87(2) - remand for fresh calculation and verification

Disallowance under Section 14A read with Rule 8D - nexus of expenditure with exempt income - apportionment of expenditure for earning exempt income - remand for fresh calculation and verification - Whether the disallowance under Section 14A r.w. Rule 8D as made by the Assessing Officer required fresh consideration and recalculation - HELD THAT: - The Tribunal observed that the Assessing Officer had made an addition under Section 14A r.w. Rule 8D without considering or recording findings on crucial facts relied upon by the assessee, including the contention that borrowed funds were not utilised for acquiring investments and that loans advanced were unconnected with acquisition of shares. The assessee had also put forward an alternative submission that, if any disallowance were to be made, it should be restricted to a much lower amount. Because these factual and evidentiary aspects bearing on the nexus between expenditure and exempt dividend income were not addressed by the AO, the Tribunal held that the matter could not properly be decided on the existing records. For these reasons the Tribunal did not finally quantify or sustain the AO's disallowance but restored the matter to the AO with a direction to consider the assessee's submissions and make a fresh calculation. [Paras 4]

Partly allowed; matter remitted to the Assessing Officer for fresh consideration and recomputation of any disallowance under Section 14A r.w. Rule 8D.

Rebate under Section 88E - interaction of Section 88E with Section 87(2) - remand for fresh calculation and verification - Whether the rebate claimed under Section 88E of the Act was allowable to the assessee and, if so, in what amount - HELD THAT: - The Tribunal examined competing views and precedents and found that where an assessee has overall positive income for the assessment year, rebate under Section 88E is not restricted to income after set-off of earlier losses so long as provisions of Section 87(2) do not preclude such allowance. Noting that the Assessing Officer allowed rebate only on income after certain set-offs and had not addressed applicability of Section 87(2), the Tribunal held that the assessee was entitled to the rebate at the rate calculated by the assessee (i.e., the higher amount claimed), but remitted the matter to the AO for a limited purpose: to decide afresh whether any provision of Section 87(2) affects the allowance and to compute the amount accordingly. [Paras 6, 7]

Partly allowed; rebate under Section 88E to be allowed at the rate claimed by the assessee subject to fresh decision by the AO on applicability of Section 87(2) and recomputation.

Final Conclusion: The appeal is allowed in part: the disallowance under Section 14A r.w. Rule 8D is remitted to the Assessing Officer for fresh consideration and recalculation after affording the assessee an opportunity to establish lack of nexus and non-utilisation of borrowed funds for investments; the claim for rebate under Section 88E is accepted in principle in the assessee's favour and remitted to the AO for limited re-adjudication only to decide whether Section 87(2) affects the allowance and to compute the exact quantum.

Fees for technical services - special presumptive taxation for non-residents providing services in connection with prospecting, extraction or production of mineral oils (Section 44BB) - taxation of foreign companies for royalties and fees for technical services (Section 44D) - pith and substance test for characterisation of agreements - CBDT Circular dated 22.10.1990 and Attorney General's opinion on mining operations

Fees for technical services - special presumptive taxation for non-residents providing services in connection with prospecting, extraction or production of mineral oils (Section 44BB) - taxation of foreign companies for royalties and fees for technical services (Section 44D) - pith and substance test for characterisation of agreements - CBDT Circular dated 22.10.1990 and Attorney General's opinion on mining operations - Whether payments made by ONGC to non-resident/foreign companies for services connected with prospecting, extraction or production of mineral oil are assessable under Section 44BB or as 'fees for technical services' under Section 44D read with Explanation 2 to Section 9(1)(vii). - HELD THAT: - The Court applied the pith and substance test to the contracts and construed the relevant statutory provisions and Explanation 2 to Section 9(1)(vii) together with Sections 44BB and 44D. Section 44BB provides a special presumptive computation (10%) for non-residents providing services or supplying plant and machinery in connection with prospecting, extraction or production of mineral oils, whereas Section 44D deals with computation of income of foreign companies by way of royalties or fees for technical services. Explanation 2 excludes consideration for construction, assembly, mining or like projects from the expression 'fees for technical services'. Drilling operations for production of petroleum fall within mining operations as understood from the Mines Act, the Oil Fields (Regulation and Development) Act, 1948 and related rules. The CBDT Circular dated 22.10.1990, adopting the Attorney General's opinion, treats prospecting for and extraction of mineral oil as 'mining operations' and holds that payments for such services are chargeable under Section 44BB and not as 'fees for technical services' under Section 44D. Examining the contractual descriptions in the group of cases, the Court found that the dominant purpose of the agreements was directly and inextricably connected with prospecting, extraction or production of mineral oil (even if ancillary services were also provided). On that basis the payments are more appropriately assessable under Section 44BB and not under Section 44D/Explanation 2 to Section 9(1)(vii). [Paras 8, 9, 11, 13, 14]

The contracts in the present appeals are in pith and substance connected with prospecting, extraction or production of mineral oil; payments are assessable under Section 44BB and not as 'fees for technical services' under Section 44D/Section 9(1)(vii); High Court orders are set aside and appeals allowed.

Final Conclusion: The appeals are allowed: the Court holds that payments to the non-resident/foreign companies under the contracts in question are chargeable under Section 44BB (special presumptive taxation for services connected with prospecting, extraction or production of mineral oils) and not as 'fees for technical services' under Section 44D/Section 9(1)(vii); the High Court's contrary orders are set aside.

Exemption notification GSR No. 307(E) dated 31.3.1983 - power to grant exemption under Section 24 AA of the Companies (Profits) Surtax Act, 1964 - foreign companies with agreements for association or participation in prospecting or extraction of mineral oils - foreign companies providing services, facilities or supplying plant and machinery in connection with prospecting or extraction of mineral oils - strict interpretation of fiscal statutes and exemption notifications - representative assessee under Section 160 A

Exemption notification GSR No. 307(E) dated 31.3.1983 - foreign companies with agreements for association or participation in prospecting or extraction of mineral oils - foreign companies providing services, facilities or supplying plant and machinery in connection with prospecting or extraction of mineral oils - power to grant exemption under Section 24 AA of the Companies (Profits) Surtax Act, 1964 - strict interpretation of fiscal statutes and exemption notifications - Whether the exemption notification GSR No. 307(E) dated 31.3.1983 extends to foreign companies which provided services or supplied plant/machinery to ONGC under service agreements, or is confined to foreign companies with whom the Central Government had entered into agreements for association or participation in prospecting or extraction of mineral oils. - HELD THAT: - Section 24 AA confers a two fold power on the Central Government to grant exemption: (a) in favour of foreign companies with whom the Central Government has entered into agreements for association or participation in prospecting, extraction or production of mineral oils; and (b) in favour of foreign companies providing services or making available plant or machinery in connection with such business. The notification GSR No. 307(E) uses the language of sub section (2)(a) and, on its face, grants exemption only to foreign companies with whom the Central Government had contracts resulting in direct association or participation by the Government (or an authorised person) in the business of prospecting or extraction or production of mineral oils. The legislative history shows a two fold objective but the Government, exercising the broad power under Section 24 AA, consciously restricted the exemption by omitting the category falling under sub section (2)(b). Applying the established rule of strict interpretation of fiscal statutes and exemption notifications, the Court will not read into the notification an enlargement of scope beyond the plain words chosen by the Executive. Consequently foreign companies merely supplying services or plant/machinery under service agreements with ONGC do not fall within the exemption granted by GSR No. 307(E). [Paras 12, 13]

The exemption notification is confined to foreign companies covered by sub section (2)(a) and does not extend to foreign companies covered by sub section (2)(b); the appeals lack merit.

