In this issuecaa-ahm.org/Pdf/Journal/Journal-34.pdf · Pamil H. Shah 523 News Lounge Mr. Manthan...

Ahmedabad Chartered Accountants Journal December, 2013 481

Journal CommitteeCA. Rajni M. Shah CA. Ashok C. Kataria

Chairman ConvenorMembers

CA. Bharat C. Mehta CA. Hemant N. Shah CA. Jayesh C. SharedalalCA. Shailesh C. Shah CA. Yogi K. Upadhyaya

CA. Prakash B. Sheth [President (Ex-Officio)] CA. Chintan M. Doshi [Hon. Secretary (Ex-Officio)]

Volume : 37 Part : 09 December, 2013

In this issue

E-mail : [email protected] Website : www.caa-ahm.org

Contents Author's Name Page No.Editor's Views CA. Rajni M. Shah 483

President's Message CA. Prakash B. Sheth 485

Art ic les :Assessment u/s 143(3) : A Walk through the mist CA. Jayesh C. Sharedalal 486

Section 234E, A Genuine Hardship CA. Ashok Kataria 494

The Concept of Hindu Family Ms. Dhruti Trivedi 497

Columns :

From the Courts CA. C. R. Sharedalal & 500CA. Jayesh C. Sharedalal

Tribunal News CA. Yogesh G. Shah & 503CA. Aparna Parelkar

FEMA & NRI Taxation CA. Rajesh H. Dhruva 506

Controversies CA. Kaushik D. Shah 509

Judicial Analysis Advocate Tushar P. Hemani 512

Sta t u te Up date

(a) Service Tax Judgements CA. Ashwin H. Shah 514

(b) Fema Update CA. Savan A. Godiawala 517

(c) Value Added Tax CA. Bihari B. Shah 518

(d) Corporate Laws CA. Naveen Mandovara 520

(e) Circulars & Notifications CA. Kunal A. Shah 522

From Published Accounts CA. Pamil H. Shah 523

News Lounge Mr. Manthan Khokhani 526

Association News CA. Chintan M. Doshi & 527CA. Abhishek J. Jain

Updates from ICAI CA. Uday I. Shah 499

Ahmedabad Chartered Accountants Journal

Ahmedabad Chartered Accountants Journal December, 2013482

AttentionMembers / Subscribers / Authors / Contributors

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Published ByCA. Rajni M. Shah,on behalf of Chartered Accountants Association, Ahmedabad, 1st Floor, C. U. Shah Chambers, Near GujaratVidhyapith, Ashram Road, Ahmedabad - 380 014.Phone : 91 79 27544232Fax : 91 79 27545442

No part of this Publication shall be reproduced or transmitted in any form or by any means without thepermission in writing from the Chartered Accountants Association, Ahmedabad.

While every effort has been made to ensure accuracy of information contained in this Journal, the Publisheris not responsible for any error that may have arisen.

Professional AwardsThe best articles published in this Journal in the categories of 'Direct Taxes', 'Company Law and Auditing' and'Allied Laws and Others' will be awarded the Trophies/ Certificates of Appreciation after being vetted byexperts in the profession.

Articles and reading literatures are invited from members as well as from other professional colleagues.

Printed : Pratiksha PrinterM-2 Hasubhai Chambers, Near Town Hall, Ellisbridge, Ahmedabad - 380 006.

Mobile : 98252 62512 E-mail : [email protected]


The Great Indian Political Theatre

The General Elections for the Union of India are round the corner and by the time this editorial would be out in thehands of the readers, the Nation would have been through, with the mid-round of the state elections, and the fate ofthousands of candidates would have been decided (more importantly the fate of the citizens, even!).

Elections have always been regarded as the festival of democracy. Right from the point of announcement of polls, tobeyond the first round of voting, and until the final results get announced, there happens to be time for a big party.From politicians to political pundits; from media houses to celebrities; from ex-cricketers to tele-stars; and from householdanalysts to the lowest rank of party servants, everyone get itself involved in this fancy. All we witness are the ‘old dials’,throwing newer and unheard terminologies just to grab the eyeballs; or the use of the veteran formulas – just as wekeep ourselves amused watching new equations; new alliances; new divorces; new formulas; new theories; newstrategies & ploys; and new slogans, all aimed at the age-old game of vote-snatching!

The expression ‘vote-snatching’ has found a deliberate use since, though we profess ours as the largest democracy inthe world, we are far too away from achieving the same in the authentic spirit. Ipso facto, India happens to be a blendof autocracy, plutocracy, hypocrisy and mobocracy – which when blended martyrize the conscience of democracy. Pickup a child from the nukkad, and question him about politics and the abrupt and impromptu reply that one will receivewill be ‘Politics? Politics is dirty’. The fact that holds well is that it is not the politics that is dirty; it is the filthy politicianswho have made the subject dirty just for their personal accretions.

The Indian electoral scenario is quite amusing and odorous at the same time. The primary candidates are named by theparty leaders from which the voter needs to decide who will ‘loot’ them. It is merely choosing the chosen - where meritof the candidate is rarely seen as a basis for the selection. As the title of this piece suggests, the citizens of the Nationhave no choice but to sit back and watch the ‘Tamasha’ that continues all round the map for an expanded period of 5years.

The pity state of the affairs is displayed by the fact that these netas have become no less than big industrial personas.The question that emerges here is how do these politicians gather so much wealth and assets, when they remain ‘SOBUSY’ in working for the social and national interests? The question remains unanswered. It is the influential capacity,the POWER (Which might be POISON for few!) and the potential to control the system which assists them. Try toremember an Income Tax or CBI raid on politicians (obviously other than those who are in the opposition to the rulingparty!) and you can count it on the tip of your fingers. Try remembering such raids on the innocent populace and youwill recollect such incidences over flowing in the news papers. Try purchasing huge acres of land and you would surelyfind the IT Department ringing your door-bells. Contrary, similar transactions of ‘Private Citizen’ get reported and it isthe whistle blower instead, who has to face the music and dance at its tunes.

These influential people have now become fearless. Report a scam and their facial expression clearly suggests ‘WHOCARES?’ Just 2 days and we all get a brand new topic for debates and discussions.

The political monograph of the filthiest election ever fought has taken an irremediable path, with the hurl of abuses like‘maut ka saudagar,’ ‘khooni panja,’ ‘poison of power’, ‘Shahbzade’, ‘Lomdi’, ‘Khuni’, ‘Mama’, ‘Pappu’, ‘Feku’ withmore to come as the elections get closer. The Politics in India has become a battle between ‘Cockroaches’ and ‘Frog’.Now these phrases have crossed the lines of being amusing and entertaining, in fact it hurts. It hurts on the fact that is‘these’ what we have elected? And are they going to ‘Govern’ us? The answer seems to have been lost in the dark.

Whatever may be the justification, yet it is ‘WE THE PEOPLE OF INDIA’ who are partially responsible for this fate of ours.It is not the politicians who have made it large; it is we who have assisted them in making it large. Bowing down to suchcounterproductive fellows has been our biggest blunder. Get caught in a trouble and we use our ‘Good Relations’ to

Editor's Views


Editor's Views

come out of the same. The faulty Government comes into power, because it is WE who do not take the pains of goingto the polling booths and VOTE for the best.

In the present scenario, what can change the fortunes of the Nation is the decisive role of the Youth. This is relevant inview of the fact that if India is the youngest Nation in the world, it shall even remain so for the next 25-30 years, andso it is better to be governed by young and energetic faces rather than the ‘Super Senior Citizens’.

Amidst the frustration, recession, hopelessness, India certainly needs Change – A Change for good. All we need is agovernment which can tackle terrorism and inflation in parallel. We need a government, which can present employmentas well as affordable housing! So, what is required is colossal voting in sync with judicious voting as opposed toimpulsive voting. Our valuable vote should be for those who possess the capacity to handle this country of a billion pluspeople. This piece has been drafted because of a generic vote pattern where people do not vote for anything butagainst something.

It is high time we decide what we want and then vote for the same as opposed to voting against something! Or else,we need to bear the government that gets elected on account of an ill-informed decision on our part - and that too, forthe next five years!

