TaxTMI Updates e-Newsletter
Dec 14,2018

Agricultural produce - essential characteristics - manufacture (emergence of new product having a distinct name, character and use) - marketable for primary market - exemption under Notification No. 12/2017-CT (Rate) Serial No. 54(e) - Board circulars and their clarificatory role (power under Section 168 of the CGST Act)

Agricultural produce - essential characteristics - manufacture (emergence of new product having a distinct name, character and use) - marketable for primary market - Status of the tea stored in the warehouse - whether it is 'agricultural produce' within the meaning of the Notification No. 12/2017-CT (Rate) - HELD THAT: - The authority examined whether the goods stored by Unilever in the appellant's warehouse (black/processed tea) retain the character of agricultural produce. The court analysed the nature of the goods as procured by Unilever and the processing steps (drying, rolling, fermentation, sieving, roasting, blending and packing) and held that those processes effected by manufacturers (and by Unilever in the warehouse) result in a manufactured product having a distinct name, character and use (black tea) as contemplated by the definition of 'manufacture'. Because these processes are carried out by persons other than the cultivator/producer and materially affect taste, flavour and colour, the product stored is not covered by the phrase in the notification which protects produce on which only such processing is done as is usually done by a cultivator or producer and which does not alter its essential characteristics but only makes it marketable for the primary market. The authority also noted that statutory rate notifications distinguish unprocessed green leaves (nil rate) from processed tea (taxable), which supports the conclusion that processed/black tea is not an agricultural produce for the purpose of the exemption entry. [Paras 27, 28, 29, 30, 31]

The tea stored in the warehouse (processed/black tea procured from manufacturers and subjected to blending/packing) is not an 'agricultural produce' within the meaning of the Notification and therefore does not qualify for the exemption applicable to services in relation to agricultural produce.

Exemption under Notification No. 12/2017-CT (Rate) Serial No. 54(e) - Board circulars and their clarificatory role (power under Section 168 of the CGST Act) - Whether warehousing and related services provided by the appellant in respect of the tea in question are exempt under Serial No. 54(e) of Notification No. 12/2017-CT (Rate), and whether the Board's Circular No.16/16/2017-GST is inconsistent with the Notification - HELD THAT: - Because the stored product was held not to be agricultural produce, the exemption in Serial No. 54(e) (which applies only to services in relation to agricultural produce) could not apply to the appellant's warehousing services. The authority considered the appellant's contention that the Board's circular contradicted the notification and observed that the circular merely clarified the scope of the notification and is consistent with it. The Board is empowered to issue such clarifications for uniform implementation, and the circular did not override or contradict the notification's legal effect as applied to processed tea. [Paras 26, 32, 33]

Warehousing and related services provided in respect of the processed/black tea stored are not exempt under Serial No. 54(e); the Board's circular is a clarificatory instrument consistent with the notification and does not invalidate the conclusion.

Final Conclusion: The appeal is dismissed. The Advance Ruling denying exemption under Serial No. 54(e) of Notification No. 12/2017-CT (Rate) is upheld because the stored/handled tea is a manufactured/processed product not covered by the exemption for services in relation to agricultural produce; the Board's clarificatory circular is consistent with the notification.

Export of services - zero rated supply - place of supply - services supplied in respect of goods physically made available by the recipient of services - payment received in convertible foreign exchange - establishment of distinct persons / fixed establishment / representational office - intra state supply

Place of supply - services supplied in respect of goods physically made available by the recipient of services - Place of supply is the location where the photography services are actually performed and is therefore in India. - HELD THAT: - Section 13(3)(a) applies to services supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier (or to a person acting on behalf of the supplier). The Authority rejects the applicant's contention that the goods must be owned by the recipient; it is sufficient that the recipient (or a person acting on its behalf) exercises control so as to make the goods physically available for the provision of the service. On the facts the diamonds were made available for photography in India under arrangements connected to the overseas group's system; the services were actually performed in Mumbai. Consequently the place of supply is where the services are performed - India - and not outside India.

Place of supply determined as India under section 13(3)(a); services are supplied in India.

Export of services - zero rated supply - payment received in convertible foreign exchange - establishment of distinct persons / fixed establishment / representational office - intra state supply - The photography service does not qualify as an export of services / zero rated supply and is liable as an intra state supply taxable under CGST and SGST. - HELD THAT: - All conditions in section 2(6) of the IGST Act must be satisfied simultaneously for a supply to qualify as export of services. Although the supplier is located in India and the recipient is outside India, the place of supply is in India (see above), so condition (iii) is not met. The Authority examined condition (iv) and accepted the applicant's production of FIRCs and invoices as evidence of receipt in convertible foreign exchange, but found that condition (v) was not satisfied: on the facts the applicant functions effectively as a representational establishment of the overseas group (covered by Explanation 1 to section 8) and thus the supplier and recipient are not independent establishments for the purpose of section 2(6)(v). Because the place of supply is India and the conditions for export are not simultaneously satisfied, the supply cannot be treated as zero rated. By reason of the place of supply and section 8(2), the transaction is an intra state supply and taxable under the CGST and MGST/SGST Acts.

Supply is not an export of services; it is an intra state supply liable to CGST and SGST.

Final Conclusion: The Authority holds that the photography service is supplied in India (place of supply in India under section 13(3)(a)), does not satisfy the conditions for export of services/zero rated treatment under section 2(6) read with section 16 of the IGST Act, and therefore is taxable as an intra state supply under the CGST and MGST/SGST Acts.

Composite supply - principal supply - taxable supply - works contract - integral component of composite supply - GST leviability on transportation charges - rate of tax under Notification No. 1/2017 (18%)

Composite supply - principal supply - integral component of composite supply - taxable supply - Transportation charges recovered by the applicant from PGCIL are taxable and not an exempt standalone supply. - HELD THAT: - The Authority examined the conjoined supply agreements (ex works supply contract and services contract) and held that, despite separate contract documents and separate price components, the contracts constitute a single indivisible contract with cross default clauses and overall responsibility for execution. Such combined obligations amount to two or more supplies naturally bundled and supplied in conjunction, thereby meeting the definition of composite supply. The composite contract also falls within the ambit of a works contract as commissioning/erection of the tower package involves transfer of property in goods in the execution of immovable works. Under Section 8 the taxability of a composite supply is to be determined with reference to the principal supply, and Schedule II/entry relevant to works contracts treats such composite transactions as supply of services. In view of these conclusions the transportation component is an integral part of the composite works contract and hence is a taxable supply as part of the composite service, not an exempt standalone road transportation service.

Transportation charges recovered by the applicant are taxable as an integral part of the composite works contract (supply of services).

Rate of tax under Notification No. 1/2017 (18%) - Applicable rate of GST on the impugned transportation charges. - HELD THAT: - Having concluded that the overall contract is a composite supply in the nature of a works contract and is taxable as supply of services, the Authority applied the relevant tariff entry for such services. On that basis the impugned contractual consideration, including the transportation component, attracts GST at the rate specified for the said supply in Notification No. 1/2017 (as amended), and the Authority determined the applicable rate to be 18% as per entry at Sr. no. 3(ii) of the said notification and its corresponding State notification.

GST is payable on the recovered transportation charges at the rate of 18%.

Final Conclusion: The Authority rules that the freight/transportation charges recovered by the applicant from PGCIL form part of an indivisible composite works contract and are taxable as supply of services; GST is payable thereon at 18%.