Final Conclusion: The High Court's judgment is affirmed; the appeals are dismissed without any order as to costs.

Meaning of agricultural land under s.2(14)(iii)(b) - road-distance test - approach by road versus aerial/straight-line distance - remand to assessing officer for measurement and verification - absence of a substantial question of law

Meaning of agricultural land under s.2(14)(iii)(b) - road-distance test - approach by road versus aerial/straight-line distance - remand to assessing officer for measurement and verification - Tribunal's direction that distance for determining whether land is agricultural under s.2(14)(iii)(b) is to be measured by road and remand to AO to measure and decide accordingly is correct and sustainable. - HELD THAT: - The High Court noted that the Tribunal had followed the decision of the Punjab & Haryana High Court and earlier Tribunal authority holding that distance is to be measured by approach via road and not by aerial/crow's-flight distance. The Tribunal therefore remanded the matter to the Assessing Officer to measure the distance from the municipal limit on that basis, permitting the assessee or authorised representative to be present during measurement. The Department did not place any contrary High Court decision before this Court, nor did it contend that the lands were within the prescribed limit when measured by road. In these circumstances the High Court held that the question raised did not give rise to a substantial question of law warranting interference. [Paras 5, 11]

Appeal dismissed; Tribunal's road-distance approach and remand to AO upheld.

Final Conclusion: The High Court dismissed the Department's appeal under section 260A, upholding the Tribunal's view that distance for s.2(14)(iii)(b) is to be measured by road and affirming the remand to the Assessing Officer to measure and decide accordingly, there being no substantial question of law.

Deduction under Section 80IB(10) of the Income Tax Act, 1961 - area threshold for plot eligibility - exclusion of Development Plan (DP) road from plot area - effect of trifurcation of land on net plot area - substantial question of law

Deduction under Section 80IB(10) of the Income Tax Act, 1961 - area threshold for plot eligibility - Admission of appeal and framing of a substantial question whether the plot area for Vidhi Complex is below one acre and therefore the primary condition for claiming deduction under Section 80IB(10) is not fulfilled. - HELD THAT: - The High Court, after perusing the Tribunal order and its earlier order dated 22nd February, 2013, held that the appeal raises a substantial question of law concerning whether the plot area falls below the statutory eligibility threshold for deduction under Section 80IB(10). The Court recorded this question for adjudication, thereby admitting the appeal for consideration on that legal question. The Court did not decide the merits of the eligibility but treated the point as a substantial question warranting fuller hearing. [Paras 1]

Appeal admitted and the substantial question regarding whether the plot area meets the eligibility threshold for deduction under Section 80IB(10) is framed for consideration.

Exclusion of Development Plan (DP) road from plot area - effect of trifurcation of land on net plot area - Admission of appeal and framing of a substantial question whether exclusion of DP road reduces the size of the plot, given that the original larger plot was trifurcated and DP roads passed, resulting in the contested net area for the specific plot. - HELD THAT: - The High Court identified and framed a substantial question of law directed to the ITAT's conclusion that excluding the DP road did not reduce the size of the plot, despite acceptance that the original larger plot was trifurcated and DP roads were created. The Court admitted the appeal to examine whether the Tribunal erred in treating the subject plot as an independent plot with the stated net area. The matter was not decided on merits; it was admitted for hearing along with Income Tax Appeal No.200/2012. [Paras 1, 2]

Appeal admitted and the substantial question regarding the legal effect of excluding DP road and the trifurcation on net plot area is framed for adjudication; to be heard with Income Tax Appeal No.200/2012.

Final Conclusion: The High Court admitted the Revenue's appeal, framed the two substantial questions of law set out above for adjudication, and directed that the appeal be heard along with Income Tax Appeal No.200/2012.

Wholly and exclusively for business - Ad-hoc disallowance - Principle of consistency - Fringe Benefit Tax and double taxation - Natural justice - right to cross examine inspection witnesses - Burden of proof on assessee to prove genuineness of expenditure - Printing and publishing amounts to manufacture/production for purpose of additional depreciation

Ad-hoc disallowance - Wholly and exclusively for business - Principle of consistency - Fringe Benefit Tax and double taxation - Burden of proof on assessee to prove genuineness of expenditure - Deletion of various ad hoc disallowances retained by the CIT(A) in AYs 2005-06, 2006-07 and 2008-09 - HELD THAT: - The Tribunal examined the nature of the assessee's business, regular maintenance and audit of books, absence of adverse qualification of accounts, earlier favourable orders of the ITAT in the assessee's own case, and the fact that FBT had been paid in respect of several challenged heads. Relying on the principle of consistency as applied in the authorities relied upon, and on the proposition that a limited company is an inanimate entity so that 'personal' use cannot be imputed to the company, the Tribunal held that the repeated, summary and vague ad hoc disallowances could not be sustained. The Tribunal also observed that additions made merely on suspicion or without specific adverse findings, when accounts are regular and vouchers produced, are not sustainable. For AY 2006-07 the Tribunal noted that FBT had been paid on many of the same expenses and that double taxation by disallowing the same expenditure was not permissible. In view of these considerations the Tribunal deleted the disallowances/additions retained by the CIT(A) in the respective assessment years.

Disallowances retained by the CIT(A) out of various expense heads in AY 2005-06, AY 2006-07 and AY 2008-09 are deleted.

Burden of proof on assessee to prove genuineness of expenditure - Natural justice - right to cross examine inspection witnesses - Adjudication on marketing and survey expenses remitted to the Assessing Officer for fresh consideration - HELD THAT: - The Tribunal found that material and explanations regarding the marketing and survey agencies and their reports had been produced piecemeal, that there were conflicting inspection reports and that the assessee had been prevented from effectively meeting adverse inferences by alleged non recording or non allowance of evidence and cross examination. Given these lacunae, and the need for cohesive verification after hearing the assessee, the Tribunal set aside the issue and remanded the matter to the AO to consider the entire evidence afresh and to give the assessee adequate opportunity of being heard.

Marketing and survey expenses issue is set aside and remitted to the Assessing Officer for fresh adjudication after considering all evidence and hearing the assessee.

Printing and publishing amounts to manufacture/production for purpose of additional depreciation - Allowability of additional depreciation under section 32(1)(iia) for new plant and machinery used in printing and publishing - HELD THAT: - The Tribunal considered the statutory concept of 'manufacture/production' and accepted the view that the printing process transforms raw paper into a new and distinct commercial product (newspapers/periodicals) with different name, character and use. Reliance was placed on judicial precedents holding that printing can amount to manufacture/production. The CIT(A)'s allowance of additional depreciation for new machinery used in the assessee's printing activity was sustained. With respect to the revenue's challenge in AY 2006 07 that depreciation disallowance should follow disallowance of vehicle running expenses for personal use, the Tribunal upheld the CIT(A) on the ground that a limited company cannot have 'personal' expenditure attributed to it and therefore deletion of the depreciation disallowance was proper.

Additional depreciation claimed under section 32(1)(iia) for machinery used in printing/publishing is allowable; revenue appeals on this point are dismissed.

Final Conclusion: The appeals filed by the assessee for AYs 2005-06, 2006-07 and 2008-09 are partly allowed by deleting the ad hoc disallowances retained by the CIT(A); the issue of marketing and survey expenses is remitted to the Assessing Officer for fresh consideration after hearing the assessee; the revenue appeals challenging allowance of additional depreciation are dismissed.