In my humble opinion this time of history is very critical for India when the entire world is disintegrating and amidst allthat, India has an opportunity to emerge as an economic power if not super power! The need of the hour is to havedoers rather than talkers.

I hope that WE ALL shall vote with that sense and soul, to have a charismatic government that builds an economic superpower called India.

Jay Ho!

CA. Rajni M. [email protected]/[email protected]

❉ ❉ ❉

1. In many years I have come to a conclusion that one useless man is a shame, two is a lawfirm and theree or more is a congress. - John Adams

2. Suppose you were an idiot. And suppose you were a member of Congress. But then Irepeat myself. - Mark Twain

3. A Government which robs Peter to pay to Paul can always depend on the support ofPaul- George Bernard Shaw.

4. Giving money and power to government is liek giving whiskey and car keys to teenageboys.- P. J. O'Rourke

5. I dont make jokes. I just watch the government and report the facts. - Will Rogers


Dear Professional Colleague,

By the time the December’ 13 issue of ACA Journal is inyour hand, the most awaited e-payment facility on ourweb portal would have been started. I recollect the daywhen I took over as the president of the CharteredAccountants Association where I committed not only tomyself but all the members of the Association that it isthe time for all to change with this ever changingenvironment and more so to cop up with the technologicaladvancements. From the very first day we at theInformation Technology Committee under the young anddynamic leadership of Anuj Sharedalal decided that itwas a high time that the Association should come upwith the facility of collecting various fees includingmembership fees and event fees on the web portal itself.The entire Information Technology committee has put inits best efforts to come out with the application that canintegrate the records of the Association along withaccepting online payments from the members. I believethat this new feature on the website would save a goodamount of time and cost for all the members apart fromadding to the convenience of making all the payments,online. Initially, the payments for all the events of theAssociation can be made on the web portal and verysoon the option of payment of membership fees andmutual benefit contribution would also be availableonline.

The month gone by was so very special when motherIndia’s best cricketer son, Sachin Tendulkar hung hisboots after serving the game of cricket and the nationfor 24 years. Cricket lovers are wondering how the Indianteam would line up without the name of Sachin RameshTendulkar in the list. Now the stadium stands will notecho with the sound of SACHIN......... SACHIN....... Theman who carried billion expectations every time he wentto bat will not be seen any more running over 22 yards.The entire generation has grown along with SachinTendulkar, starting from the time he joined the IndianCricket team as a teenager, played the gentlemen’sgame better than anyone else ever played and ultimatelyturning out to be known as GOD of Indian Cricket. The

President's Message CA. Prakash B. [email protected]

man whose records are itself to speak about do not requirefurther mention but one banner said all about the masterof cricket during the Sydney Test in the year 2008. Thebanner read: “Commit all your crimes when Sachin isbatting they will go unnoticed for even the Lord is busywatching him”. After breaking all records during hiscricketing carrier, the legend is tumbling more recordseven post retirement. He has become the youngest Indianto be awarded the highest civilian award of the country,the Bharat Ratna. Though there were various debatesover the timing of the announcement of Bharat Ratna toSachin Tendulkar, I personally believe that this is thefirst decision taken by the UPA government that has goneabsolute perfect with the time.

At the Association

A small AV showcasing the “Journey of the Association”,since its inception was played at the Diwaali get togetherof the Association held on 12th November, 2013. Theidea behind the AV was to pay tribute to the pioneersand the torch bearers of the Association, past presidents,whose untiring efforts have made the Association scalethese great heights.

On 18th December third Brain Trust Meeting is arrangedon the topic of “Use of RTI in Income Tax Proceedings”and “FEMA and Non Residents – Some Practical Issues”to be dealt with by CA. S.K.Sadhwani from Ahmedabadand CA. Rajesh Dhruva from Rajkot, respectively.December is also a month when the Association gearsup for its cricketing season where members of theAssociation display their sporting skills. The first cricketmatch between President XI v. Secretary XI is scheduledon 14-12-2013 and to be followed by a match betweenthe CA Association v. Income Tax Bar Association on28-12-2013.

With best regards,CA. Prakash B. ShethPresident02.12.2013

❉ ❉ ❉


Assessment u/s 143(3) under the Income Tax Act is thestarting point in most of the income tax litigation. In thisarticle an attempt is made to focus on some of thesituations which may have to be encountered during thestage of assessment. A proper approach to thesesituations at the assessment stage itself may have apositive bearing on the outcome of litigation contestedat higher forums. These may not be encounteredfrequently and hence at times one may not seriouslyconsider taking up the underlying challenge during theassessment proceedings. Just as in a mist, one tends towalk only the known path and tends to shun thechallenges that may crop up, so is many a times thecase in the conduct of an assessment u/s 143(3). Peoplemay either be ignorant of their rights or may choose toavoid resorting to such rights and avoid the embeddedchallenges. Raising the issues and taking objections atthe assessment stage is of prime importance since theappellate authorities may not encourage or support theraising of the issues or taking objections vis-a-vis conductof assessment proceedings, at the appellate stage.

1 . Issue and Service of Notice:

Section 143(2) requires that the notice has to be‘served’ on the assessee. Now before a notice canbe ‘served’ it has obviously to be ‘issued’. It wouldnot be out of relevance of this article to understandas to when a notice can be said to have been‘issued’. Does mere signing of a notice be said tobe ‘issued’? The expression to issue in the contextof issuance of notices, writs and process, has beenattributed the meaning - to send out; to place inthe hands of the proper officer for service. The dateof issue would be the date on which the same werehanded over for service to the proper officer, whichon the facts of a case would be the date on whichthe said notices were actually handed over to thepost office for the purpose of booking for thepurpose of effecting service on the assessee. Tillthe point of time the envelopes are properlystamped with adequate value of postal stamps, itcannot be stated that the process of issue iscomplete. [In context of section 149 – KanubhaiM. Pate l (HUF) V. Hiren Bhat t or His

Assessment u/s 143(3) :A walk through the mist

Successors to Office & Ors (2011) 334 ITR25 (Guj)].

When the notice was issued after the expiry of theperiod of limitation, the effect of proceeding is voidas per ratio laid down by Gujarat High Court inDeputy Commiss ioner of Income-tax vs.Mahi Valley Hotels and Resorts, (2006) 287ITR 360 (Guj). It is well settled that if any noticeissued by the department is invalid for any reason,entire proceedings taken by the department wouldbecome void for want of jurisdiction as per ratiolaid down in the case of CIT vs. Kurban Hussain,(1971) 271 ITR 821 (SC).

As per section 282 of Income Tax Act, 1961, noticecan be served either by post or in the manner inwhich the summons are issued by the Courts underthe provisions of Code of Civil Procedure. In thecase of Milan Poddar v. CIT (2012) 211Taxman 403 (Jharkhand), a notice u/s. 143(2)was alleged to have been sent by post, [whichincludes sending notice by Ordinary Post, Post underCertificate, Registered Post, Registered A/D or bySpeed Post] and this fact was not in dispute thatnotice was sent by “Speed Post” and, therefore,notice was in accordance with law under section282 (1) of the Act of 1961.

In the case of Shahbad Cooperative Sugar MillsLtd. V. Dy.CIT (2013) 38 taxmann.com 204(Punjab & Haryana) the assessee raised anobjection that notice was not served within 12months from end of month in which return wasfurnished and, thus, it was null and void. Howeverthe income tax department claimed that the noticewas issued and was not received back. On thesefacts the High Court held:

* The averments in the reply, duly supported bycopy of the notice and the fact that notice was notreceived back raised a presumption of service underSection 27 of the General Clauses Act, 1897;

* The onus to rebut the presumption of service ofnotice sent by post, lies upon the petitioner;

CA. Jayesh C. [email protected].


Assessment u/s 143(3) : A walk through the mist

* The petitioner has failed to discharge this onus.Mere denial by the petitioner that notice was neverreceived, was insufficient, to record a finding infavour of the petitioner.