Classification of goods under the HSN - Friction material "not mounted" exclusion - Mounted brake lining treated as parts of motor vehicles - Classification as parts and accessories of motor vehicles - Applicability of Explanatory Notes to the Harmonized System of Nomenclature - HSN Heading 6813 versus Heading 8708

HSN Heading 6813 versus Heading 8708 - Friction material "not mounted" exclusion - Mounted brake lining treated as parts of motor vehicles - Classification of goods under the HSN - Disc Brake Pads manufactured by the applicant are classifiable under chapter heading 8708 and not under chapter heading 6813. - HELD THAT: - The Explanatory Notes to chapter 6813 exclude "mounted brake lining (including friction material fixed to a metal plate ... for disc brakes)" from that heading, directing such mounted items to be classified as parts of the machines or vehicles for which they are designed. The applicant's manufacturing process results in a finished product in which the friction material is fitted on a steel back plate and is ready for fixation in the brake system of passenger cars and SUVs. The finished Disc Brake Pads are therefore "mounted" within the meaning used in the Explanatory Notes and are not within the scope of heading 6813 which covers unmounted friction material in various shapes. Chapter heading 8708 covers parts and accessories of motor vehicles provided they are identifiable as suitable for use solely or principally with such vehicles, are not excluded by chapter notes, and are not more specifically included elsewhere. The Disc Brake Pads satisfy these conditions and are properly classifiable as parts of motor vehicles under heading 8708. Consequently, the product does not fall under heading 6813 but under heading 8708.

Disc Brake Pads are classifiable under chapter heading 8708 and not under 6813.

Final Conclusion: The Advance Ruling holds that the applicant's Disc Brake Pads fall under HSN chapter heading 8708 and are liable to GST at the rate applicable to that heading (28%).

Doctrine of merger - rectification under Section 154 of the Income Tax Act - scope of Section 154(1-A) of the Income Tax Act - binding effect of appellate orders on subordinate revenue authorities - debatable issue doctrine in rectification (T.S. Balram principle)

Doctrine of merger - binding effect of appellate orders on subordinate revenue authorities - Whether the Commissioner of Income Tax (Appeals) had jurisdiction to entertain and decide a rectification application on 30.11.2015 in respect of his earlier order dated 02.12.2013 after that order had merged in the Tribunal's order dated 07.08.2015 (and subsequent appellate orders). - HELD THAT: - The Court accepted the finding of the Tribunal that the CIT(A)'s order of 02.12.2013 (holding NOIDA entitled to exemption under Section 194A(3)(iii)(f)) had been considered and upheld by the Tribunal in its order dated 07.08.2015. Applying the doctrine of merger as explained in Kunhayammed v. State of Kerala, once a subordinate authority's order is subjected to and disposed of by a superior forum, the subordinate order merges in the superior forum's order and the latter alone subsists. Revenue officers and subordinate authorities are bound to follow appellate orders; they cannot, by subsequent rectification, traverse or undo matters that have been finally dealt with by an appellate forum. Consequently, after 07.08.2015 there was no operative independent order of the CIT(A) of 02.12.2013 available for rectification, and the CIT(A) lacked jurisdiction to amend that order on 30.11.2015. [Paras 12, 13, 15, 19, 22]

The rectification order dated 30.11.2015 was passed without jurisdiction as the CIT(A)'s order of 02.12.2013 had merged in the Tribunal's order of 07.08.2015 and could not be reopened by the CIT(A).

Rectification under Section 154 of the Income Tax Act - scope of Section 154(1-A) of the Income Tax Act - debatable issue doctrine in rectification (T.S. Balram principle) - Whether Section 154(1-A) permitted the CIT(A) to amend his order of 02.12.2013 in relation to a matter which had been considered and decided on appeal by the Tribunal, and whether a debatable issue could be reopened by way of rectification. - HELD THAT: - Section 154(1-A) bars amendment by the authority of any matter which 'has been considered and decided in any proceeding by way of appeal or revision' in relation to the order; accordingly, where the Tribunal has examined and decided the eligibility of NOIDA for exemption under Section 194A(3)(iii)(f), Section 154(1-A) does not permit the CIT(A) to amend that matter. Further, even on merits the Court held that the question had been finally determined up to the Supreme Court and no revenue authority could reach a contrary conclusion. The Court also applied the principle from T.S. Balram that a wholly debatable issue or one already considered and decided cannot be reopened by the original authority by way of rectification; any fresh contention on such a debatable point must be ventilated before the appropriate superior forum (ultimately the Supreme Court) and not by subordinate exercise of rectification. [Paras 17, 18, 20, 21]

Section 154(1-A) did not empower the CIT(A) to amend the order in respect of the matter already considered and decided by the Tribunal; a debatable or finally adjudicated issue could not be reopened by rectification by the CIT(A).

Final Conclusion: The rectification order dated 30.11.2015 passed by the Commissioner of Income Tax (Appeals) is quashed for want of jurisdiction; the writ petition is allowed and no order as to costs.

Accrual versus receipt under the mercantile system of accounting - recognition of income on receipt basis in light of the prudence principle and Accounting Standard 1 - taxability of billed but unrealized surcharge - binding effect of coordinate decisions in assessee's own case - tax liability crystallising on actual receipt

Accrual versus receipt under the mercantile system of accounting - taxability of billed but unrealized surcharge - Deletion of addition of surcharge levied but not realized where assessee followed mercantile system but elected to recognise surcharge on receipt basis - HELD THAT: - The Assessing Officer treated the surcharge as income accruing on levy because it created a right to receive money from consumers and the assessee followed mercantile accounting. The CIT(A) deleted the addition on the basis that the assessee, following audit objections and the Audit Committee's decision, consistently recognised delayed payment surcharge on collection (receipt) basis in its books, applying the prudence principle under Accounting Standard 1. The Tribunal upheld the CIT(A)'s deletion, observing that the assessee's books were regularly audited and accepted, and that earlier coordinate decisions in the assessee's own case on identical facts supported treating surcharge on receipt. The High Court found no illegality or perversity in these concurrent findings and confirmed that tax would be payable when the assessee actually receives the surcharge. [Paras 5, 6, 7, 9]

Addition disallowed; surcharge not taxable in the year of levy where assessee consistently accounts for it on receipt basis, tax to be paid when actually received.

Taxability of billed but unrealized surcharge - effect of consumers not challenging the levy - Maturity of right to receive surcharge by reason of consumers not challenging the levy does not render the surcharge taxable prior to receipt where assessee accounts on receipt basis - HELD THAT: - The Assessing Officer argued that absence of challenge by consumers made the right to surcharge mature and thus it accrued as income. The Tribunal disagreed, relying on factual matrix showing consistent accounting policy of recognising surcharge on collection, earlier favourable decisions in assessee's own case, and audit acceptance. The High Court did not find these conclusions vitiated and sustained the view that mere non challenge by consumers does not convert billed but unrealized surcharge into taxable income before actual receipt. [Paras 5, 7, 9]

Right to receive by itself did not compel taxation in the absence of accounting recognition; taxability arises on receipt.

Binding effect of coordinate decisions in assessee's own case - finality of judicial decisions pending higher forum - Reliance on earlier High Court and Tribunal decisions in the assessee's own case justified deletion despite pendency of Revenue's SLP in the Supreme Court in a related assessment year - HELD THAT: - The Tribunal relied on a series of earlier Tribunal and CIT(A) orders in the assessee's own cases for subsequent assessment years and on this Court's earlier decision for a similar issue. Although an SLP by the Revenue in the assessee's own case for a different assessment year was pending before the Supreme Court, the Tribunal and this Court treated the coordinate and High Court decisions as covering the present case. The High Court observed no illegality in applying those precedents and confirmed the deletion, while recording that tax would be payable if and when surcharge is received. [Paras 7, 8, 9]

Application of coordinate and High Court decisions upheld; pendency of SLP in related year did not prevent deletion in the present assessment year.