Deduction under section 36(1)(viia) - deduction under section 36(1)(vii) - computation of deduction under section 36(1)(viii) - treatment of investments held to maturity as stock-in-trade - disallowance under section 14A - applicability of section 115JB to banking companies - tribunal's power to admit new grounds of law arising from facts on record

Deduction under section 36(1)(viia) - tribunal's power to admit new grounds of law arising from facts on record - Whether claim for deduction under section 36(1)(viia) can exceed the amount of provision debited in the profit and loss account and whether PBDD for non-rural advances in the books can be considered for the deduction - HELD THAT: - The Tribunal considered earlier precedents and held that the later decision of the Tribunal in Canara Bank requires that deduction under section 36(1)(viia) cannot exceed the amount debited to profit and loss account as provision. The assessee's alternate contention that total PBDD of the books (including non-rural) should be considered was examined; the Tribunal accepted that the PBDD of Rs.100,55,07,213 shown in the books (which included both rural and non-rural provisions) is the relevant amount to be taken for allowance subject to the statutory caps. The Tribunal refused the further alternate submission that excess provisions created in subsequent years could be used to make good shortfall in the relevant year, distinguishing special-reserve cases and emphasizing that provisions under section 36(1)(viia) are governed by specific rules and cannot be supplemented by later-year excesses. Accordingly the deduction was restricted to the provision actually created in the books for the year. [Paras 5, 6, 12, 13, 15]

Claim under section 36(1)(viia) restricted to Rs.100,55,67,213 (amount of PBDD in books); Revenue's ground allowed to that extent and other alternate prayers rejected.

Deduction under section 36(1)(vii) - Whether bad debts written off by the bank (section 36(1)(vii)) are to be disallowed to the extent of credit balance in PBDD under section 36(1)(viia) - HELD THAT: - The Tribunal followed the binding ratio of the Supreme Court in Catholic Syrian Bank which held that sections 36(1)(vii) and 36(1)(viia) are independent. The proviso to section 36(1)(vii) operates only to prevent double allowance where both apply to the same rural advance; it does not, as a general rule, limit write offs of non rural bad debts. Applying that ratio to the facts, the Tribunal held that the CIT(A) correctly directed allowance of the bad debts claimed under section 36(1)(vii). [Paras 23, 24, 26, 27]

Revenue's ground on disallowance of bad debts under section 36(1)(vii) dismissed; deduction allowed as directed by CIT(A).

Treatment of investments held to maturity as stock-in-trade - Whether diminution in value of investments held in HTM category can be treated as loss (stock in trade) and allowed as deduction - HELD THAT: - Relying on the Tribunal's earlier decisions and the Supreme Court decision in UCO Bank, and subsequent pronouncements of the Karnataka High Court and the Tribunal in the assessee's own cases, the Tribunal held that the CIT(A)'s allowance of the deduction was in accordance with precedent. The Tribunal observed that banking companies' consistent accounting practice and the governing authorities' guidance were relevant and that earlier Tribunal decisions in the assessee's favour squarely covered the issue. [Paras 31, 33, 34]

Order of CIT(A) deleting the disallowance sustained; Revenue's ground dismissed.

Penalty characterization for deduction under section 37 - Whether the sum described as penal interest/penalty paid to RBI is deductible or is a penal amount disallowable under explanation to section 37(1) - HELD THAT: - Following the Karnataka High Court in Syndicate Bank, the Tribunal held that the penal interest under the Banking Regulation Act is a penalty for infraction of law, enforceable like a decree and not compensatory; permitting deduction would amount to subsidising the infraction. The CIT(A)'s conclusion that the sums were not penalty in nature was reversed. [Paras 35, 36, 37]

CIT(A)'s deletion reversed; AO's disallowance restored and Revenue's ground allowed.

Tribunal's power to admit new grounds of law arising from facts on record - Whether the assessee could for the first time before the Tribunal raise the point that PBDD in books (including non rural) should be considered and other alternate grounds - HELD THAT: - The Tribunal reviewed authorities including National Thermal Power and Assam Company and held that it has discretion to admit new points of law if they arise from facts on record. Applying that principle, the Tribunal entertained the assessee's alternate plea concerning the nature and quantum of PBDD, considered relevant facts on record, and adjudicated those pleas accordingly. Additional grounds sought by Revenue were examined and dismissed where not arising from AO's order or not factually pleaded. [Paras 7, 8, 9, 11, 39]

Tribunal entertained the alternate legal grounds arising from facts on record; Revenue's additional grounds dismissed as without merit.

Computation of deduction under section 36(1)(viii) - Whether the deduction under section 36(1)(viii) should be computed on 'profits derived from eligible business computed under the head Profits and gains of business or profession' and whether the AO/CIT(A) erred in using the entity's overall loss - HELD THAT: - The Tribunal held that the statutory phrase requires computing profits derived from eligible business under the specified head before making the deduction; it is not the entity's aggregate profit or loss that is to be the denominator. The assessee's method of deriving the eligible profits for the specified activities was accepted as the correct approach. The Tribunal directed the AO to examine the alternate computation filed as Annexure 2 and to determine the correct eligible deduction in accordance with that approach. [Paras 45, 46]

Grounds by the assessee treated as allowed; AO directed to verify annexure 2 and admit the correct deduction under section 36(1)(viii).

Disallowance under section 14A - Whether disallowance under section 14A (and Rule 8D) is warranted when no direct expenditure was incurred to earn tax exempt income and expenditure would have been incurred irrespective of exempt income - HELD THAT: - On the facts (undisputed) that the bank's tax free income arose mainly from investments held as part of normal treasury/SLR operations and that the expenditure in question was fixed and would have been incurred irrespective of the tax free income, the Tribunal followed the Karnataka High Court decision in CCI Ltd. and held that no part of the expenses was attributable to earning exempt income. The AO's application of Rule 8D was therefore rejected and the CIT(A)'s confirmation of disallowance set aside. [Paras 47, 48, 50, 51]

Assessee's grounds on section 14A allowed; disallowance deleted.

Applicability of section 115JB to banking companies - Whether section 115JB (MAT) applies to banking companies for the relevant period and whether book profit computation under section 115JB can be imposed on a bank not preparing P&L under Schedule VI - HELD THAT: - The Tribunal examined precedents including decisions of other Benches and held that section 115JB operates on profit and loss accounts prepared in accordance with Schedule VI; banking companies prepare accounts under the Banking Regulation Act and were, until subsequent amendment, exempt from Schedule VI requirements. Accordingly section 115JB did not apply to banking companies for the years in question and computation of book profits by the AO could not be sustained. [Paras 53, 54, 95, 98]

Grounds by the assessee on non applicability of section 115JB allowed; AO's book profit computation set aside.

Final Conclusion: For AY 08-09 the Tribunal partly allowed the revenue's appeal (restriction of section 36(1)(viia) deduction to the provision in books and restoration of AO's disallowance of penal interest), and allowed the assessee's appeal in major respects (allowance of bad debts under section 36(1)(vii), acceptance of HTM diminution as allowable, deletion of section 14A disallowance, direction to AO to re compute and admit correct deduction under section 36(1)(viii) on the assessee's method, and holding that section 115JB did not apply to the banking company for the period).

Genuineness of activities - withdrawal and cancellation of registration under Section 12AA(3) - activities carried out in accordance with the objects of the trust - reasonable opportunity of being heard / right to cross-examination - misappropriation / misutilisation of trust funds - reliance on statements recorded under Section 133A

Genuineness of activities - withdrawal and cancellation of registration under Section 12AA(3) - activities carried out in accordance with the objects of the trust - Validity of the CIT's order cancelling the trust's registration under Section 12AA(3) w.e.f. assessment year 2004-05 - HELD THAT: - The CIT cancelled registration under Section 12AA(3) on the basis that the society had taken accommodation entries and its funds were being misutilised over several years. The Tribunal examined the material relied upon and the contemporaneous assessment orders for relevant years which record that the society was running educational institutions and had incurred qualifying charitable application of receipts (exceeding the statutory threshold). The Tribunal found no material in the cancellation order demonstrating that the core activities of imparting education were not genuine or that the activities, as a whole, were not being carried out in accordance with the objects of the trust. In those circumstances the Tribunal held that the condition precedent for cancellation under Section 12AA(3) (i.e. satisfaction that activities are not genuine or not in accordance with objects) was not made out and the cancellation order was unsustainable.