2 . Selection of case as per norms of CBDT:

If the case has been selected for scrutiny, theassessee has a right to know the basis of selection.If the assessee is of the view that the basis on whichhis case has been selected in scrutiny is not inconformity with the CBDT guidelines, then he shouldchallenge the issue of notice u/s 143(2). Thischallenge can be done by filing an objection beforethe AO. Once the CBDT has issued instructions forassumption of jurisdiction for selection of cases ofassesses for scrutiny and assessment thereof, thesame have to be followed in letter and spirit by theAO. The burden lies on the authority assumingjurisdiction i.e. the AO, to show and establish thatsuch instructions have duly been complied andsatisfied in letter and spirit.

In the case of CIT vs. Smt. Nayana P. Dedhia:270 ITR 572 (AP), it has been held as follows:

“A very short question is involved. Admittedly, theDepartment issued a circular by way of press releaseon March 12, 1996. These guidelines wereregarding “scrutiny assessment guidelines forassessment year 1996-97”. By these guidelines, itwas notified that the Income-tax Department haddecided not to select returns for the assessmentyear 1996-97 for detailed scrutiny, if the totalincome declared is at least 30 per cent more thanthe total income declared for the assessment year1995-96. The case of the respondent before theTribunal was that the Department had decided notto have detailed scrutiny for the assessment year1996-97 if the income declared was at least 30 percent more than the income declared in 1995-96,therefore, the assessment itself was bad. TheTribunal accepted this contention. However, learnedcounsel for the appellant submits that theseinstructions were not binding on the Tribunal or courtor were not available for execution to any judicialauthority. There is no dispute about the circularhaving been issued, which reads as under:

“749A. Scrutiny assessment guidelines forassessment year 1996-97.

The Income-tax Department has decided not toselect returns for the assessment year 1996-97 fordetailed scrutiny if the total income declared is atleast 30 per cent. more than the total incomedeclared for the assessment year 1995-96. Thefollowing further conditions should be fulfilled: (a)the total income for both the assessment yearsshould exceed the basic exemption limit; (b) thetotal income for the assessment year 1995-96 shouldnot exceed Rs. 5 lakhs; and (c) tax is fully paid forthe assessment year 1996-97 before the return isfiled. In these cases the taxpayers will not berequired to attend Income-tax Offices in connectionwith their assessments. However, some of thesecases will be scrutinized if there is positiveinformation of tax evasion or there is a large claimof refund.”

The conditions laid down in the circular are alsofulfilled by the respondent and there is no disputeon that also. Now, the only question, which needsan answer, is, as to what is the status of thesecirculars. The circular had admittedly been issuedby the Central Board of Direct Taxes under section119(1) of the Act. What is the scope of such circularsshould not detain us because of the authoritativepronouncement of the hon’ble Supreme Courtreported in UCO Bank v. CIT [1999] 237 ITR 889.”

In the case of M/s Crystal Phosphates Ltd.,Vs. Ass tt . Commiss ioner of Income-tax,Sonepat Ci rc le , [ ITA no. 3630/Del/2009Asstt. Yr: 2006-07 & ITA no. 4002/Del/09],it has been recently held that since the assumptionof jurisdiction was not in conformity of the CBDTinstructions the assessment was invalid.

However a note of caution here for the assessees.The challenge to jurisdiction should be made beforethe AO at the assessment stage itself, preferably assoon as the notice u/s 143(2) is received or may bebefore the first reply to notice u/s 142(1) issubmitted.

3 . Copies of documents / statements usedagainst the assessee:

If the AO proposes to make any addition on thebasis of any documents in his possession or anystatements recorded by department of any thirdparty or assessee himself, then the assessee should


demand for the copies of such material, which theAO is using for the purpose of making addition.The assessee has got a right to get the copies ofsuch material. It is true that if the assessment ismade without giving an opportunity to assessee torebut the material used against him, the assessmentis bad and should be annulled. It may also happenthat such an assessment is set aside by the appellateauthorities to the file of assessing officer. Hence inorder to avoid the setting aside of the assessmentand undergo the exercise of assessment once again,it is preferable to ask for the copies of the material,and if provided by the AO then assessee shouldrebut the same at the assessment stage itself.

Assessment on the basis of submissions renderedbehind the back of the assessee and withoutproviding any effective opportunity for crossexamination are not legally sustainable. Regardmay be had to the Supreme Court decision inthe case of C.Vasantlal & Co. v CIT (1962)45 ITR 206 (SC); Dhakeswari Cotton MillsLimited v CIT (1954) 26 ITR 775 (SC) andothers. In Heirs and LRs of Late LaxmanbhaiS. Patel v/s. CIT 327 ITR 290 (Guj) @ Page301-302:

“It is true that while deciding the reference undersection 256(1) of the Income Tax Act, 1961, thecourt is mainly concerned with the decision onquestions of law. If the question posed before thecourt is purely a question of fact, the court shouldnot entertain the reference. However, if some basicprinciples of law or statutory or constitutionalprovisions are violated by the authorities, the courtwould not shut its eyes and take the view that theauthorities below have appreciated the facts andevidence on record and arrived at a finding whichis based on facts and no question of law arises fromthe orders passed by the authorities below. The caseon hand is one of such cases where apparently therewas a violation of the principles of natural justiceas the statement of one of the important witnesses,namely, Shri Rameshbhai M. Patel on which heavyreliance was placed by the Assessing Officer whilemaking an addition of Rs. 8,78,358.35 on accountof unexplained cash credit under section 68 of theIncome Tax Act, 1961, is neither referred to in theassessment order nor copy thereof was given tothe assessee nor the assessee was given an

opportunity of cross examining the said ShriRameshbhai M. Patel. The authorities below couldnot be absolved from the obligation by merely statingthat it was not necessary to give such copy to theassessee nor was it necessary to give an opportunityof cross examining the said Shri Rameshbhai M.Patel as the facts stated by him are admitted bythe assessee. The whole issue of the addition inquestion is required to be viewed in this context”

@ Page 304:

“The legal effect of the statement recorded behindthe back of the assessee had without furnishingthe copy thereof to the assessee or without givingan opportunity of cross examination, if the additionis made, the same is required to be deleted on theground of violation of the principles of naturaljustice. This is clearly stated by the Hon’ble SupremeCourt in the case of Kishinchand Chellaram v/s. CIT(1980) 125 ITR 713 wherein it is stated that beforethe income tax authorities could rely upon it, theywere bound to produce it before the assessee sothat the assessee could controvert the statementscontained in it by asking for an opportunity to crossexamine”.

ITO v M. Pirai Choodi ( 2011) 334 ITR 262 (SC) .

However one may also consider that where an orderhad been passed by the Assessing officer withoutgranting the assessee an opportunity to crossexamine and the assessee preferred a writ petition,the Apex court held that the High Court ought notto have set a side the order of assessment but tohave only granted the assessee an opportunity tocross examine the witness. (Asst year 2004 05).

Hindustan Tobacco Company v. CIT(Cal.)(High Court)www.iatonline.org

The principle of natural justice cannot be construedin isolation from the factual matrix of the case.Though the Inspector’s report was not given to theassessee, the contents thereof were communicated, the identity of persons questioned was given andthe manner in which the enquiry was held also setout and the assessee was given a chance to explain. Accordingly, the principles of natural justice weresubstantially complied with at the assessment stage,




the assessee did not feel prejudiced categoricallyindicated that it had submitted whatever materialswere within its possession and did not have anythingmore to submit. It did not ask for a copy of thereport or the cross examination of the inspector. Ifa party fails to avail of the opportunity to cross-examination of a person at the appropriate stagein the proceeding, the said party would beprecluded from raising such issue at a later stage ofthe proceedings. Plea of violation of natural justicetaken at the appellate stage is an afterthought.Appeal of assessee was dismissed. The disallowanceof expenses was confirmed. (A.Y.1994-95)(ITA no267 of 2003 dated 30-8-2012)

4 . Seeking of Adjournment and importance ofOrder Sheet entries:

Sometimes a situation may arise that the assesseeis seeking a genuine adjournment. Take forexample the notice u/s 142(1) may have requiredcompliance of more than 50 points / issues and theassessee has been given a short period forcompliance. In such a situation usually the asseesseemay make a part compliance of the notice andseek more time for entire compliance. If theadjournment is not granted by the AO, the assesseethrough his authorized representative (AR) shouldmake a note about the reasons for seeking moretime in the ‘Order sheet’ where the attendance andproceedings of assessment hearing is recorded. Itmay be later followed by a formal adjournmentapplication, but it is advisable to seek theadjournment by the AR, making a note in the ‘Ordersheet’, where the circumstances so warrant.However this may not be resorted to in each andevery case, particularly where the adjournment iseasily granted.