Final Conclusion: The appeals are dismissed. The deletion of the addition relating to 'surcharge levied but not realized' for AY 2005 06 is upheld on the facts that the assessee consistently recognised such surcharge on receipt basis, supported by audit acceptance and coordinate decisions; taxability will arise when the surcharge is actually received.

Transfer to partnership - gift under Gift Tax Act - assessment on difference between market value and book value - notional consideration in capital account - consideration ascertainable only on dissolution of partnership

Gift under Gift Tax Act - transfer to partnership - Whether the allotment of shares to the assessee's sons on conversion of proprietorships into a partnership could be treated as a gift assessable under the Gift Tax Act - HELD THAT: - The question of assessment of gift-tax on the shares conceded to the sons was raised in the Reference but was abandoned before this Court. The Court noted that the Reference and subsequent proceedings confined the remand to the question whether the building became an asset of the firm on conversion; the contention on share-allotment was given up and thus the Tribunal's earlier finding on the matter has attained finality. Consequently the question does not arise in the present appeals and is treated against the Revenue and in favour of the assessee. [Paras 5, 8]

The issue of gift on allotment of shares to the sons is not open for adjudication in these appeals and stands finally against the Revenue.

Assessment on difference between market value and book value - notional consideration in capital account - consideration ascertainable only on dissolution of partnership - Whether transfer of land and building by the assessee to the partnership firm could attract gift-tax by assessing the difference between market value and book (capital account) value under the Gift Tax Act - HELD THAT: - The Tribunal had found that the building was transferred to the partnership firm but did not decide whether that transfer amounted to a gift for Gift Tax Act purposes. Applying the principle in Commissioner of Income Tax v. Jacobs (P) Ltd., the Court held that the amount shown in the firm's capital account is a notional entry and cannot be treated as the consideration for the transfer for purposes of assessing gift-tax while the partnership subsists. The consideration for such contribution is unascertainable until dissolution of the partnership; in the absence of any statutory provision treating the book entry as consideration, assessing gift-tax on the difference between market value and the notional book value is impermissible. Thus, although there was a transfer of the asset to the firm, no gift arises capable of assessment under the Gift Tax Act during the continuance of the partnership. [Paras 9, 10, 11]

No gift-tax can be assessed on the differential between market value and book value where a partner's asset is transferred to the firm and recorded as a notional capital entry while the partnership subsists.

Final Conclusion: The appeals are disposed of: the question of gift on share-allotment is not open and is against the Revenue; and although the building was transferred to the partnership, no gift arises for assessment on the market-minus-book differential while the partnership subsists, so the assessments under the Gift Tax Act cannot be sustained.

Basic telecommunication service - deduction under Section 80IA(4)(ii) - definition of telecommunication service under the TRAI Act - EPABX/PABX franchisee providing telecommunication services - interpretation of the agreement with BSNL

Basic telecommunication service - deduction under Section 80IA(4)(ii) - definition of telecommunication service under the TRAI Act - EPABX/PABX franchisee providing telecommunication services - Assessee is a provider of basic telecommunication services and is entitled to deduction under Section 80IA(4)(ii) for the assessment years in question. - HELD THAT: - The Assessing Officer treated the assessee as merely a commission agent for BSNL and denied the Section 80IA(4)(ii) deduction. The Commissioner of Income Tax (Appeals) examined the agreement between the assessee and BSNL and the certificate issued by BSNL showing the assessee as an authorised GEPABX/EPABX franchisee operating telephone exchanges and providing basic telecommunication services to customers. The Tribunal reversed the CITA on the narrow basis that the assessee collected commission charges. The High Court accepted the CITA's conclusion and rejected the Tribunal's finding. The Court reasoned that the TRAI Act's definition of 'telecommunication service' is wide enough to encompass services rendered by an EPABX/PABX franchisee operating exchanges in association with BSNL; the Indian Telegraph Rules' definitions of exchange and private/departmental exchange support this characterisation; BSNL's own practices (as shown on its website) permit PABX/EPABX connectivity under commercial/technical conditions; and precedent treating similar franchisee/associate arrangements as providing basic telecommunication services also supports the assessee. On this basis the Court restored the CITA's allowance of the deduction and set aside the Tribunal's order. [Paras 5, 6, 9, 10]

Tribunal's finding set aside; CITA's finding that the assessee provided basic telecommunication services and was entitled to deduction under Section 80IA(4)(ii) is restored.

Final Conclusion: Tax case appeals allowed; the Tribunal's order is set aside and the Commissioner of Income Tax (Appeals)'s order allowing the Section 80IA(4)(ii) deduction for the assessee for AY 2003-04 and AY 2004-05 is restored.

Valuation of cost of construction - reliance on Departmental Valuation Officer's report - duty to record reasons for valuation conclusions - final disposal by court in lieu of remand where remand is inequitable - appellate authority's application of valuer's report and agreed contract price

Valuation of cost of construction - duty to record reasons for valuation conclusions - reliance on Departmental Valuation Officer's report - final disposal by court in lieu of remand where remand is inequitable - Whether the Tribunal was justified in fixing the cost of construction at Rs. 70,00,000/- without assigning reasons and whether the High Court should remit the matter or finally determine the value. - HELD THAT: - The Commissioner (Appeals) computed the cost of construction at Rs. 55,99,821/- after evaluating the valuer's report, the agreement between the assessee and the contractor and allowing a 5% rebate for supervision and procurement; the Assessing Officer had fixed a higher value. The Tribunal altered the value to Rs. 70,00,000/- but failed to furnish any reasons explaining why that figure was "fair and reasonable" and did not address the correctness of the CIT(A)'s computation. An appellate body is obliged to disclose the basis for a valuation conclusion so that its decision is intelligible. Ordinarily, the proper course would be remand for fresh consideration by the Tribunal to record reasons and reassess the valuation. However, given the substantial delay (assessment and appellate orders date from 2006-2007) and in the interest of equity to the assessee, remand was considered unjust; the Court therefore exercised its remedial power to give finality by adopting and rounding off the CIT(A)'s computed figure and fixing the cost of construction at Rs. 60,00,000/-. The Substantial Question of Law admitted was left open. [Paras 6, 7, 8]

The Tribunal's order was set aside insofar as it fixed the value at Rs. 70,00,000/- for lack of reasons; the cost of construction is fixed at Rs. 60,00,000/- and the appeals are partly allowed.

Final Conclusion: Appeals partly allowed; Tribunal's unsupported valuation set aside and court fixes the cost of construction at Rs. 60,00,000/-; the admitted Substantial Question of Law is left open; no costs.

Exemption under section 10(38) - deemed transfer on conversion of capital asset into stock-in-trade - scope of section 153A - requirement of incriminating material for reassessment under section 153A - reiteration of completed assessment

Exemption under section 10(38) - scope of section 153A - requirement of incriminating material for reassessment under section 153A - Deletion of disallowance of exemption under section 10(38) made in assessment framed under section 153A for A.Y. 2008-09 - HELD THAT: - The Tribunal considered whether the Assessing Officer could disallow the claim of exemption under section 10(38) in an assessment completed under section 153A when no seized or incriminating material relating to that claim was brought on record during the search. Reliance is placed on the propositions distilled from higher court decisions that, while section 153A empowers the AO to reassess the six years, additions or disallowances in respect of a completed assessment can be made under section 153A only on the basis of incriminating material unearthed during the search or requisition, or other post-search material which can be related to such seized material. The assessment order does not refer to any documents or seized material found during the search that would impugn the claim of exemption under section 10(38). Consequently, the disallowance of the exemption in the section 153A assessment is beyond the permissible scope of reassessment under section 153A and is unsustainable. [Paras 9, 10]

Impugned disallowance under section 10(38) deleted and appeal allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that where no incriminating material relating to the claimed exemption was found in the search, the Assessing Officer could not disallow the exemption under section 10(38) in an assessment framed under section 153A for A.Y. 2008-09; the disallowance was deleted.