Order cancelling the registration under Section 12AA(3) w.e.f. assessment year 2004-05 set aside; registration restored.

Reasonable opportunity of being heard / right to cross-examination - reliance on statements recorded under Section 133A - misappropriation / misutilisation of trust funds - Whether reliance on statements of the vendor and denial of effective cross-examination vitiated the cancellation proceedings - HELD THAT: - The CIT treated statements of the vendor as corroborative of accommodation entries and recorded that opportunity to cross-examine the vendor had been afforded (via the Assessing Officer) but the assessee did not avail that opportunity. The assessee contended the vendor's statements were contradictory and recorded under duress and that it was denied effective cross-examination. The Tribunal noted the contradictions in the vendor's statements but observed that the cancellation order contained no material showing non-genuineness of the trust's core educational activities. While the Tribunal recorded the procedural facts about offered but unavailed cross-examination, it concluded that even if issues existed about the vendor's statements, those did not supply the necessary material to satisfy the statutory test for cancellation under Section 12AA(3).

Complaint about denial of effective cross-examination did not salvage the cancellation order because the statutory satisfaction required under Section 12AA(3) was not established; the cancellation was set aside on substantive grounds.

Final Conclusion: The CIT's order cancelling registrations under Section 12AA(3) was set aside; the Tribunal held that the requisite satisfaction that the trusts' activities were not genuine or not in accordance with their objects was not established (assessment year 2004-05 was the period concerned), and the appeals were allowed.

Deductibility of employees' provident fund and ESIC contributions contingent on payment by due date - treatment of converted interest into loan under Explanation 3D to section 43B - allowability of bad debts written off in accounts - treatment of time barred liabilities and remission of liabilities - ad hoc disallowance of general or welfare expenses in absence of adverse auditor's report or specific contrary material - distinction between capital and revenue expenditure for repairs and one time augmentation charges - reimbursement of directors' personal expenses and requirement of business nexus and proof

Deductibility of employees' provident fund and ESIC contributions contingent on payment by due date - Deductibility of employees' PF and ESIC contributions paid after statutory due dates but before filing due date. - HELD THAT: - The Tribunal considered whether employees' share of PF/ESIC contributed after the statutory due dates but before the filing due date could be allowed as deduction. Relying on binding High Court precedent for the State, the Tribunal held that where contributions were not deposited on or before the due date under the Provident Fund/ESI law, they do not qualify for deduction; in the absence of any contrary binding authority the CIT(A)'s allowance was set aside and the assessing officer's disallowance restored. [Paras 9]

Assessee's claim for deduction of late PF/ESIC contributions is disallowed; CIT(A)'s deletion set aside and A.O.'s disallowance upheld.

Treatment of time barred liabilities and remission of liabilities - Tax consequence of long standing creditors' balances (debts older than three years) shown as liabilities in balance sheet. - HELD THAT: - The Tribunal accepted that mere lapse of limitation does not ipso facto effect remission of liability where the assessee continues to account for the amounts as liabilities and there is no material showing intention not to discharge them. In absence of evidence to the contrary and following relevant High Court authority, no income accrues to the assessee by reason of such time barred debts being shown as liabilities, and the CIT(A)'s deletion of the addition was sustained. [Paras 13]

Addition in respect of long standing creditors deleted; CIT(A)'s order upheld.

Ad hoc disallowance of general or welfare expenses in absence of adverse auditor's report or specific contrary material - Validity of ad hoc 10% disallowance against welfare and general/miscellaneous expenses. - HELD THAT: - The assessing officer made ad hoc 10% disallowances from welfare and general expenses without identifying specific non business items or producing an adverse auditor's report. The CIT(A) deleted the additions following earlier appellate findings in the assessee's own records. Because the CIT(A)'s earlier order relied upon by him was not placed before the Tribunal and its finality was unclear, the Tribunal restored the welfare expenses issue for fresh consideration by the CIT(A), directing that if the earlier CIT(A) order has attained finality no interference is required and if decided by a higher forum the same be followed. [Paras 17]

Issue remanded to CIT(A) for verification; treated as allowed for statistical purposes pending outcome.

Ad hoc disallowance of general or welfare expenses in absence of adverse auditor's report or specific contrary material - Ad hoc 10% disallowance from miscellaneous expenses (garden, guesthouse etc.). - HELD THAT: - The assessing officer's ad hoc disallowance was not supported by identification of particular non business expenditure. The CIT(A) cancelled the disallowance relying on earlier appellate orders and absence of adverse auditor's report. Revenue produced no material to controvert that finding and no binding authority to the contrary was shown; the Tribunal found no reason to interfere with CIT(A)'s deletion. [Paras 21]

Addition relating to miscellaneous expenses deleted; CIT(A)'s order upheld.

Allowability of bad debts written off in accounts - Allowability of claimed bad debts written off in the assessee's accounts. - HELD THAT: - Applying the Supreme Court's principle that, post amendment, it suffices for deduction that bad debts are written off in the assessee's accounts, the Tribunal followed TRF Ltd. and sustained the CIT(A)'s deletion of the assessing officer's disallowance where Revenue produced no contrary binding authority or material to rebut the write off. [Paras 32]

Claimed bad debts allowed after verification; CIT(A)'s deletion sustained.

Distinction between capital and revenue expenditure - Characterisation of amounts claimed as repairs to building - revenue or capital. - HELD THAT: - The assessing officer treated certain repair/renovation and fabrication works as capital; the CIT(A) confirmed the addition but gave only a cryptic finding without detailed analysis of facts. The Tribunal held that a clear finding is required and remitted the matter to the CIT(A) for fresh determination after affording opportunity to parties and stating proper reasons. [Paras 38]

Issue remitted to CIT(A) for fresh adjudication with opportunity to parties.

Distinction between capital and revenue expenditure - Nature of one time augmentation/charges paid to electricity board (GEB) - capital or revenue/refundable deposit. - HELD THAT: - The CIT(A) upheld the A.O.'s disallowance treating the payment as a refundable deposit and disallowing it as not an expense; the Tribunal found the CIT(A) had not addressed how the GEB scheme differed from schemes relied upon by the assessee and directed reconsideration. The issue was remitted for fresh examination of facts, scheme terms and cited authorities with directions to the assessee to cooperate. [Paras 42]

Issue remitted to CIT(A) for re examination and categorical finding.

Reimbursement of directors' personal expenses and requirement of business nexus - Allowability of credit card reimbursements to directors as business expenditure. - HELD THAT: - The A.O. disallowed reimbursements as personal; the CIT(A) sustained disallowances in part but did not make full findings on nexus in light of case law relied upon by the assessee. The Tribunal observed that the question of nexus and proof requires fresh consideration in view of the authorities invoked and remitted the issue to the CIT(A) for fresh adjudication with opportunity to parties. For one assessment year (2007 08) the appeals on this ground were allowed for statistical purposes following the common treatment. [Paras 46]

Issue remanded to CIT(A) for fresh decision except where disposed for statistical purposes; reassess nexus and evidence.