The importance of entries in Order sheet is immense.The entries in Order sheet are conclusive evidenceof particular details having been filed by theassessee. One may refer to the following decision:

Meinhardt Singapore Pte Ltd. Vs. AssistantDir ector Of Income Tax ( Internat iona lTaxation) (2013) 81 DTR (Del) 283 : (2013) 212TAXMAN 637 (Delhi) : (2013) 256 CTR (Del) 143:

“17. The petitioner claims that it had filed repliesdated 29th November, 2007, 6th December,

2007 and 20th December, 2007. However,the same are not on records/files of therespondents. Order sheet entries dated 30thNovember, 2007, 6th December, 2007 and20th December, 2007 state that letters werefiled. The questionnaire and order sheetentries themselves disclose that the issue inquestion was examined by the AssessingOfficer. In the letter dated 17th December,2007, the petitioner in response to one of thequeries had stated:-

“1. x x x x x x

2. Explain the two contracts with NHAI

a) We have entered in the first contract withNHAI in January‘ 2001 for supervision ofNational Highway ConstructionSupervision for 4 Laning andStrengthening of Existing Two LaneStretches from KM, 115 to 158 KM andfrom KM245 to kM317 on NH 2. (Copyof agreement is attached for yourreference). The above said contract wasin association with local consultant namelyM/s Quest International, the work wasdistributed as Meinhardt has to provideexpat Team leader and Quest to provideall the local staff. All the expenses exceptsalary of Team Leader are being paid byQuest International. On the similar patternNHAI pays Team Leader‘s remunerationdirect to Meinhardt and fee for local staffand expenses is paid to QuestInternational. The above said income toMeinhardt has been offered for tax undersection 115A read with section 44DA asthe contract was signed before 1st April’2003.”

18. It is the contention of the petitioner that thecontract with Quest dated 1st February, 2001was furnished and, therefore, the query wasraised. We agree as it is obvious and it wouldbe incongruous to hold to the contrary. Thatthe contract dated 1st February, 2001 is onrecord in the immediate preceding year 2004-05 is accepted. The answer given waspertinent and specific. It is indicative of theapplication of mind on the factual matrix.


19. Consequently, the respondent‘s claim thatthese letters are not on record, and thereforeshould not be taken into consideration, cannotbe accepted. This cannot be a ground toreject, and to not take into consideration, theletters. Record maintenance of therespondents leaves much to be desired.Departmental files and records are neitherpage numbered nor in seriatim. There is noconcept of a filing counter and issuance of aproper receipt. The petitioner-assessee hastaken a categorical stand that these letterswere written to the Assessing Officer. Therespondents cannot deny receipt of the saidletters merely on the basis that they are nownot on record, once the order-sheets recordfiling by the petitioner. We, therefore, opt andaccept the statement of the petitioner thatthe agreement between them and Quest wasfurnished to the Assessing Officer.”

5 . Notorious fact:

Sometimes the deduction of expenses has to beallowed taking notice of ‘Notorious fact’.

What is meant by the term ‘Notorious fact’? Theterm has been explained as follows:

Paragraph 108 at page 79 of Volume 17 ofHalsbury’s Laws of England, 4th Edition, which readsas follows :—

“108. Notorious fact. The court takes judicial noticeof matters with which men of ordinary intelligenceare acquainted, whether in human affairs, includingthe way in which business is carried on, or humannature, or in relation to natural phenomena. In orderto equip himself to take judicial notice of a fact,the judge may consult appropriate sources, or hemay hear evidence. He may also act upon his generalknowledge of local affairs, but he may not importinto a case his own private knowledge of particularfacts, even if those facts have been proved inprevious proceedings.” [Patna High CourtMadho Singh vs. The State Of Bihar AndOrs. AIR 1978 Pat 172,]

Section 56 of the Evidence Act prescribes thatjudicially noticeable facts need not be proved.

Section 57 provides the necessary and requisite factsof which courts must take judicial notice.

In the Special Bearer Bonds case in R.K. Garg AndOrs. vs. Union Of India (Uoi) And Ors. 1982133 ITR 239 SC:

“The presumption of constitutionality is indeed sostrong that in order to sustain it, the court maytake into consideration matters of commonknowledge, matters of common report, thehistory of the times and may assume everysta te of fact s which can be conce ivedexi st ing at the t ime of legis la t ion.”[emphasis supplied]

Gurbux Singh vs. Commissioner of IncomeTax. (2006) 280 ITR 465 (All)

“Taking into account the pious aim and object ofthe introduction of s. 80U in the Act by the FinanceAct, 1968, we are of the opinion that total blindnessunder s. 80U means an individual who is unable toperceive the light. The total blindness does not meanthat the person is totally unaffected by thehappening around his surroundings. Judicial noticeof this notorious fact can be taken into accountwhen one of the senses out of five senses of anindividual is impaired or totally lost, the other sensesby nature, become stronger. A person who is blind,his other senses become more active or sensitiveand they can spell out more accurately from theremaining four senses than from an ordinary person.The experience shows that blind person is able torecognize an individual more accurately from theindividual’s voice, sound or footstep. Therefore, ifthe applicant is able to perceive from the handmovement it cannot be said that the said person isnot totally blind. The word ‘totally blind’ has beenused in the sense that blindness is of permanentnature and is not curable.”

CIT vs. The Statesman Ltd. (1992) 198 ITR582 (CAL)

“19. This lucid illustration explains the said maxim.Thus, where the statute imposes restriction onadvertisement, publicity and sales promotion, theexpression “sales promotion” cannot include theselling expenses incurred in the ordinary course ofthe business. It only restricts such expenses as are



of like nature as advertisement and publicity. Thepayment of commission to the newsagents whoconstitute the distribution net sustaining thecirculation of the newspaper is the ordinary sellingcost. They can be said to be the very infrastructureof the business of newspaper publication. Suchexpenses, by no means, can pertain to activitiespartaking of the nature of sales promotion. Theimport of the expression “sales promotion” has tobe understood as such activities as take their colourfrom the preceding words advertisement or publicity.The payment of commission can, by no means, besaid to be either advertisement or publicity. It is theexpenses of a sales network. Without a sellingnetwork, the running of the business in newspaperpublication is unthinkable. This system is as old asthe newspaper business itself. Likewise, the sale ofadvertisement space is the life-line for a newspaperbusiness. The advertisement tariff is the mainstayof the business. It is a notorious fact of whichjudicial notice need be taken. In our view, therefore,the expenditure incurred by way of commission tosales agents and advertisement agents are not theexpenditure sought to be curtailed by the nonobstante provisions of s. 37(3B), there being noingredient of advertisement or publicity inremunerating the agents.”

CIT vs. Bata India Ltd. (1993) 201 ITR 884(CAL)

“18. The admitted position is that the expensesare not any expenses on advertisement, publicityor any sales promotion. The expenses represent thecontributions which the retail shops of the assesseehad to pay to the organisers of local festivals. It isalso not in dispute that the assessee has a largenumber of retail shops. Having regard to theextensive market and the numerous retail shopsset up by the assessee for the sale of its products,the total expenditure of Rs. 1,87,411 is really anegligible amount. The crucial question is whethersuch contributions to the festival committees madeby the various retail shops could be said to be salespromotion expenditure. It is a notorious fact that,in the festival months, the shops in this part of thecountry have to pay contributions towardscommunity celebrations to keep the youths in theneighbourhood of the shop happy to ensure smoothconduct of the business. The expenditure can be

said to be an expenditure required to maintain thebusiness.”

Thus during the course of assessment proceedingsif there is a claim of deduction of expenses basedon ‘Notorious fact’, then assessee should makeappropriate submission highlighting the presenceof ‘Notorious fact’.