Evidentiary value of statement recorded under section 132(4) - requirement of corroborative material for additions based on search statements - additions as unexplained money under section 69A - assessment proceedings under section 153A - inadmissibility of standalone retracted admissions for making additions

Evidentiary value of statement recorded under section 132(4) - requirement of corroborative material for additions based on search statements - additions as unexplained money under section 69A - assessment proceedings under section 153A - Addition made by AO under section 69A in assessment under section 153A could not be sustained solely on the basis of statements recorded under section 132(4) without corroborative evidence. - HELD THAT: - The Tribunal upheld the CIT(A)'s deletion of additions where the assessee had offered amounts during post-search proceedings but no incriminating material or discrepancy was found on verification during assessment. The Tribunal applied the principle that a statement recorded under section 132(4) has evidentiary value but is not conclusive and cannot, on a standalone basis, justify computing undisclosed income unless supported by material discovered during the search or other corroborative evidence. The Tribunal followed its earlier decision in ACIT vs. Sh. Subhash Chander Sudha and the reasoning of the Jurisdictional High Court in Harjeev Aggarwal that the words "evidence found as a result of search" do not include standalone statements and that retracted or unsupported admissions cannot be the sole basis for additions in proceedings under section 153A. On the facts, the AO himself recorded that no incriminating material was found and reconciliations produced during assessment showed no discrepancy; consequently the surrender/offers made during search had no basis and the additions were rightly deleted. [Paras 5, 8]

The additions made by the AO under section 69A (in assessments under section 153A) solely on the basis of statements recorded under section 132(4) were deleted; Revenue's appeals dismissed.

Final Conclusion: Following binding precedents and on application to the present facts where no corroborative material or discrepancy was found on verification, the Tribunal upheld the CIT(A)'s deletion of additions made solely on statements recorded during search; all three Revenue appeals for AY 2012-13 were dismissed.

Deduction under Section 10B - Successor unit entitlement on merger/amalgamation - Non-applicability of pre-2004 transfer-disqualification on takeover - Continuance of tax-holiday attached to the undertaking - Relevance of CBDT Circular in determining effect of slump sale, reconstruction or change of ownership

Deduction under Section 10B - Successor unit entitlement on merger/amalgamation - Non-applicability of pre-2004 transfer-disqualification on takeover - Entitlement of the assessee to claim deduction under Section 10B for AY 2009-2010 after merger of two 100% EOU partnership firms - HELD THAT: - The Court upheld the Tribunal's conclusion that the assessee's unit remained eligible for deduction under Section 10B despite merger with another EOU firm. The omission of sub-sections (9) and (9A) to Section 10B with effect from 01.04.2004 removes the earlier statutory bar that denied deduction on transfer of ownership/beneficial interest; therefore the Assessing Officer's blanket denial of deduction on account of merger was incorrect. The assessing officer had not disputed the EOU status or substantive eligibility of either undertaking; reliance on CBDT guidance and precedents showed that the tax holiday is attached to the undertaking as a running concern and survives succession, subject to fulfillment of conditions. Having regard to these legal principles and the findings of the Tribunal and CIT(A), the Revenue has not established a ground to overturn allowance of the deduction. [Paras 9, 10, 15, 16]

Tribunal's allowance of deduction under Section 10B for AY 2009-2010 is upheld and the appeal on this point is dismissed.

Relevance of CBDT Circular in determining effect of slump sale, reconstruction or change of ownership - Verification of disallowance of excess profits from related-party transactions - Remand for factual determination - Remand for fresh factual verification of the disallowance of excess profits arising from transactions with sister concerns and related factual issues concerning slump sale/reconstruction - HELD THAT: - The Tribunal had remanded the matter in respect of the Assessing Officer's disallowance of excess profits attributable to transactions with sister concerns. The High Court noted that under the CBDT Circular factual considerations - such as the nature of a slump sale, whether the transaction effects splitting or reconstruction, and other attendant facts - are vital and require verification. These are factual issues for the assessing/tribunal authorities to examine; the remand and the cross-objection remand (as recorded) were not challenged in the present appeal. [Paras 1, 11, 12]

The issue concerning disallowance of excess profits and related factual determinations remains remanded for verification by the tax authorities/tribunal.

Final Conclusion: The Revenue's appeal is dismissed. The Tribunal's grant of deduction under Section 10B for AY 2009-2010 is upheld; factual issues and the disallowance of excess profits arising from related-party transactions remain remanded for verification as recorded by the Tribunal.

Fair market value - reference to District Valuation Officer under section 55A - registered valuer's report - capital gains - indexed cost of acquisition - deduction under section 54 - validity of notice under section 148 - restriction on non state subjects purchasing immovable property in Jammu & Kashmir

Fair market value - reference to District Valuation Officer under section 55A - registered valuer's report - capital gains - indexed cost of acquisition - Acceptability of the assessee's registered valuer's FMV as on 01.04.1981 and propriety of AO's reference to the DVO and adoption of a lower rate and different area. - HELD THAT: - The assessee claimed FMV as on 01.04.1981 at Rs. 2,200 per sq.ft. for built up area of 1,675 sq.ft. based on a registered valuer's report. The AO, finding that the claimed value was high and without obtaining cooperation from the assessee for a DVO valuation, treated carpet area as 1,340 sq.ft. and applied a rate of Rs.1,750 per sq.ft. The Tribunal held that a reference to the DVO under section 55A is permissible where the Assessing Officer is of the opinion that the value claimed by the assessee is less than the FMV; it is not competent where the assessee's claimed FMV exceeds the AO's estimate. The AO is not a technical valuer and cannot replace a registered valuer's valuation by his own estimate. Applying the decisions relied on, the Tribunal directed the AO to adopt the rate of Rs.2,200 per sq.ft. for the built up area of 1,675 sq.ft. as shown in the valuation report and sale deed, and upheld the CIT(A)'s adoption of the area figure. (See paras 6-8) [Paras 6, 7, 8]

Assessee's valuation at Rs.2,200 per sq.ft. for built up area 1,675 sq.ft. accepted; AO's reference to DVO and his lower estimate set aside and AO directed to adopt the registered valuer's value.

Deduction under section 54 - restriction on non state subjects purchasing immovable property in Jammu & Kashmir - Whether investment in the purchased house boat at Srinagar qualifies as a 'residential house' for claiming deduction under section 54. - HELD THAT: - The assessee relied on an agreement for sale and asserted exclusive possession and residential use of a house boat purchased at Srinagar. The assessee did not produce a registered sale deed. The Tribunal placed weight on the absence of registration, the rule barring non state subjects from purchasing immovable property in J&K, and the communication indicating that floating bodies in Dal are treated as land under the J&K Land Revenue Act, 1939. In these circumstances the Tribunal held that the assessee had not established acquisition of a residential house within the meaning of section 54 and therefore the claim for deduction was not tenable. (See paras 13-15) [Paras 13, 14, 15]

Deduction under section 54 in respect of the house boat rejected; lower authorities' findings upheld.

Cost of improvements - Allowability of the claimed expenditure as cost of improvements. - HELD THAT: - The assessee claimed renovation costs aggregating Rs.1,90,000 but failed to furnish details or documentary particulars to substantiate the expenditure. The Tribunal found that the assessee did not produce requisite particulars and therefore the CIT(A) was correct in disallowing the claim. (See paras 9-12) [Paras 9, 10, 11, 12]

Disallowance of the claimed cost of improvements upheld.