Treatment of converted interest into loan under Explanation 3D to section 43B - Deductibility of interest where unpaid interest has been converted into a funded interest term loan (FITL) under a CDR package. - HELD THAT: - Section 43B(e) allows deduction only when interest is actually paid; Explanation 3D (with retrospective effect) clarifies that interest converted into a loan/advance is not to be deemed actually paid. The assessee's conversion of outstanding interest into FITL pursuant to the CDR scheme therefore did not amount to payment; the assessing officer's disallowance was found correct and the CIT(A)'s confirmation was sustained in absence of any binding contrary authority applicable to scheduled bank interest. [Paras 51]

Disallowance under section 43B(e) in respect of interest converted into FITL upheld; claim dismissed.

Final Conclusion: For A.Y. 2005 06 to 2007 08 the Tribunal: upheld the assessing officer's disallowance of late PF/ESIC contributions (following binding High Court authority); upheld deletion of additions for long standing creditors and for bad debts written off; upheld disallowance of interest under section 43B(e) where interest was converted into FITL; and remitted several factual/characterisation issues (welfare/miscellaneous ad hoc disallowances, repairs/capitalisation, GEB charges, directors' credit card reimbursements) to the CIT(A) for fresh consideration as indicated, with the appeals otherwise disposed of for statistical purposes.

Mandatory issuance of notice under section 143(2) for assessments initiated under section 147/148 - issuance of notice as the jurisdictional foundation for framing assessment - section 292BB estoppel is not a cure where notice was not issued within the prescribed period

Mandatory issuance of notice under section 143(2) for assessments initiated under section 147/148 - issuance of notice as the jurisdictional foundation for framing assessment - section 292BB estoppel is not a cure where notice was not issued within the prescribed period - Validity of the assessment framed under section 147 read with section 143 where no notice under section 143(2) was shown to have been issued before completion of assessment - HELD THAT: - The Tribunal examined the record and found that although proceedings under section 147/148 were initiated and a notice under section 148 was served and a return filed, the Assessing Officer did not issue or prove issuance of any notice under section 143(2) before framing the assessment. The Tribunal relied on binding precedents holding that issuance of notice under section 143(2) is mandatory and forms the jurisdictional foundation for completing an assessment under section 143(3) read with provisions for reopened assessments; omission to issue such notice is not a mere procedural irregularity and cannot be cured. The Tribunal further considered the scope of section 292BB and accepted the settled view that the deeming/estoppel fiction in section 292BB cannot validate an assessment where the notice itself was not issued within the prescribed time or where issuance is a precondition for jurisdiction. On the basis of these findings and the authorities cited, the Tribunal concluded that the AO lacked jurisdiction to frame the assessment without issuing notice under section 143(2) and therefore the assessment order was invalid. [Paras 12, 13, 14, 18, 21]

Assessment order dated 29.01.2014 is invalid and quashed for want of issuance of notice under section 143(2) prior to framing assessment.

Final Conclusion: The appeal is allowed: the assessment framed for AY 2009-10 is quashed for want of jurisdiction because no notice under section 143(2) was issued before completion of assessment; no adjudication on the merits of the additions has been undertaken.

Condonation of delay - limitation for filing appeal - proof of service by postal acknowledgment card - acceptability of postal acknowledgment card over Postmaster's report - power of Commissioner (Appeals) to condone delay

Limitation for filing appeal - proof of service by postal acknowledgment card - acceptability of postal acknowledgment card over Postmaster's report - Whether the appeal was barred by limitation on account of the order-in-original having been served on the appellant. - HELD THAT: - The Tribunal accepted the departmental acknowledgement card as the proper proof of service because it bore the reference number, the notation 'EPCG', the date indication and the company's round rubber stamp, whereas the Postmaster's separate report-based on an OC reference sought by the appellant-did not negate the acknowledgment card and could reflect different internal postal indexing. The acknowledgment card, being an entry made by departmental officers and matching the reference and date of the order-in-original, establishes that the order was delivered earlier and thus the appeal was filed beyond the condonable period. The Commissioner's finding on time-bar is therefore upheld. [Paras 5]

Appeal held time-barred; the departmental postal acknowledgement card is accepted as proof of service and supports dismissal on limitation grounds.

Condonation of delay - power of Commissioner (Appeals) to condone delay - Whether the Commissioner (Appeals) was bound by the lower authorities' recommendation to decide the matter on merits despite delay, or could condone the delay. - HELD THAT: - The Tribunal held that the Commissioner (Appeals) was not bound by the departmental recommendation to decide the appeal on merits. Reliance is placed on the Supreme Court decision in Singh Enterprises that the Commissioner (Appeals) could not have condoned the delay in filing the appeal in these circumstances and therefore could not have proceeded to decide the matter on merits. Consequently, the Commissioner (Appeals)'s decision to dismiss the appeal as time-barred is sustainable. [Paras 6]

Recommendation to decide on merits does not entitle Commissioner (Appeals) to condone delay; dismissal for delay is valid.

Final Conclusion: The application for condonation (COD), the stay petition and the appeal are dismissed; the departmental postal acknowledgment card establishes service and the appeal is time-barred, and the Commissioner (Appeals) was not permitted to condone the delay and decide on merits.

Extension of time for installation of imported capital goods under EPCG Scheme - jurisdiction to grant extension of installation period - bona fide delay and assessment of genuineness - installation period as procedural condition - verification by Customs and Central Excise officers

Extension of time for installation of imported capital goods under EPCG Scheme - jurisdiction to grant extension of installation period - bona fide delay and assessment of genuineness - installation period as procedural condition - verification by Customs and Central Excise officers - Whether the period for installation of imported capital goods under Notification No. 97/2004 (EPCG Scheme) is subject to a fixed outer limit of extension and whether the appellant's request for extension should be allowed. - HELD THAT: - The notification prescribes an initial period for installation but confers power on Customs and Central Excise officers to extend that period; it contains no express outer time-limit for granting extensions. Prior Tribunal decisions in respect of identical or similar notifications have treated the stipulated installation period as procedural and have recognised the power to allow extended time [Applicomp India Ltd. ] and [Bolanath Industries Ltd. ]; those precedents inform the approach but do not impose a fixed maximum period where none is stated. The genuineness and bona fides of any delay must be assessed on the facts of each case. On the facts, the appellant is a Government of Kerala undertaking executing a large pollution-control project and reliance on staged release of government funds and the scale of installation are relevant circumstances explaining delay. The appellant has given an undertaking to complete installation by December 2015 and has sought time up to that date. In light of the absence of a statutory outer limit, the factual materials and the undertaking, the extension was held to be genuine and allowable. The Tribunal imposed a condition of quarterly progress reports to the concerned officers, with those officers to verify the claimed installations; the Tribunal clarified that the extended date is not an immutable final deadline and further extensions may be considered by the Commissioner on proper facts and circumstances.

Extension of time granted up to December 2015 subject to quarterly progress reports and verification by Customs/Central Excise officers; further extension may be considered on merits.

Final Conclusion: The Tribunal allowed the appellant's request for extension of the installation period under the EPCG Notification up to December 2015 as a bona fide extension, conditioned on quarterly reporting and verification, and left open consideration of any further extension on the facts.

Power of review - error apparent on the face of record - discovery of new and important evidence - scope of review under Order XLVII Rule 1 CPC - principles of natural justice - remand for fresh consideration

Power of review - error apparent on the face of record - discovery of new and important evidence - scope of review under Order XLVII Rule 1 CPC - Review Applications dismissed as tests for review were not satisfied. - HELD THAT: - The Tribunal applied settled principles governing exercise of review jurisdiction, namely that review lies only for discovery of new and important evidence not available despite due diligence, or for some mistake or error apparent on the face of the record. Reliance on precedents emphasised that the scope of review is limited and is not an appeal in disguise; review may be allowed where an erroneous assumption or manifest error produces miscarriage of justice. On the facts, neither of the recognised tests for review was established by the Applicants. The Tribunal accordingly found no ground to reopen its earlier decision. [Paras 8, 9]

Review Applications are dismissed for failure to demonstrate error apparent on record or discovery of new material.