6 . Inspection of case file:

Sometimes a need arises for taking inspection ofthe case file. This need may arise possibly in thefollowing situations:

a. Assessee’s copies of submissions filed earlierare lost / destroyed in fire or accident or anynatural calamity.

b. Assessment is being done u/s 143(3) r.w.s.263 or 147 and copies of submissions filedduring earlier assessment are lost or destroyedetc.

c. There has been an amalgamation and theassessee does not have access to the copiesof submissions made by the company whichhas been amalgamated with assessee.

d. For some reason assessee wants to go throughthe Order sheet entries.

In such a scenario the following CBDT Circular maybe helpful for pursuing the application seekinginspection.

Circular No. 17 (XL–36), dated 28-6-1965, whichreads as under:

“Fees for inspection of assessment and other recordsfor obtaining copies of documents:

1. The Board understand that the rates of feescharged for inspection of assessment andother records by assessees, or by theirauthorised representatives for obtaining copiesof documents therefrom, are not uniform inall Commissioner’s charges. With a view tohaving a uniform scale of fees for thesepurposes in all charges, the Board have decidedthat such fees shall be charged at the followingrates:



1. For inspection of records:

(a) for the first hour or part thereof 12 annas

(b) for every additional hour or part thereof 8annas.

2. For certified copies:

(a) for the first 200 words or less 12 annas

(b) for every additional 100 words or fractionthereof 6 annas.

2. Where under the Rules or Instructions for thetime being in force an assessee is initiallyentitled to a free copy thereof, no charge maybe made for the first copy; but subsequentcopies should be charged for.

3. Normally, applications for inspection or copiesmust be complied within three days of theirreceipt. Where, however, an inspection or acopy is urgently required, i.e.,on the very dayon which an application for the same isreceived by the Income-tax Officer, the aboverates of fees shall be increased by 100%thereof.

4. Fees for copies and for inspection of recordsshall be recovered in advance and the amountsso recovered, shall be credited to the head‘IV — Taxes on income other than CorporationTax (3) — Miscellaneous — Other items’.Except in very exceptional circumstances, suchfees should not be recovered in cash andassessees or their representatives should berequired to pay them in the Treasury.”

It is seen in practice that most of the Officers in theDepartment are unaware of the above Circular andconsequently reject applications, if made, forinspection and copies of order sheet entries or otherdocuments filed before the Department for whichauthentic copies are required. It is hoped that allpersons concerned would take due cognisance ofthis Circular and allow the assessees or theirauthorised representatives access to the records ofthe assessees concerned.”

To the best of information of the author the abovecircular has not been withdrawn by CBDT.

7 . Making of alternative claim of deductionor exemption or taxability during the courseof assessment.

It is desirable that alternative claims of deductionor exemption or taxability should be made at thestage of filing of the return of income. However inthe e-filing scenario, this step is not possible. Hencesuch alternative claims may be made by way ofletters in that respect filed with the AO as soon asthe return is e-filed. Again this may pose difficultysince the returns are processed by CPC at Bangalorewhere the alternative claim may not be considered.If the case is selected for scrutiny then the assessee’salternative claims will have to be considered by theAO, in case he does not agree to give deductionetc as per the claim made in the return of income.The following CBDT Circular still holds ground.

Circular No. 14 (Xl-35) dt . 11/04/1955:Miscellaneous—Refund and reliefs due toassessees—Departmental attitude towards: ASSESSMENT : SECTION 143,

“The Board have issued instructions from time totime in regard to the attitude which the Officers ofthe Department should adopt in dealing withassessees in matters affecting their interest andconvenience. It appears that these instructions arenot being uniformly followed.

2 . Complaints are still being received that whileITOs are prompt in making assessments likelyto result into demands and in effecting theirrecovery, they are lethargic and indifferent ingranting refunds and giving reliefs due toassessees under the Act. Dilatoriness orindifference in dealing with refund claims(either under s. 48 or due to appellate,revisional, etc., orders) must be completelyavoided so that the public may feel that theGovernment are actually prompt and carefulin the matter of collecting taxes and grantingrefunds and giving reliefs.

3 . Officers of the Department must not takeadvantage of ignorance of an assessee as tohis rights. It is one of their duties to assist ataxpayer in every reasonable way, particularlyin the matter of claiming and securing reliefsand in this regard the Officers should take the



initiative in guiding a taxpayer whereproceedings or other particulars before themindicate that some refund or relief is due tohim. This attitude would, in the long run,benefit the Department for it would inspireconfidence in him that he may be sure ofgetting a square deal from the Department.Although, therefore, the responsibility forclaiming refunds and reliefs rests with assesseeson whom it is imposed by law, officersshould:—

(a) draw their attention to any refunds orreliefs to which they appear to be clearlyentitled but which they have omitted toclaim for some reason or other;

(b) freely advise them when approached bythem as to their rights and liabilities andas to the procedure to be adopted forclaiming refunds and reliefs.

4 . Public Relations Officers have been appointedat important centres, but by the very natureof their duties, their field of activity is boundto be limited.

The following examples (which are by nomeans exhaustive) indicate the attitude whichofficers should adopt :—

(a) Sec. 17(1) : While dealing with theassessment of a non-resident assessee theofficer should bring to his notice that hemay exercise the option to pay tax on hisIndian income with reference to his totalworld income if it is to his advantage.

(b) Sec. 18(3), (3A), (3B) and (3D) : Theofficer should in every appropriate casebring to the assessee’s notice the possibilityof obtaining a certificate authorisingdeduction of income-tax at a rate less thanthe maximum or deduction of super taxat a rate lower than the flat rate, as thecase may be.

(c) Secs. 25(3) and 25(4) : The mandatoryrelief about exemption from tax must begranted whether claimed or not; the otherrelief about substitution, if not time barred,

must be brought to the notice of ataxpayer.

(d) Sec. 26A : The benefit to be obtained byregistration should be explained inappropriate cases. Where an applicationfor registration presented by a firm is founddefective, the officer should point out thedefect to it and give it an opportunity topresent a proper application.

(e) Sec. 33A : Cases in which the ITO or theAsstt. Commissioner thinks that anassessment should be revised, must bebrought to the notice of the CIT.

(f) Sec. 35 : Mistakes should be rectified assoon as they are discovered withoutwaiting for an assessee to point them out.

(g) Sec. 60(2) : Cases where relief canproperly be given under this sub-sectionshould be reported to the Board.

5 . While officers should, when requested, freelyadvise assessees the way in which entriesshould be made in various forms, they shouldnot themselves make any in them on theirbehalf. Where such advice is given, it shouldbe clearly explained to them that they areresponsible for the entries made in any formand that they cannot be allowed to plead thatthey were made under official instructions. Thisequally applies to the Public Relation Officers.

6 . The intention of this circular is not that taxdue should not be charged or that any favourshould be shown to anybody in the matter ofassessment, or that where investigations arecalled for, they should not be made. Whateverthe legitimate tax it must be assessed andmust be collected. The purpose of this circularis merely to emphasise that we should nottake advantage of an assessee’s ignorance tocollect more tax out of him than is legitimatelydue from him.”

❉ ❉ ❉



Introduction

The Finance Act – 2012 has inserted section 234E in theIncome Tax Act levying fee in case of delay in filingquarterly TDS (Tax Deduction at Source) statements u/s200(3) or TCS (Tax Collection at Source) statements underproviso to section 206C(3). The provisions of the sectionhave come into effect and are applicable for allstatements filed on or after 01/07/2012. The provisionsof the section as in the statute are as under:

Section 234E.

(1) Without prejudice to the provisions of the Act, wherea person fails to deliver or cause to be delivered astatement within the time prescribed in sub-section(3) of section 200 the proviso to sub-section (3)of section 206C, he shall be liable to pay, by way offee, a sum of two hundred rupees for every dayduring which the failure continues.

(2) The amount of fee referred to in sub-section (1) shallnot exceed the amount of tax deductible orcollectible, as the case may be.

Section 234E,A Genuine Hardship

(3) The amount of fee referred to in sub-section (1) shallbe paid before delivering or causing to be delivereda statement in accordance with sub-section (3) ofsection 200 or the proviso to sub-section (3) of section206C.