Validity of notice under section 148 - Assessee's challenge to the validity of notice under section 148. - HELD THAT: - The assessee did not press the ground challenging the validity of the notice issued under section 148 before the Tribunal. The Tribunal accordingly treated that ground as dismissed without adjudicating the substantive validity. (See para 5) [Paras 5]

Ground challenging validity of notice under section 148 treated as not pressed and dismissed.

Built up area versus carpet area - Revenue's contention that the CIT(A) erred in treating the built up area as 1,675 sq.ft. (a 25% increase over carpet area) and the consequent treatment of rates. - HELD THAT: - The Tribunal observed that the sale deed and the registered valuer's report used the carpet/area figure relied upon by the assessee and found no merit in Revenue's contention that the assumed conversion to built up area lacked basis. In view of the Tribunal's earlier finding accepting the registered valuer's valuation and area, the Revenue's grounds on this point were dismissed. (See paras 16-17) [Paras 16, 17]

Revenue's challenge to the CIT(A)'s area treatment and related findings dismissed.

Final Conclusion: The Tribunal partly allowed the assessee's appeal by directing the AO to adopt the registered valuer's FMV of Rs.2,200 per sq.ft. for built up area 1,675 sq.ft.; the disallowance of renovation costs and denial of deduction under section 54 were upheld; the Revenue's appeals were dismissed and the balance of the CIT(A)'s order affirmed.

Deductibility of interest under Section 36(1)(iii) - commercial expediency - related party transactions and arm's length scrutiny - genuineness of transaction - permissible tax planning

Deductibility of interest under Section 36(1)(iii) - commercial expediency - related party transactions and arm's length scrutiny - genuineness of transaction - Allowability of interest deduction where the assessee advanced large interest free deposits to a sister concern under a facility management agreement for AY 2013-14 - HELD THAT: - The Tribunal examined the contractual scheme under which the assessee placed substantial interest free deposits with a sister concern to obtain the right to collect maintenance charges from licensees. The deposits, their quantum, periodicity and refund mechanism were governed by the contractual terms and were inextricably linked to the contract that generated the assessee's business income. The Assessing Officer's conclusion that the deposits were excessive and therefore the interest on borrowed funds should be disallowed was rejected: the AO impermissibly substituted his view for that of a prudent businessman by second guessing the commercial sufficiency of the deposits. The Tribunal noted that the genuineness of the borrowings and interest payments was not in doubt and that the only statutory requirement for deduction under Section 36(1)(iii) is that funds be used for the purpose of business. The Tribunal applied the principle that tax planning within law is legitimate and relied on the authoritative ratio that revenue cannot occupy the arm chair of a businessman to determine what would be reasonable in commercial expediency. On these findings, the first appellate authority's deletion of the disallowance was upheld. [Paras 5]

Revenue's appeal dismissed; interest deduction under Section 36(1)(iii) allowed for AY 2013-14.

Deductibility of interest under Section 36(1)(iii) - commercial expediency - related party transactions and arm's length scrutiny - genuineness of transaction - Allowability of interest deduction where identical facts and issues arose on account of deposits to a sister concern for AY 2014-15 - HELD THAT: - Facts and legal considerations for AY 2014 15 were pari materia to AY 2013 14. The Tribunal accepted the reasoning of the first appellate authority which had deleted the interest disallowance on the same grounds: the deposits were contractual, linked to earning the assessee's business income, and the borrowings and interest were genuine. Applying the same legal principle that tax authorities must not substitute their commercial judgment for that of the assessee when commercial expediency is established, the Tribunal confirmed the deletion of the disallowance for the impugned year as well. [Paras 6]

Revenue's appeal dismissed; interest deduction under Section 36(1)(iii) allowed for AY 2014-15.

Final Conclusion: Both revenue appeals for Assessment Years 2013-14 and 2014-15 are dismissed; the deletions made by the first appellate authority of the disallowances of interest under Section 36(1)(iii) are confirmed on the ground that the deposits were contractual, commercially expedient and the borrowings/interest were genuine.

Allowability of business expenditure under Section 37(1) of the Income-tax Act, 1961 - onus on the assessee to substantiate that expenses are wholly and exclusively for business - admission of additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 - interpretation and effect of sourcing agreements including force majeure on liability for losses

Admission of additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 - Admission of the arbitration award filed after assessment as additional evidence - HELD THAT: - The Tribunal considered the assessee's application under Rule 29 to admit an arbitration award produced after the lower authorities had completed proceedings. The document was not available during the assessment or before the Commissioner (Appeals) and was filed pursuant to the Tribunal's direction. In the interest of justice and having regard to the connection of the document with the dispute, the Tribunal admitted the arbitration award as additional evidence. The Tribunal nevertheless assessed the evidentiary value of the award in relation to the specific advances written off. [Paras 5]

Additional evidence (arbitration award) admitted under Rule 29 of the ITAT Rules

Allowability of business expenditure under Section 37(1) of the Income-tax Act, 1961 - onus on the assessee to substantiate that expenses are wholly and exclusively for business - interpretation and effect of sourcing agreements including force majeure on liability for losses - Whether advances written off by the assessee totaling Rs. 3,20,34,757/- are allowable as business loss under Section 37(1) - HELD THAT: - The assessee wrote off advances made to aggregators for procurement of agricultural produce and claimed the amounts as business loss. The Assessing Officer disallowed the claim on the grounds that the sourcing agreements conferred rights of compensation on the assessee and that the write-off was a unilateral act taken without pursuing legal recourse or producing correspondence evidencing attempts at recovery. The Commissioner (Appeals) upheld that view. The Tribunal examined the agreements (including a force majeure clause) and the paper book, and found that the assessee failed to place on record particulars of quality damage, correspondence with the producers, settlement agreements or evidence of efforts to enforce contractual remedies in respect of the specific amounts written off. The admitted arbitration award related to other outstanding amounts and did not pertain to the specific advances in dispute; it therefore did not substantiate the claim. On the applicable legal standard, the assessee bore the onus of proving that the write-offs were incurred wholly and exclusively for the purpose of business; that onus was not discharged. [Paras 15, 17]

Write-offs of advances of Rs. 3,20,34,757/- are not allowable as business expenditure under Section 37(1); the disallowance is upheld and the appeal dismissed on merits

Final Conclusion: The Tribunal admitted the arbitration award as additional evidence but held it irrelevant to the specific advances written off; upholding the Commissioner (Appeals), the Tribunal found that the assessee failed to substantiate that the advances written off were incurred wholly and exclusively for business and dismissed the appeal for Assessment Year 2007-08.

Tax Deduction at Source under Section 194-IA - Threshold of Rs. 50,00,000 for applicability of Section 194-IA - Individual transferee as separate person for TDS applicability - Liability under Section 201(1) for failure to deduct TDS - Interest under Section 201(1A)

Tax Deduction at Source under Section 194-IA - Threshold of Rs. 50,00,000 for applicability of Section 194-IA - Individual transferee as separate person for TDS applicability - Liability under Section 201(1) for failure to deduct TDS - Applicability of Section 194-IA and consequent liability under Section 201(1) where a single registered sale deed conveys undivided equal shares to four distinct transferees. - HELD THAT: - The Tribunal found that Section 194-IA(2) exempts deduction where the consideration for transfer of immovable property is less than Rs. 50,00,000 with reference to each transferee. The factual matrix shows a single registered sale deed dated 3.7.2013 conveying equal 1/4th undivided shares to four separate persons, each having a share consideration of Rs. 37,50,000 which is below the statutory threshold. The AO's conclusion treating the aggregate sale consideration as determinative and holding all four buyers jointly liable under Section 201(1) was rejected. The Tribunal held that each transferee is a separate income-tax entity and the statutory test under Section 194-IA must be applied to the amount attributable to each transferee; accordingly the AO's common demand based on the total sale consideration was not sustainable and was deleted. The Tribunal also rejected the departmental reliance on a single deed as a ground to apply Section 194-IA in respect of each transferee where the per-transferee consideration is below the threshold, observing that the law cannot be applied differently merely because the transaction was effected through a single document.