Remand for fresh consideration - principles of natural justice - Application to remand the matters to the Adjudicating Officer for fresh consideration refused. - HELD THAT: - Although documents were produced before the Tribunal which, by editorial note, might have been placed before the Adjudicating Officer earlier, the Applicants had chosen not to appear before the Adjudicating Officer and had not furnished replies to the show-cause notice; they had stated that earlier replies before the WTM could be treated as reply to the Adjudicating Officer but did not seek remand. The Tribunal held that, in the absence of a request for remand and having regard to the procedural history and opportunities afforded, there was no obligation to remand the matter for reconsideration, and that no breach of natural justice requiring remand had been made out. [Paras 2, 8]

Request for remand to the Adjudicating Officer for fresh consideration is declined.

Final Conclusion: The Review Applications are dismissed and the request to remit the matters to the Adjudicating Officer for fresh consideration is refused.

Validity of share transfer where transferor is not a registered member - transmission of shares and entry in the register of members - succession certificate does not ipso facto confer membership - mandatory compliance with section 108 of the Companies Act, 1956 for transfer and registration - refusal to register transfer where statutory and procedural requisites are not complied with

Transmission of shares and entry in the register of members - succession certificate does not ipso facto confer membership - validity of share transfer where transferor is not a registered member - Whether the 74 equity shares alleged to have been transferred by Smt Thankam Paul to the petitioner can be registered in the petitioner's name - HELD THAT: - The Bench found as an admitted fact that the deceased mother held the shares but that no transmission of those shares to Smt Thankam Paul had been effected by entry in the company's register of members. The High Court of Kerala was relied upon to the effect that issuance of a succession certificate does not automatically make the successor a member; registration in the company's register on application with requisite proof is necessary. The company had stated that no application for transmission had ever been received from the successor and the corporate records did not show Smt Thankam Paul as a member. In that situation Smt Thankam Paul had no legal right or locus to transfer the shares and the purported transfer form was void ab initio. The company's refusal to register the transfer therefore was in accordance with law. [Paras 8, 9, 10]

The petitioner's claim to have the 74 equity shares transferred and registered fails; the purported transfer by Smt Thankam Paul is invalid and the petitioner is not entitled to relief in respect of those shares.

Mandatory compliance with section 108 of the Companies Act, 1956 for transfer and registration - refusal to register transfer where statutory and procedural requisites are not complied with - validity of share transfer where transferor is not a registered member - Whether the 25 preferential shares alleged to have been purchased from Dr Susheel Cleetus can be registered in the petitioner's name - HELD THAT: - The petitioner admitted that he had not lodged the original share certificates or the duly executed transfer form with the company at any time after the alleged purchase. The company correctly pointed out non-compliance with the statutory procedure for transfer and registration. Under the Companies Act a transferor/transferee must submit a proper instrument of transfer, duly stamped and executed, together with the share certificates; there can be no exception to this mandatory requirement. The unexplained delay in presenting the documents and the failure to comply with section 108 justified the company's refusal to act upon the photocopies produced and to register the transfer. [Paras 11]

The petitioner is not entitled to have the 25 preferential shares registered; non-compliance with the mandatory transfer procedure precludes the relief sought.

Final Conclusion: Both claims for registration of shares-(i) the 74 equity shares said to have been transferred by Smt Thankam Paul, and (ii) the 25 preferential shares said to have been purchased from Dr Susheel Cleetus-were rejected. The petition under sections 111 and 111A of the Companies Act, 1956 is dismissed; no costs were ordered.

Principles of natural justice - personal hearing - res judicata - double jeopardy - remand for fresh decision - composite order on preliminary issue and merits - right to inspection of documents and cross-examination

Principles of natural justice - personal hearing - composite order on preliminary issue and merits - Impugned order passed without giving appellants a clear opportunity to be heard on merits and whether that amounted to violation of principles of natural justice. - HELD THAT: - The Tribunal found that the show cause notice dated 27/12/2012 did not clarify whether it superseded the earlier notice and that appellants had expressly reserved their right to file detailed replies after inspection of investigation material and cross-examination if the preliminary issue went against them. There is nothing on record indicating that the personal hearing fixed on 13/8/2013 was for both the preliminary issue and the merits, and the written submissions show that appellants addressed primarily the preliminary issue and did not deal with all grounds on which they were treated as 'insiders'. Although a composite hearing on preliminary issue and merits is permissible, in the facts of this case SEBI ought to have made it clear to the appellants that they would be heard on merits as well; its failure to do so rendered the proceeding in breach of the principles of natural justice. [Paras 10, 11, 12]

Impugned order quashed and set aside; matters restored to the file of the WTM of SEBI for fresh common decision on the preliminary issue and on merits.

Remand for fresh decision - right to inspection of documents and cross-examination - Scope of further proceedings on remand and directions regarding inspection and cross-examination. - HELD THAT: - The Tribunal directed that on remand the WTM of SEBI shall decide both whether the show cause notice is contrary to the Tribunal's order dated 21/10/2010 and the merits. The appellants were directed to intimate to SEBI the list of documents they seek to inspect and the list of persons they wish to cross-examine. All contentions of both parties are kept open for fresh consideration by SEBI. [Paras 13]

Matters remanded to SEBI for passing a common order on the preliminary issue and merits; appellants to provide lists for inspection and cross-examination; all contentions kept open.

Final Conclusion: The WTM's order dated 24/7/2014 is quashed and set aside for breach of natural justice by deciding merits without a clear opportunity being afforded to the appellants; the matters are remanded to SEBI for a common decision on whether the fresh show cause notice is contrary to the Tribunal's earlier order and on the merits, with liberty to the appellants to seek inspection and cross-examination as directed; appeals disposed with no order as to costs.

Refund of service tax on input services used in exports - eligibility for refund where invoices are issued by Customs House Agent - procedural infirmities in supporting documents (absence of IEC/export invoice number) - refund eligibility of courier, port and CHA services for exported goods - conditions for refund under Notification No. 41/2007-S.T. (technical testing and inspection) - remand for verification of invoices post effective date of a notification

Refund of service tax on port services - eligibility for refund where invoices are issued by Customs House Agent - Refund of service tax paid on port services where invoices were raised by a Customs House Agent (CHA) who is not a terminal operator. - HELD THAT: - The Tribunal found that goods were exported and terminal handling operations in the port area were carried out and service tax on such port services was paid. Although the invoices were raised by the CHA (M/s. Fourstar Enterprises) who is not authorised to provide terminal operator services, the CHA had arranged handling through service providers in the port area. Denial of refund merely because the invoice was that of the CHA would be inappropriate. The determinative consideration is that port services were actually rendered in relation to exports and service tax was paid; therefore the refund cannot be denied on the ground that the invoicing party was not the terminal operator. [Paras 3]

Appellants entitled to refund of service tax paid on port services despite invoices being raised by a CHA who is not a terminal operator.

Refund of service tax on courier services - procedural infirmities in supporting documents (absence of IEC/export invoice number) - Refund of service tax paid on courier services where courier invoices did not show IEC code or export invoice number but contained exporter details and description of goods. - HELD THAT: - The Tribunal treated the absence of IEC code and export invoice number on courier receipts as procedural infirmities. There was no dispute that the courier invoices identified the appellant/exporter and described the goods consistent with the export invoices, and that service tax had been paid. Given the documentary linkage and payment of service tax, the defects were not substantive enough to deny the refund claim. [Paras 1, 3]

Appellants entitled to refund of service tax paid on courier services; omissions of IEC code and export invoice number are procedural infirmities not barring refund.