(4) The provisions of this section shall apply to astatement referred to in sub-section (3) of section200 or the proviso to sub-section (3) of section 206Cwhich is to be delivered or caused to be deliveredfor tax deducted at source or tax collected at source,as the case may be, on or after the 1st day of July,2012.

Sub Section 1

Quarterly TDS statements are to be filed in Form No.24Q, 26Q and 27Q as per section 200(3) of sub section(1) of the Act read with rule 31A of the Income TaxRules and quarterly TCS statement in Form No. 27EQ asper section 206C (3) read with rule 31AA within theprescribed time limit. The time limit for filing TDSstatements and TCS statements is prescribed in Rule 31Aand 31AA, respectively, as under:

CA. Ashok [email protected]

Due date of filing TDS Statements in Form No. 24Q, 26Q and 27Q.

S. Date of ending of Due date where the deductor is an Due date for other than governmentNo quarter of the office of the government deductors

financial year.

1. 30th June 31st July of the financial year 15th July of the financial year

2. 30th September 31st October of the financial year 15th October of the financial year

3. 31st December 31st January of the financial year 15th January of financial year

4. 31st March 15th May of the financial year 15th May of the financial yearimmediately following the financial immediately following the financialyear in which deduction is made year in which deduction is made

Due Date of TCS statements in Form No. 27EQ.

S. No Quarter of the financial year ended. Due date

1. 30th June 15th July of the financial year

2. 30th September 15th October of the financial year

3. 31st December 15th January of the financial year

4. 31st March 15th May of the financial year immediately following thefinancial year in which collection is made


Section 234E, A Genuine Hardship

Sub section (1) of section 234E stipulates that where aperson fails to submit quarterly statements within thetime limit as given in above tables, he shall be liable tofee of Rs. 200/- for every day of default up to the dayfiling of statement. The levy of fee of Rs. 200 per day foreach day of default is very stringent on the taxpayingpublic at large considering the nature of default beingprocedural in nature without any loss of revenue to theexchequer. The levy also seems to be unjust consideringthe discrimination in the time period allowed to filequarterly statements to government deductors and non-government deductors. All government deductors areallowed one month to file statements in form no. 24Q,26Q and 27Q as against 15 days available to other thangovernment deductors, as far as first three quarters ofthe financial year are concerned.

The question arises whether the levy of Rs. 200/- for everyday of default is justifiable where the deductor gets 15days to file quarterly statement in respect of first threequarters of the financial year. For all practical purposes,the filing period allowed to furnish statement is virtuallyreduced to 3 to 4 days considering the mechanism underwhich these quarterly statements are required to be filed.This can be best understood with an example:

Mr. A deducts tax on 30th June 2013 from contractpayments u/s 194C. The tax is required to be paid up to7th of July, 2013. The tax is paid on the due date. Afterpayment of tax, it takes about 4 to 5 days for every bankto upload the challan in OLTAS and the details of paidchallan are not available online before 11th or 12th of themonth. The TDS return can be filed only after the detailsof tax paid is downloaded from the website of NSDL in aparticular format to link it with the TDS statement, beforefiling. Accordingly, only three days are available to file aquarterly statement where due date for the April-Junequarter statement is 15-07-2013. In case of default, feeof Rs. 200/- for each day of default becomes payable.

Sub Section 2

As given in sub section 2, the amount of fee payableunder section 234E is restricted up to the amount of taxdeductible or collectible. As the statements are to befiled quarterly, the tax deductible or collectible is to beconsidered vis-à-vis each quarter.

Sub Section 3

Sub section 3 provides that the fee shall be paid beforedelivering our causing to be delivered a statement. Aquestion arises whether the department can recover theamount of fee if same is not paid before the filing ofquarterly statement and if yes, under which section?

Of late, intimations u/s 200A are being received fromCPC-TDS demanding late fee u/s 234E where statements

have been filed after the due date. Whether payment offee u/s 234E is mandatory? Whether intimations receivedu/s 200A are appealable? If appealable what could bethe ground of appeal? Well there are many questionswhich do not have a direct answer but section 246A hasbeen amended to include intimation u/s 200A asappealable before CIT (Appeals). As far as charging feeu/s 234E while processing statements u/s 200A isconcerned, the section needs to be anaylsed.

Section 200A.

(1) Where a statement of tax deduction at source hasbeen made by a person deducting any sum(hereafter referred to in this section as deductor)under section 200, such statement shall be processedin the following manner, namely:—

(a) the sums deductible under this Chapter shallbe computed after making the followingadjustments, namely:—

(i) any arithmetical error in the statement;or

(ii) an incorrect claim, apparent from anyinformation in the statement;

(b) the interest, if any, shall be computed on thebasis of the sums deductible as computed inthe statement;

(c) the sum payable by, or the amount of refunddue to, the deductor shall be determined afteradjustment of amount computed under clause(b) against any amount paid under section 200and section 201, and any amount paidotherwise by way of tax or interest;

(d) an intimation shall be prepared or generatedand sent to the deductor specifying the sumdetermined to be payable by, or the amountof refund due to, him under clause (c); and

(e) the amount of refund due to the deductor inpursuance of the determination under clause(c) shall be granted to the deductor :

Provided that no intimation under this sub-sectionshall be sent after the expiry of one year from theend of the financial year in which the statement isfiled.

Explanation.—For the purposes of this sub-section,“an incorrect claim apparent from any informationin the statement” shall mean a claim, on the basisof an entry, in the statement—


Section 234E, A Genuine Hardship

(i) of an item, which is inconsistent with anotherentry of the same or some other item in suchstatement;

(ii) in respect of rate of deduction of tax at source,where such rate is not in accordance with theprovisions of this Act.

(2) For the purposes of processing of statements undersub-section (1), the Board may make a scheme forcentralised processing of statements of tax deductedat source to expeditiously determine the tax payableby, or the refund due to, the deductor as requiredunder the said sub-section……..

Plain reading of section 200A suggests that thequarterly statements are to be processed aftermaking following permissible adjustments:

- Any arithmetical error in the statement.

- Any incorrect claim, apparent from anyinformation in the statement. The explanationfor “incorrect claim” has been provided in section200A as under:

(i) of an item, which is inconsistent with anotherentry of the same or some other item in suchstatement;

(ii) in respect of rate of deduction of tax atsource, where such rate is not in accordancewith the provisions of this Act.

- Interest to be computed on the amount of taxdeducted at source.

- The sum payable or refundable to the deductorto be determined after adjustment of interestcomputed in processing and paid by the deductor.

- The intimation for the sum determined payableas above to be prepared / generated and sent tothe deductor.

- The amount of refund due as above to be grantedto the deductor.

The above understanding of section 200A suggeststhat charging fee u/s 234E has not been prescribedu/s 200A and fee cannot be levied while processingTDS statements u/s 200A. When it appears thatthe levy of fee in processing statements u/s 200A iswithout authority, the same needs to be tested atthe appellate level.

Another important aspect to be considered is thatthe TDS statement cannot be filed before paymentof taxes. What would be the position where adeductor has paid the tax beyond the due date

along with interest and there is delay in filingquarterly statement? There have beenpronouncements on penalty u/s 272A(2)(k) wherethe amount of tax deducted at source was paidlate and there was delay in furnishing the quarterlystatements.

Mumbai Tribunal in Porwal Creative Vision (P) Ltd.V. Add.CIT, 55 DTR 241, has held that period oflevying the penalty has to be counted from the dateof payment of tax because the delay in filing thereturn till the date of payment of tax is alreadyexplained on the ground that the asseessee couldnot pay the taxes for which separate penalprovisions exist.

In GSL Nova Petro Chemicals Ltd. V. JCIT, ITA No.2277 / Ahmedabad / 2012, it is held that penaltyshould be worked out from the date of payment oftax till the date of filing of TDS return.

Sub Section 4

Section 234E has come into effect from 1-7-2012.

Apart from section 234E there have been relatedamendments concerning the topic of discussion from thesame date. Section 272A(2)(k) levying penalty of Rs. 100for each day of default in filing quarterly statements shallnot apply for statements after 1-7-2012, new section 271Himposing penalty for failure to furnish statements hascome into force and section 246A has been amendedand intimation u/s 200A is appealable w.e.f. 1-7-2012.