The addition and demand under Section 201(1) based on non-deduction of TDS under Section 194-IA are deleted and the appeals on this ground are allowed.

Interest under Section 201(1A) - Charging of interest under Section 201(1A) consequent to the disallowance/demand under Section 201(1). - HELD THAT: - The Tribunal treated the question of interest as consequential to the principal finding on applicability of Section 194-IA and the deletion of the demand under Section 201(1). Given the deletion of the principal demand, the Tribunal did not adjudicate the correctness or computation of interest charged by the lower authorities and observed that interest is consequential in nature.

Interest issue was not adjudicated on merits as it was consequential; no independent determination of interest was made.

Final Conclusion: Appeals allowed: the Tribunal held that Section 194-IA is to be applied with reference to each transferee's share and, since each transferee's consideration was below Rs. 50,00,000, the demand under Section 201(1) was deleted; interest was left consequential and was not decided.

Revisionary powers under section 263 - Erroneous and prejudicial to the interests of the revenue - Taxability of long-term capital gains - Exemption claimed under sanctioned BIFR scheme (section 45) - Assessing Officer's duty to make enquiry - Reliance on administrative/departmental communications

Revisionary powers under section 263 - Erroneous and prejudicial to the interests of the revenue - Assessing Officer's duty to make enquiry - Taxability of long-term capital gains - Exemption claimed under sanctioned BIFR scheme (section 45) - Validity of the Principal Commissioner's exercise of revisionary powers under section 263 in setting aside the assessment for failure of the Assessing Officer to examine taxability of long term capital gains arising from sale of shares and allowing exemption without enquiry. - HELD THAT: - The Tribunal found that the Assessing Officer had only called for basic details of quoted and unquoted shares and received a reply stating sales of specified shares, but there is no material on record to show any enquiry into the profit arising on sale or the taxability of that profit. The record showed that the CBDT-implemented sanctioned scheme had been communicated denying relief under relevant provisions and the Income Tax Department had clarified that relief under section 45 was not envisaged in the sanctioned scheme; consequently there was no positive development indicating that the BIFR was likely to allow the claimed exemption at the time the assessment under section 143(3) was passed. In these circumstances the assessment order allowing the exemption without making necessary enquiries was held to be erroneous and prejudicial to the interests of the revenue, justifying exercise of revisionary jurisdiction under section 263 by the Principal Commissioner to set aside the assessment and direct a fresh speaking order after affording opportunity to the assessee. [Paras 5, 6]

The Principal Commissioner was justified in invoking section 263; the assessment order is set aside and the revision is upheld.

Final Conclusion: The appeal is dismissed and the order passed by the Principal Commissioner under section 263 setting aside the assessment is upheld; the Assessing Officer is directed to complete the assessment afresh after giving the assessee opportunity of being heard.

Survey under section 133A - reopening of assessment by notice under section 148 - presumption under section 292C - estimation of income on basis of incriminating material - taxation of net profit from impounded profit and loss account - onus on revenue to establish ownership of impounded documents - admission on suggestion of department and its effect on subsequent proceedings

Onus on revenue to establish ownership of impounded documents - presumption under section 292C - survey under section 133A - Whether the turnover figures found in incriminating material seized during survey in the premises of a partner (Mr. Rao) could be treated as belonging to the assessee firm and be the basis for additions. - HELD THAT: - The Tribunal held that the material was found in the premises of Mr. Rao, who carried on an independent business and was a partner of the assessee firm; therefore the statutory presumption available under section 292C is applicable to the person surveyed and not to a third party. The AO did not make adequate enquiries with the managing partner or verify the assessee firm's books to establish that the impounded papers pertained to the firm. Neither the partner nor the firm accepted that the papers related to the firm. In the absence of affirmative proof or enquiry by the revenue, the papers could not be conclusively attributed to the assessee firm and could not form the basis for the additions as made by the AO. [Paras 8, 9]

Findings on the incriminating material do not establish that the turnover belonged to the assessee firm; the AO failed to discharge the onus to attribute the impounded papers to the firm.

Taxation of net profit from impounded profit and loss account - estimation of income on basis of incriminating material - Whether income should be estimated by taxing gross profit on the difference in turnover or by taxing net profit as per the profit and loss account impounded during survey. - HELD THAT: - The Tribunal noted that where a profit and loss account is found, the entire P&L must be considered and net profit taxed rather than piecemeal taxation of gross receipts. Although the AO estimated gross profit on the differential turnover, there was no material produced before the Tribunal detailing the nature of the impounded documents or the P&L found. The assessee had earlier offered and the department had accepted additional income for a later year calculated as net profit at 3.23% on the aggregate suppressed turnover. In light of the absence of particulars from the revenue and the existence of the P&L said to be prepared for bank purposes, the Tribunal found it appropriate to estimate income by applying net profit at 3.23% on the difference in turnover each year. [Paras 8, 9]

Income to be computed by estimating net profit @3.23% on the difference of turnover for each year, instead of taxing gross profit.

Admission on suggestion of department and its effect on subsequent proceedings - reopening of assessment by notice under section 148 - Effect of the assessee's admission (on suggestion of the department) of additional income for AY 2011-12 on the legitimacy and propriety of reopening earlier assessments. - HELD THAT: - The Tribunal observed that the assessee had, at the department's suggestion, offered additional income for AY 2011-12 to cover survey deficiencies, which was accepted and assessed. That admission, together with the department's acceptance, created an impression that the matter was settled; while reopening under section 148 is legally permissible, reopening after such departmental acceptance was described as ethically undesirable and militated against re-taxing the same matter afresh without proper enquiry. Given that the revenue did not produce details of the survey material and had accepted the admitted amount for AY 2011-12, the Tribunal considered it inappropriate to again tax gross profit on the same suppressed turnover. [Paras 9]

Reopening and reassessment on the same suppressed turnover without adequate enquiry is inappropriate in the circumstances; the earlier admission accepted by the department informs the relief granted.

Final Conclusion: Appeals partly allowed. The Tribunal directed the Assessing Officer to recompute the income for A.Ys. 2008-09 to 2010-11 by estimating net profit at 3.23% on the difference of turnover for each year, holding that the revenue failed to establish that the impounded documents in the partner's premises pertained to the assessee firm and that gross-profit taxation was unsustainable in the absence of proper enquiry and P&L particulars.

Re-opening of assessment under section 147 after four years and the first proviso requiring disclosure of all material facts - prior sanction under the proviso to sub section (1) of section 151 - re-opening based on mere change of opinion versus re-opening supported by tangible/new material - reason to believe that income has escaped assessment

Re-opening of assessment under section 147 after four years and the first proviso requiring disclosure of all material facts - prior sanction under the proviso to sub section (1) of section 151 - limitation bar - Validity of reassessment for A.Y. 2006-07 where assessment was reopened after four years without recording failure to disclose fully and truly all material facts and without prior sanction under section 151 proviso. - HELD THAT: - The assessment for A.Y. 2006-07 was reopened on 05.08.2011, i.e. after the four year period. The reasons recorded by the Assessing Officer merely stated a computational mistake treating interest as income from other sources and did not point out any failure by the assessee to disclose fully and truly all material facts as required by the first proviso to section 147. Further, initiation of reassessment proceeded without the prior sanction required by the proviso to sub section (1) of section 151. Absent the specific statutory preconditions for reopening after four years, the reopening was barred by limitation and the reassessment order was invalid. The Tribunal therefore upheld the CIT(A)'s annulment of the reassessment for A.Y. 2006-07. [Paras 6, 7]

Reopening for A.Y. 2006-07 was barred by the proviso to section 147 and by absence of requisite sanction under section 151 proviso; reassessment annulled.