Refund of service tax on technical testing and inspection services - conditions for refund under Notification No. 41/2007-S.T. - Refund claim for technical testing and inspection service where no written agreement with buyer or statutory requirement for testing/inspection was produced. - HELD THAT: - The Tribunal observed that the appellants failed to produce a written agreement between buyer and seller or any statutory rules or regulations requiring the testing/inspection. As the appellants could not satisfy the conditions prescribed by the relevant notification for granting Refund of service tax on such services, they were not entitled to the refund. [Paras 1, 3]

Refund of service tax on technical testing and inspection service denied for lack of requisite written agreement or statutory mandate.

Refund of service tax on Customs House Agent (CHA) services - procedural infirmities (handwritten export invoice numbers) - Refund of service tax on CHA services for appellant No.1 where export invoice numbers were subsequently added by hand on CHA invoices. - HELD THAT: - Although export invoice numbers on CHA invoices were handwritten and added subsequently, there was no dispute that the goods were exported and that description, quantity and other particulars of goods corresponded. The Tribunal treated the subsequent insertion as a procedural irregularity and held that it did not defeat the substantive entitlement to refund where exports and payment of service tax were otherwise established. [Paras 1, 3]

Appellant No.1 entitled to refund of service tax on CHA services despite handwritten addition of export invoice numbers on CHA invoices.

Remand for verification of CHA invoices post amendment effective date - application of Notification No. 41/2007-S.T. with effect from 1-4-2008 - Refund claims in respect of CHA services for appellant No.2 where invoices span periods before and after 1-4-2008. - HELD THAT: - The Tribunal noted that Notification No. 41/2007-S.T. was amended to include CHA service w.e.f. 1-4-2008. Some CHA invoices for appellant No.2 related to periods prior to 1-4-2008 (which the appellant did not press) while others related to periods on or after 1-4-2008. The Tribunal held that entitlement for invoices on or after 1-4-2008 should be examined by the original authority and remanded the matter for verification of those invoices and sanction of refund if verified. The Tribunal did not adjudicate those invoices on merits but directed verification and sanction by the original authority. [Paras 1, 3]

Matters relating to CHA invoices for appellant No.2 dated on or after 1-4-2008 are remanded to the original authority for verification and sanction of refund; invoices prior to 1-4-2008 not pressed by appellant.

Final Conclusion: The appeals are disposed: refund of service tax on port and courier services allowed; refund on technical testing and inspection service denied for lack of required written agreement or statutory mandate; CHA-related refunds allowed for appellant No.1 despite procedural infirmity, and CHA-related invoices for appellant No.2 dated on or after 1-4-2008 remanded to the original authority for verification and sanction.

Refund of input service tax credit - services used in the course of export - C.B.E. & C. Circular No. 112/6/2009-S.T., dated 12-3-2009 - classification of services as Port Service

Refund of input service tax credit - services used in the course of export - C.B.E. & C. Circular No. 112/6/2009-S.T., dated 12-3-2009 - Entitlement to refund of input service credit paid on terminal handling charges and related services used in the course of export. - HELD THAT: - The Tribunal applied C.B.E. & C. Circular No. 112/6/2009-S.T., dated 12-3-2009, which clarifies that where it is not disputed that the service availed by the assessee is in the course of export and the assessee has paid service tax thereon, it is not necessary to examine the categorisation under which the service provider discharged service tax. The lower authorities denied refund on the ground that the services did not qualify as Port Service and hence were not eligible; the Tribunal found that the essential criteria - use in the course of export and payment of service tax by the appellant - were satisfied. Applying the circular, the Tribunal held that the appellant is entitled to the refund of the input service credit claimed in respect of terminal handling charges and allowed the appeal, setting aside the portion of the impugned order that rejected the refund on that ground, and granted consequential relief.

Appeal allowed insofar as refund of input service credit on terminal handling charges is concerned; impugned order set aside on that point and consequential relief directed.

Final Conclusion: The Tribunal allowed the appellant's refund claim in respect of input service credit on terminal handling charges, holding that where services are used in the course of export and service tax has been paid, denial of refund on the basis of service classification (Port Service) is not warranted in view of the CBEC circular; the impugned order rejecting the refund on that ground was set aside with consequential relief.

Reimbursed expenses not includible in taxable value - pre-deposit requirement for entertaining appeal - stay application rendered infructuous by subsequent final order - remand to adjudicator to decide appeal on merits without pre-deposit - observance of principles of natural justice

Stay application rendered infructuous by subsequent final order - Validity of the stay application after a final order was passed and a fresh appeal filed - HELD THAT: - The Tribunal held that the stay application listed became infructuous because the Commissioner (A) had passed a final order rejecting the earlier appeal for non-deposit and the appellant had thereafter filed a fresh appeal (No.28531/2013) against that final order. In those circumstances, entertaining the earlier stay application was unnecessary and it was to be rejected as infructuous. [Paras 1]

Stay application rejected as infructuous because a final order had been passed and a subsequent appeal was filed.

Reimbursed expenses not includible in taxable value - pre-deposit requirement for entertaining appeal - remand to adjudicator to decide appeal on merits without pre-deposit - observance of principles of natural justice - Whether the appeal against the Commissioner (A)'s order should be decided on merits without insisting on any pre-deposit and whether reimbursed expenses ought to be included in taxable value - HELD THAT: - The Tribunal noted the substantive controversy - whether service tax is leviable on amounts reimbursed to the assessee for expenditures incurred during April 2005 to March 2009. Citing decisions of the High Courts (Intercontinental Consultants and Technocrats Pvt. Ltd. and Sangamitra Services Agency) which prima facie support the view that reimbursed expenses need not be added to the taxable value, the Tribunal found that the appellants have a strong prima facie case on merits. In the interest of justice the Tribunal set aside the impugned order insofar as it insisted on a pre-deposit and remanded the matter to the Commissioner (A) with directions to decide the appeal on merits after observing principles of natural justice, without insisting on any pre-deposit. [Paras 3]

Impugned order set aside; matter remanded to Commissioner (A) to decide the appeal on merits without insisting on any pre-deposit and after observing principles of natural justice.

Final Conclusion: The stay application was rejected as infructuous; the impugned order demanding pre-deposit was set aside and the matter remanded to the Commissioner (A) for fresh adjudication on merits, without insisting on any pre-deposit and after observing natural justice.

Management, Maintenance or Repair service - Extended period / suppression of facts (time-bar) - Online Information and Database Access and Retrieval Services (OIDAR) - Sale versus service (cartridge refilling) - Scientific or Technical Consultancy Service - Information Technology Software Service

Management, Maintenance or Repair service - Extended period / suppression of facts (time-bar) - Whether maintenance of computer software attracts service tax and whether extended period can be invoked for the period 9-7-2004 to 31-3-2006. - HELD THAT: - The Court noted that an Explanation declaring that "goods includes computer software" was added on 11-5-2007, which itself demonstrated governmental recognition of prior confusion about coverage of software under Management, Maintenance or Repair service. Reliance on judicial precedents treating the amendment as clarificatory supported the view that the appellants' genuine belief that software maintenance did not fall within the service was tenable. Given that the show cause notice was issued on 15-4-2008 and the government had acted to clarify the position only later, the allegation of suppression was unsustainable and the extended period could not be invoked for the stated period.

Extended period cannot be invoked; the demand for maintenance of computer software for 9-7-2004 to 31-3-2006 is time-barred.