Conclusion

Though it seems that fee u/s 234E is mandatory in nature,its implementation is turning out to be a hardship fortaxpaying public at large. The deductors who are in factworking as collecting agents of tax on behalf of thegovernment are not being spared for slightest ofprocedural lapse. At the first instance, law does not seemto be equal for all where government offices get doublethe time of other deductors to file their quarterlystatements. When the income tax department is servingnotices for payment of fee u/s 234E, a question ariseswhether it has been able to keep its’ own house in orderas far as filing quarterly statements is concerned. Thelevy of fee in processing u/s 200A at least needs to betested and also the argument that the statement cannotbe filed before payment of tax. Time on hand may notbe much before section 200A is amended!

Suitable representation needs to be made with utmosturgency at appropriate forums and alternatively voluntaryprofessional Associations need to come forward and takeproper recourse to law, if necessary.

❉ ❉ ❉


A family consisting of parents and their children livingtogether as a unit has played a crucial role in the evolutionof human society. A family so understood has been thebasic unit of the Society. A FUNDAMENTAL ANDIMPORTANT ASPECT OF THE Hindu Society is the jointor extended family.

i) the concept of the family has been extended toinclude not only parents and their off-springs butalso many other relatives connected by blood, morespecifically those claiming descent from a commonancestor, and

ii) the carrying on the economic activity –agricultural,commercial, industrial and ownership of peropertyby the family as a distinct and separate unit.

Joint and undivided family is the normal feature of theHindu society and the undivided family is ordinary jointnot only in estate but in food and worship. Thepresumption therefore, is that the members of Hindufamily are living in a state of union unless the contrary isestablished. This general principal will have no applicationwhen one of the coparceners is separated from the others.Just because members lived and worked at differentplace but owned joint family house it cannot said thatthey did not form a joint Hindu Family.

Hindu Undivided Family (HUF) :

Hindu male along with his wife and children and theirprogeny has the potential to constitute a fresh HUF,independent of the HUF of which he is coparcener. HUFproperty, usually and normally, though not necessarily,is managed by the father. The management can alsovest in some other senior coparcener of the family . Sucha manager is known as the Karta. He is the head of thefamily and is the coustodian of its finances. He is expectedto utilize the income of the family for the purpose of thefamily - maintenance, education, marriage, shradh andother religious ceremonies of the coparceners andmembers of the family. It may, however, be noted thathe is somewhat different from what is commonlyunderstood by the term “manager” in commercialparlance. Karta is not liable to submit account to anyone, even in the contingency of a partition. He has powerto contract debts on behalf of the family and discharge

The Concept ofHindu Family

claims against the family. The Karta as manager of theaffairs of HUF has vast power, greater than those of othercoparceners. For instance, the Karta of an HUF, who isthe father, has a right to partition the family with orwithout consent of his sons or ther coparceners, if any.

Hindu Coparcenary :

The Hindu coparcenary, comprises of a common maleancestor and his lineal descendants in the male line within4 degrees, running from and including such ancestor.Coparcenary cannot commence without a common maleancestor. After his death, however it may consist of othermale member such as brothers, uncles, nephews etc.Briefly stated the essence of coparcenary is communityof interest and unity of possession. Members of the familywho are not coparceners have no right to claim partitionalthough when a partition takes place, a mother or widowof the Karta takes a share equal to that of the sons. It isnecessary at such a partition to provide for maintenanceand marriage of the unmarried daughters. A daughter-in-law will not have any coparcenary rights in her husbandor father-in-law’s HUF. A coparcener thus consist of:

1st Degree : Holder of ancestral property for the firsttime

2nd Degree : Sons and daughters since 2005

3rd Degree : Grandsons

4th Degree : Great Grandsons

Difference between HUF and Coparcenary :

A Hindu coparcenary is distinguishable from an HUF. AHindu coparcenary is a narrower body within a HUF; it isa body of individuals which acquires interest by birth inthe joint family property, the son, grandson and greatgrandson of the holder of the joint property for the timebeing. All the coparceners are members of a HUF but allmembers of an HUF are not coparceners. This distinctionbetween those members of the HUF who are coparcenersand those who are not, is important because this definesthe nature of the interest they have in HUF property.

Role of a Daughter :

However, now that a daughter is considerd as acoparcener of the HUF in the line with a son, consequentto the amendement of Hindu Succession Act, 1956 in

Ms. Dhruti [email protected]


The Concept of Hindu Family

the year 2005 , there is no question of providing formaintenance and marriage of an unmarried daughter asshe, as a coparcener , is entitled to a share on partitionincluding becoming a Karta. In case she is married andhas consequently become a member of family of herhusband, a difficult problem can possibly arise if sheassumes the partition of the Karta of her parent’s family.To avoid any conflict of interest she may like to enterinto a family arrangement giving all rights of managementof the parental family to either her widowed mother orin her absence to any other suitable member of theparental family.

How can it hold the Property : HUF is essentially aunit of society and not necessarily an economic orcommercial unit. It needs, therefore, to be emphasizedthat there could be an HUF which does not own propertyor carry on business. Such a family can neverthelessacquire property which have all the charataristics of HUFproperty. The Karta has a right to carry on family businessand so he has the power to mortgage or sell the familyproperty for a legitimate and proper purpsoeses of thefamily business.

Blending of individual property with that of HUF:The right of throwing individual property into the familyhotchpot is available only to a coparcener belonging tothe same family.

Gift : The father may make a gift within reasonablelimits of ancestral immovable property for pious purposes.But the alienation must be by an act inter vivos and notby Will. Neither the Karta nor any other coparcener cangift away his undivided interest in coparcenery propertyexcept when the same is done with the consent of allthe other coparceners. He can however, dispose of hisself-acquired property in any manner he likes.

Partition: An eminent jurist has said that “unlike anassociation of persons or a firm or a company, which arecreated by acts of parties , the HUF with all its incidentsis purely a creature of Hindu law. After having consideredthe attributes of an HUF and joint family property , weproceed to consider the partition of HUF both in respectof its constituents and its properties. Partition does notnecessarily put an end to an HUF or HUF property – thefamily may split into a number of smaller families owningjoint property , but one or more units may not constitutea family on partition , though it remains a nucleus for apotential family. The notional partition contemplated inthe proviso to section 6 before its substitution w.e.f. 9/9/2005 does not mean disruption of HUF but would result

in HUF being left with a diminished share and the HUFand the classified heirs holding the property as tenants-in-common and not as joint tenant till division or partitiontakes place.

Partition creates a new nucleus of family ; A newHUF or a branch HUF comes into existence for taxpurposes when there is a partition of the bigger HUF.Each coparcener who thus receives a part of familyproperty on a partition receives the same as ancestralproperty qua his sons and daughters w.e.f. 9/9/2005.Thus a partition creates a nucleus of family or ancestralproperty and a new HUF or a branch is thereby created.

Creation of Asests of HUF : A Hindu male with hissons and grandsons constitute an HUF but this HUF maynot own any Hindu undivided family property. This wouldbe the situation, not very uncommon, where the familyhas not inherited any property. In the developingenvironment of India there are large number of men whoare entirely self-made, in trade, in industries, in professionand in services. Yet, they constitute a joint family notonly with their children, but very often with their brothers.The assets acquired by different income earningmembers, in practice, and in law, belonged either to thebigger family of the brothers or the smaller familyconstituted with their children. But the income from theseassets, was invariably clubbed with their individualincome and subject to tax.

Specimen draft of gift to HUF :

Affidavit

I, XYZ, adult, Hindu, Indian Inhabitant, occupation retired,residing at (resident address), hereby solemnly affirm andstate as under: 1) Out of natural love and affection whichI bear towards my beloved son, ABC and the othermembers of his HUF comprising of his wife Mrs. D, hisson E and daughter F. I confirm having gifted to the HinduUndivided Family (HUF) of “ABC HUF” a sum of Rs.11,000/- (Rupees eleven thousand only) by cheque no.………….. dated ………… drawn on ……………….2) The aforesaid amount absolutely belonged to me andI was competent to make a gift thereof as aforesaid.3) What is stated above is true to my personal knowledgeand information. Solemnly affirmed at Ahmedabad this______ day of ______________________.