Re-opening based on mere change of opinion versus re-opening supported by tangible/new material - reason to believe that income has escaped assessment - tangible material test following Kelvinator - Validity of reassessment for A.Y. 2007-08 where the Assessing Officer reopened assessment on the basis of material already available at the time of original assessment (whether reopening was mere change of opinion). - HELD THAT: - The Assessing Officer's reasons for reopening relied on the same material that was available when the original assessment under section 143(3) was completed; no new tangible material surfaced to form a fresh reason to believe that income had escaped assessment. Applying the Supreme Court's principle that reopening after the 1989 amendment is impermissible if it amounts to a mere change of opinion and requires tangible material to justify re opening, the Tribunal agreed with the CIT(A) that the reassessment was vitiated by change of opinion. Consequently, the reassessment for A.Y. 2007 08 was held invalid and annulled. [Paras 11, 12]

Reopening for A.Y. 2007-08 was a mere change of opinion without new/tangible material and was invalid; reassessment annulled.

Final Conclusion: Both appeals by the Revenue are dismissed: the reassessment for A.Y. 2006-07 was barred by the proviso to section 147 and absence of required sanction under section 151 proviso; the reassessment for A.Y. 2007-08 amounted to a mere change of opinion without new tangible material and was therefore invalid.

Right to delivery of share certificates - duplicate share certificate - prima facie evidence of title to shares - registration of transfer of securities - pledge by delivery of share certificates - scope of Sections 46 and 56 of the Companies Act, 2013 - equity and clean hands doctrine

Right to delivery of share certificates - scope of Sections 46 and 56 of the Companies Act, 2013 - prima facie evidence of title to shares - Entitlement of the appellant to a direction under Sections 46 and 56 to compel the company to deliver the original share certificates - HELD THAT: - The Tribunal examined the admitted facts that share certificates were originally issued to the appellant and that the respondents are presently in possession of those certificates. The Court reviewed the statutory scheme: Section 46(1) makes a share certificate prima facie evidence of title and Section 56 prescribes the conditions for registration and the proviso for lost instruments, but found that the contingencies for issuance of duplicate certificates under Section 46(2) or the proviso to Section 56 were not attracted on the material before it. The Bench also applied equitable considerations, recording that the appellant had not approached the forum with clean hands, had suppressed earlier litigation, and had made inconsistent allegations (loss, then theft). Given that the respondents assert a pending claim and countervailing liabilities relating to the same subject-matter, the Tribunal held that ordering delivery of the certificates would be beyond the scope of Sections 46 and 56 in the circumstances and would be inequitable. [Paras 14, 19]

Prayer for a direction to hand over the original share certificates under Sections 46 and 56 is refused and the NCLT order is upheld.

Pledge by delivery of share certificates - registration of transfer of securities - Whether the Court should adjudicate the existence and validity of a pledge over the share certificates in this forum - HELD THAT: - The Bench expressly declined to determine the validity of any pledge created by depositing share certificates. Although authorities on creation of pledge and deposit of title deeds were cited by both parties, the Court noted that the respondents are in possession of the certificates and that civil proceedings and recovery claims between the parties (including suit(s) and arbitral award issues) are pending before competent civil fora. In view of the sub judice proceedings and the respondents' contention of payment made under guarantee and attendant claims, the question of pledge and related rights was left for adjudication in the appropriate proceeding rather than being decided in this company petition appeal. [Paras 18, 19]

Validity and consequences of any alleged pledge are not decided and are to be determined in the pending civil/arbitral proceedings; the Tribunal refrains from adjudicating the pledge issue in this appeal.

Final Conclusion: The NCLT order dismissing the company petition is affirmed; no relief is granted to the appellant and costs are awarded in favour of the respondent. The question of the existence or validity of any pledge over the share certificates remains to be determined by the appropriate civil/arbitral forum.

Workmen as operational creditors entitled to invoke NCLT jurisdiction - examination of directions of the Supreme Court under Sections 47 and 49 of the Insolvency and Bankruptcy Code - power of NCLT to adjudicate alleged under-valued transactions and violations despite abatement of BIFR proceedings - interim preservation of assets and restraint on transfer to protect workers' claims

Workmen as operational creditors entitled to invoke NCLT jurisdiction - Entitlement of workmen to proceed as operational creditors before the NCLT under the Insolvency and Bankruptcy Code - HELD THAT: - Counsel for the parties were ad idem that the workmen of the company qualify as "operational creditors" and are entitled to invoke the jurisdiction of the NCLT under the Code by filing applications under Sections 6, 8 and 9. The Court recorded this consensus and observed that the workmen may approach the NCLT; factual disputes as to genuineness of claims or existence of a real dispute would be for the adjudicating authority to determine in law. The Court did not finally resolve individual claims of the workmen but recognised their statutory locus to initiate proceedings under the Code.

Workmen have locus as operational creditors and may invoke NCLT jurisdiction; factual merits of each claim to be determined by the adjudicating authority.

Examination of directions of the Supreme Court under Sections 47 and 49 of the Insolvency and Bankruptcy Code - power of NCLT to adjudicate alleged under-valued transactions and violations despite abatement of BIFR proceedings - Whether directions in Ghanshyam Sarda (paras 37-39) can be examined under Sections 47 and 49 of the Code and whether those provisions are subject to a limiting time-bar - HELD THAT: - The Court held that the directions given by the Supreme Court in Ghanshyam Sarda can be examined and considered by the NCLT under Sections 47 and 49 of the Code provided the other conditions for invoking those provisions are satisfied. The Court expressly stated that Sections 47 and 49 are not confined by a fixed limitation period measured from the insolvency commencement date and therefore can be invoked when their statutory conditions are met. The Court left the questions of violation, adequacy of consideration, consequence of any undervaluation and the effect of earlier Supreme Court orders to be examined by the NCLT on the merits.

NCLT is competent to examine and apply the Supreme Court's directions under Sections 47 and 49 of the Code; those provisions are not restricted by a fixed limitation period and may be invoked if statutory conditions are satisfied.

Interim preservation of assets and restraint on transfer - Interim reliefs to protect workers' interests pending adjudication of disputes - HELD THAT: - Having regard to the multiplicity of pending proceedings and the transfer of capital assets to subsidiaries and third parties, the Court restored and extended interim restraint orders (previously passed in W.P.(C) No.440/2017) for a limited period to preserve assets and protect the interests of workmen and ex-workmen until the next hearing or until the NCLT decides on continuation, modification or vacation of such interim measures. The Court recorded the undertakings made by certain transferees and extended a limited period during which they would not alienate the properties. The Court emphasised that ultimately the appropriate forum (NCLT, NCLAT, Supreme Court or other competent tribunal) must decide the substantive disputes.

Interim preservation and restraint on transfer of assets continued/restored for a limited period to protect workers' claims; specific undertakings by transferees recorded and applicable for the stated short period.

Power of NCLT to adjudicate alleged under-valued transactions and violations despite abatement of BIFR proceedings - Appropriate forum for adjudication and scope of relief where BIFR proceedings abated on repeal - HELD THAT: - The Court recognised that the BIFR had not decided whether the company ceased to be 'sick' or adjudicated the issues dealt with in the Supreme Court's directions before the SIC Act proceedings abated. In consequence, the Court held that the NCLT under the Code is the appropriate forum to examine alleged undervalued transactions, violations of earlier orders and related consequences where the statutory conditions for Sections 47 and 49 are met. The Court refrained from pronouncing on merits and observed that pending questions of forum, maintainability and factual disputes are for the competent authorities to decide; the Court also noted that some questions (e.g., union locus) were pending before the Supreme Court.