Online Information and Database Access and Retrieval Services (OIDAR) - Whether lease line connectivity charges are taxable as Online Information and Database Access and Retrieval Services. - HELD THAT: - The statutory definition of OIDAR requires providing data or information to a customer in electronic form through a computer network. The show cause notice and impugned order did not allege or demonstrate that the appellants provided any data or information; they merely procured lease line connectivity for clients and paid tax charged by the service provider. In absence of any material showing provision of data/information by the appellants, the demand could not be sustained on merits as falling within OIDAR.

Lease line connectivity demand is not sustainable as OIDAR; the demand for the period 5-9-2002 to 20-3-2007 fails on merits.

Management, Maintenance or Repair service - Whether charges described as calibration of machines are liable to service tax as Management, Maintenance or Repair service. - HELD THAT: - The appellants sold software (SCADA) which customers used to perform calibration themselves; invoices described amounts as software. The show cause notice did not explain how calibration charges were covered by Management, Maintenance or Repair service, nor did it establish that the appellants rendered maintenance of the customers' machines. In those circumstances the demand could not be sustained on merits.

Demand relating to calibration (July 2003 and March 2004) does not sustain on merits.

Sale versus service (cartridge refilling) - Management, Maintenance or Repair service - Whether cartridge refilling charges are liable to service tax as maintenance/repair or are in the nature of sale. - HELD THAT: - The show cause notice merely asserted that cartridge refilling charges were leviable under maintenance/repair without explanation. The impugned order itself treated the refilling as amounts collected in the process of maintenance but the invoices and facts indicated refilling of ink which is in the nature of sale. In absence of any reasoning to treat refilling as a service of maintenance/repair rather than sale, the demand could not be upheld on merits.

Cartridge refilling charges (2004-05 to 2006-07) are not liable as Management, Maintenance or Repair service; the demand fails on merits.

Scientific or Technical Consultancy Service - Information Technology Software Service - Extended period / suppression of facts (time-bar) - Whether technical support charges are taxable as Scientific or Technical Consultancy Service and whether the extended period is invokable for 2002-03 to 2004-05. - HELD THAT: - The statutory definition of Scientific or Technical Consultancy contemplates advice or assistance rendered by a scientist, technocrat or a science/technology institution or organisation. The appellants, being a body corporate engaged in software design/development/maintenance, could not be readily classed as an individual scientist or technocrat and were not shown to be a science or technology institution; the phrase 'science or technology organisation' is undefinied and not evidently applicable to the appellants. Moreover, the activity in question was specifically made taxable as Information Technology Software Service only with effect from 15-5-2008. The show cause notice and order did not explain why the appellants should have been treated as providing Scientific or Technical Consultancy earlier, and in those circumstances the allegation of suppression and invocation of extended period could not be sustained for the relevant years.

Technical support charge demand for 2002-03 to 2004-05 is fatally time-barred; it does not sustain under Scientific or Technical Consultancy Service.

Final Conclusion: The appeal is allowed; the impugned Order-in-Original is set aside and all components of the contested demand (software maintenance, lease line connectivity, calibration charges, cartridge refilling, and technical support charges) are not sustained for the respective periods for the reasons stated above.

Classification under an exemption notification - interpretation of an exclusion clause (Explanation (2)) in a notification - application of Rules of Interpretation (Rule 2(a)) and Section Note 4 to a notification - specific entry prevailing over a general entry - treatment of separate transactions versus a single combined transaction for classification

Interpretation of an exclusion clause (Explanation (2)) in a notification - classification under an exemption notification - Whether Explanation (2) to Notification No.166/86-CE excludes an entire car air conditioning kit containing an automotive gas compressor from item no.8 so that the kit must be classified elsewhere. - HELD THAT: - The Court examined Explanation (2) which provides that for purposes of the notification the term 'car air-conditioner kit' or 'car air-conditioning kit' shall exclude the kit or assembly of parts which contains automotive gas compressor with or without magnetic clutch. The Two Judge Bench in Sanden Vikas (India) Ltd. had held that the effect of the Explanation was to take the compressor out of the kit so that the kit minus the compressor remains within item no.8 and the compressor is liable separately. The Court found that construction to be sustainable as a clarification: where the kit and compressor are sold in separate transactions (separate invoices/pricing) the kit may properly be treated under item no.8 and the compressor under item no.1; by contrast, where the kit and compressor are sold as a single combined transaction they would not fall within item no.8. The Court declined the revenue's contention that the Explanation must be read to remove the entire kit (even when sold separately from the compressor) from item no.8 and to reclassify it under item no.3; instead the Notification reflects distinct treatment of completed air conditioners, compressors, kits and parts and the Explanation operates to exclude the compressor from item no.8 while leaving the kit (if invoiced/separately sold without compressor) within item no.8. [Paras 19, 23, 24]

Explanation (2) does not operate to remove a kit sold separately from item no.8; where kit and compressor are separately invoiced the kit remains under item no.8 and the compressor is liable separately, whereas a combined sale will take the transaction out of item no.8.

Application of Rules of Interpretation (Rule 2(a)) and Section Note 4 to a notification - classification under an exemption notification - Whether interpretative Rule 2(a) and Section Note 4 (Rules for Interpretation of Schedule/Section XVI) should be applied to construe Notification No.166/86-CE so as to treat kits containing compressors as complete air conditioners. - HELD THAT: - The Court considered the competing authorities and noted that rules of tariff interpretation apply where the notification and the tariff item are pari materia and the notification borrows its terminology from the tariff. The Court observed that Notification No.166/86-CE deliberately differentiates between completed air conditioners, compressors, parts/kits and car specific kits and thus application of Rule 2(a) or Section Note 4 to override that legislative scheme would be contrary to the notification's intent. Applying Rule 2(a) to treat kits containing compressors as the complete article would frustrate the separate treatment the Notification records. Accordingly, the Court held that Rule 2(a) and Section Note 4 are not to be applied so as to defeat the explicit distinctions created by the notification in the present context. [Paras 11, 12, 16, 20]

Rules of interpretation (Rule 2(a) and Section Note 4) are not to be applied so as to override the legislative intent reflected in Notification No.166/86-CE; the notification's distinct treatment of kits and compressors governs classification.

Treatment of separate transactions versus a single combined transaction for classification - specific entry prevailing over a general entry - Whether the Tribunal correctly upheld classification where the assessee cleared compressors and kits by separate gate passes/invoices during the disputed period. - HELD THAT: - The Court noted the factual finding accepted by the Tribunal that during 1.8.1991 to 28.2.1993 the respondent cleared automotive gas compressors and car air conditioning kits under different gate passes (separately invoiced). Applying the clarified interpretation of the Notification, the Court found no error in the authorities' treatment: compressors were chargeable under the item applicable to compressors and kits (without compressors) were chargeable under item no.8. The Court therefore upheld the Tribunal's reliance on Sanden Vikas (India) Ltd. and its conclusion that no interference was warranted on the facts accepted by the Tribunal. [Paras 24, 25]

Tribunal's conclusion is correct: where compressor and kit were cleared separately the kit falls under item no.8 and the compressor is liable separately; no interference with the Tribunal's order.

Final Conclusion: The appeal is disposed of by clarifying the earlier decision in Sanden Vikas (India) Ltd.: Explanation (2) excludes the automotive gas compressor from item no.8 while leaving a kit sold without the compressor within item no.8; Rules of Interpretation (Rule 2(a) and Section Note 4) must not be applied to defeat the Notification's explicit scheme; on the facts that the respondent cleared compressor and kit separately for the period 1.8.1991 to 28.2.1993, the Tribunal's order is upheld and the appeal stands disposed of with no order as to costs.