Where BIFR proceedings abated, NCLT is the appropriate forum to examine alleged undervalued transactions and related issues under the Code subject to statutory tests; merits to be decided by the adjudicating authority.

Final Conclusion: The writ petition was disposed of (with liberty to the petitioner to approach the Supreme Court). The Court recorded consensus that workmen are operational creditors entitled to approach the NCLT and held that the NCLT may examine the Supreme Court's directions under Sections 47 and 49 of the Code (these provisions not being confined by a fixed limitation period). Interim preservation/restraint orders were restored/extended for a limited period and short undertakings by transferees were recorded; substantive disputes as to violations, undervaluation and quantification of workers' claims are left for consideration by the appropriate adjudicatory forum in accordance with law.

Implementation of approved resolution plan - deposit in escrow as security - performance of obligations of the resolution applicant - monitoring committee directions - averting liquidation by interim funding

Deposit in escrow as security - implementation of approved resolution plan - adjustment against total payment - performance of obligations of the resolution applicant - Resolution Applicant directed to make an immediate interim deposit of one third of the agreed upfront payment to secure performance of the approved resolution plan - HELD THAT: - The Tribunal found that the Resolution Applicant, though having undertaken in the approved Resolution Plan to make an upfront payment within thirty days from approval, had not infused any funds despite lapse of that period. The Corporate Debtor remains a going concern only due to interim management by the Resolution Professional and the Monitoring Committee. Having regard to the Monitoring Committee resolution that at least one third of the total payment should be brought into escrow to enable continued operation and consideration of the Resolution Applicant's requests, the Tribunal concluded that an interim security deposit is essential to avert collapse and to secure performance of the Plan. The Tribunal therefore directed the Resolution Applicant to deposit, within five days, one third of the payment agreed in the Resolution Plan to lie in escrow as security for implementation; the deposit is to be adjusted against the total payment due under the Plan and, in default, the Resolution Professional is at liberty to take further action in accordance with law. [Paras 11, 13, 14]

Resolution Applicant to deposit one third of the agreed upfront payment into escrow within five days to secure implementation of the approved Resolution Plan, failing which the Resolution Professional may take further legal action; MA/578/2018 disposed of accordingly.

Final Conclusion: The Tribunal directed immediate interim deposit of one third of the agreed upfront payment by the Resolution Applicant to be held in escrow as security for performance and implementation of the approved Resolution Plan; failure to comply will permit the Resolution Professional to pursue appropriate legal measures.

Jurisdiction of NCLT to initiate CIRP against personal guarantors - derivative and contingent jurisdiction - effect of non-notification of Part-III of the Code - scope of moratorium under Section 14 vis-a -vis guarantors - transfer of bankruptcy proceedings under Section 60(3)

Jurisdiction of NCLT to initiate CIRP against personal guarantors - effect of non-notification of Part-III of the Code - derivative and contingent jurisdiction - Whether the NCLT can, in the absence of notification of Part-III of the Insolvency and Bankruptcy Code, 2016, initiate corporate insolvency resolution process against individual personal guarantors of a corporate debtor while CIRP against the corporate debtor is pending before the NCLT. - HELD THAT: - The Tribunal held that although Sections 60(2), (3) and (4) were notified, the substantive subject matter machinery for insolvency/bankruptcy of individuals and partnerships under Part III has not been brought into force and the consequential amendments empowering Debt Recovery Tribunals have not been notified. Section 60(4) envisages that for the purposes of proceedings under Section 60(2) the NCLT shall be vested with powers of the DRT, but such vesting is contingent on the DRT being empowered under Part III. The jurisdiction to proceed against personal guarantors is therefore derivative of and contingent upon (a) notification and operation of Part III and (b) the existence of CIRP/liquidation pending against the corporate debtor. In the present state of law, where Part III is not in force and DRT has not been conferred the relevant powers, the NCLT cannot assume the DRT avatar to initiate insolvency proceedings against individual guarantors; to do so would usurp jurisdiction of fora competent under the existing enactments. The Tribunal further observed that the Supreme Court's reasoning in State Bank of India v. Ramakrishnan [paras 18-21] supports the limited operation of Section 60: transfer or filing of proceedings in the NCLT is directed to be dealt with according to the then applicable Presidency Towns or Provincial Insolvency Acts and does not empower NCLT to exercise Part III jurisdiction before it is notified. Consequently, an attempt to invoke CIRP (a corporate remedy) against individuals was held impermissible while Part III remains unnotified. (See findings recorded at paras 14, 16-21, 26, 28 and 30.) [Paras 20, 21, 26, 28, 30]

Applications dismissed as misconceived; NCLT lacks present jurisdiction to initiate CIRP against the individual guarantors while Part III of the Code remains unnotified.

Scope of moratorium under Section 14 vis-a -vis guarantors - transfer of bankruptcy proceedings under Section 60(3) - Whether the moratorium under Section 14 of the Code extends to actions against personal guarantors and whether proceedings against guarantors pending before other fora are required to be transferred to the NCLT. - HELD THAT: - Relying on the Supreme Court's analysis, the Tribunal recorded that the moratorium under Section 14 of the Code does not extend to proceedings against personal guarantors. The cited authority explained that notification of Section 2(e) and Section 60 must be read in the limited context of Sections 60(2) and (3), and that pending non notification of Part III and related provisions, proceedings such as SARFAESI actions are not subsumed by the Code's moratorium. Although Section 60(3) contemplates transfer of bankruptcy proceedings against guarantors to the Adjudicating Authority dealing with the corporate debtor, the Supreme Court has indicated that such transfer cannot effectively operate where Part III and the consequential conferrals of jurisdiction have not been brought into force. Consequently, stay of independent recovery actions against guarantors under the cover of Section 14 would be impermissible. (See reasoning at paras 19-21 and 26-28.) [Paras 19, 20, 21, 26, 28]

Moratorium under Section 14 does not extend to actions against personal guarantors; pending proceedings under other statutes (e.g., SARFAESI) are not stayed or mandatorily transferred to NCLT in the absence of operative Part III.

Procedural propriety of invoking Section 60(5) miscellaneous applications - Whether the Financial Creditor could properly invoke Section 60(5) by filing miscellaneous applications in the admitted company petition to seek initiation of insolvency proceedings against individual guarantors. - HELD THAT: - The Tribunal observed that the creditor's recourse to miscellaneous applications under Section 60(5) within the corporate petition was inappropriate to initiate insolvency proceedings against individuals. Proceedings against individuals are governed by Part III (not in force) and require the procedure prescribed therein (including filing original applications under the applicable provisions). Filing MAs in the corporate petition to obtain initiation of a process meant for individuals was therefore procedurally unsustainable. The Tribunal further noted that CIRP is a corporate remedy and cannot be used as a vehicle to commence proceedings against natural persons while the separate individual insolvency regime remains unnotified; alternative remedies under existing laws remain available to the creditor. (See paras 18-19 and 29.) [Paras 18, 19, 29]

Use of Section 60(5) miscellaneous applications in the admitted company petition to initiate insolvency proceedings against individual guarantors was impermissible and misconceived.

Final Conclusion: The Tribunal dismissed the miscellaneous applications as misconceived: the NCLT cannot initiate CIRP against individual personal guarantors while Part III of the Code and the consequential conferrals on DRT remain unnotified; the moratorium under Section 14 does not cover actions against guarantors, and the creditor must pursue available remedies under the existing legal regime.