DEPONENTXYZ

contd. on page no. 502


ICAI Inv ites Suggest ions fo r Pre-BudgetMemorandum-2014. - (08-11-2013)

The Direct Taxes Committee, Indirect Taxes Committee& Committee on International Taxation of ICAI are inthe process of identifying issues for inclusion in the Pre-Budget Memoranda- 2014 to be submitted to theMinistry of Finance. Suggestions are invited on lawsrelating to Direct Taxes (including International Taxation)and Indirect Taxes for the same.

Suggestions relating to Direct Taxes are invited underthe following head:

· Suggestions for widening the tax base and increasingthe tax revenue

· Suggestions to check tax avoidance

· Suggestions to reduce/minimize litigations

· Suggestions for rationalization of the provisions ofDirect Tax Laws

· Suggestions for removing administrative andprocedural difficulties relating to Direct Taxes

Suggestions in respect of Indirect Taxes are invited tocover the following:

· Central Excise Law

· Customs Law

· Service Tax Law

· Central State Tax Act, 1956

Empanelment of Chartered Accountant firmsfor the year 2014-2015

Applications are invited online from the firms ofChartered Accountants and Chartered AccountantsLimited Liability Partnerships (LLPs) who intend to beempanelled with this office for appointment as auditorsof Government Companies/Corporations for the year2014-2015. The format of application will be availableon our website: www.sa i india.gov.in from 1stJanuary 2014 to 15th February 2014.

Chartered Accountant firms/CA LLPs can apply/updatethe data showing the status of their firm as on 1stJanuary 2014 and generate online acknowledgementletter for the year. They are also required to submitrelated documents (to be notified in this office website)to this office by 31st March 2014. Only the CharteredAccountant firms/CA LLPs who have generated onlineacknowledgment letter for the year 2014-2015 andsubmitted the required documents before the due datewill be considered for empanelment.

Updates from ICAI

Notice inviting Expression of Interest for DueDiligence Audit of Baroda Branch

Building Project of the Institute of CharteredAccountants of India

[Announcement No. EOI/Baroda/Audit/2013-14 Dated25/11/2013]

A building of the Institute of Chartered Accountants ofIndia has been constructed at Baroda, Gujrat (hereafterreferred to as “Baroda Branch Building Project of ICAI”).Applications are invited from Chartered Accountantsfirms for the due diligence audit of the said project.

Eligibility Criteria:

1. The Chartered Accountant Firm should have atleast5 partners of which at least 3 partner should beFCA.

2. Firm’s standing should be of atleast 15 years.

3. The firm should have experience in audit ofconstruction projects / civil projects of Rs.5 croresor more.

4. The firm should have Head Office / Branch Officeat Baroda or within the jurisdiction of Baroda Regionupto 100 Km.

5. That no partner is / was member of the CentralCouncil / Regional Council /Building Committee orManaging Committee of Baroda Branch of ICAIduring the period 2009-10 to 2013-14.

6. That the relative of any partner of the firm is not acontractor / vendor / Landlord of the said project(i.e. Baroda Branch Building Project, Gujrat) duringthe period 2009-10 to 2013-14.

7. That the word relative will include spouse, son,daughter, parents.

Scope of Work:

The auditor has to report on the construction work forthe said building project. The scope of due diligenceaudit can be downloaded from the link Scope of auditfor Building Projects.

Honorarium Payable:

The honorarium for due diligence audit will be limitedto Rs.50,000/-. No TA/ DA will be paid in addition tohonorarium.

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Compiled by CA. Uday I. Shah


Intimation u/s 143(1) when effective :Adjustment of refund against demand :Sec. 245 :

Court on its own motion v/s. CIT

(2013) 258 CTR 113 (Del) : 352 ITR 273 (Del)

Issue :

(i) When intimation u/s 143(1) is effective.

(ii) Adjustment of refund without following procedureu/s 245 is invalid ?

Held :

(i) The onus to show that the order was communicatedand was served on the assessee is on the Revenueand not upon the assessee. In case an order u/s143(1) is not communicated or served on theassessee, the return as declared /filed is treated asdemand intimation and an order u/s 143(1). Whenthe order u/s 143(1) is not communicated to theassessee, the A.O. cannot turn around and enforcethe demand created by un-communicated order/intimation u/s 143(1).

(ii) Where returns have been processed by the CPC andrefunds have been fully or partly adjusted againstthe past arrears while passing the order u/s 143(1),without following the procedure u/s 245, it isdirected that all such cases are to be transferred tothe AOs who will issue notices to the assessee andpass orders u/s 245 permitting or allowing the refundafter considering the assessee’s reply, to the noticeseeking adjustment of refund.

Addition on issues other than for whichreopened invalid, when there is noaddition on original issue.

CIT v/s. Mohmed Juned Dadani

(2013) 258 CTR 168 (Guj): (2013) 214 Taxman38 (Guj)

Issue :

Whether A.O. can make addition to income in assessmentu/s 148, on the issues other than for which he hadreopened the case?

CA. C. R. [email protected].

Held :

Sec. 147 even without the aid of Expl. 3 enable the A.O.while forming an assessment u/s 147, to assess or reassesssuch income for which he had recorded his reasons tobelieve had escaped assessment and also any otherincome which escaped assessment which came to hisnotice subsequently in the course of the assessmentproceedings. Sans Expl. 2 Sec. 147, however, by nostretch of imagination, can be construed as to providethat if the reason on which the assessment is reopenedfails, the A.O. still can proceed to assess some otherincome which according to him had escaped assessmentand which came to his light during the course of theassessment. For assuming jurisdiction to frame anassessment u/s 147 what is essential is a valid reopeningof a previously closed assessment. If the foundation ofthe reopening is knocked out, any further proceeding inrespect of such assessment naturally would not survive.

Tribunal was therefore right in law in coming to theconclusion that when on the ground on which thereopening of assessment is based, no additions are madeby the A.O. in the order of assessment, he cannot makeadditions on some other grounds which did not form partof the reasons recorded by him.

Cash Credit:Initial investment by partner:

Abhyudaya Pharmaceuticals v/s. CIT

(2013) 214 Taxman 61 (Allahabad )(Mag) : 350 ITR 358 (All)

Issue :

Contribution by a partner in the initial stage, whetheramount can be added in firm’s assessment as cash creditu/s 68 ?

Held :

Assessee is a partnership firm duly constituted by apartnership deed. One minor was admitted in thepartnership as a partner. Minor contributed capital videtwo demand drafts. Assessee’s explanation forintroduction of the said amount was not found satisfactory

From the CourtsCA. Jayesh C. [email protected].

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From the Courts

and A.O. added amount contributed by the partner inthe hands of the assessee firm.

On appeal to High Court:-

It was noted that it was the first year of operation offirm’s business, and, thus, assessee could not have itsseparate income at the time of its formation. Further,identity of the depositor, i.e. partner, was not in dispute,and thus, if for one reason or other, revenue authoritieswere not satisfied with financial capability of the partner,amount in question could have been added in the handsof the partner, but not in the hands of the firm.

In view of the above, impugned addition of the saidamount in the hands of firm was deleted.

Sec. 54F : Purchase of new house in thename of wife : Exemption allowable :

CIT v/s. Kamal Wahal

(2013) 214 Taxman 287 (Delhi) : 351 ITR 4 (Del)

Issue :-

When the new house is purchased in the name of wife,whether exemption u/s 54F is allowable ?

Held :

The predominant judicial view for the purpose of Sec.54 is that the new residential house need not bepurchased by the assessee in his own name nor is itnecessary that it should be purchased exclusively in hisname. The assessee in the present case has notpurchased the new house in the name of a stranger orsomebody who is not connected with him. He haspurchased only in the name of his wife. There is also nodispute that the entire investment has come out of thesale proceeds and that there was no contribution fromthe assessee’s wife.

Valuation of stock : Addition merely onstatements of Third Parties not valid.

CIT v/s. Smt. Shakuntala Devi Khetan

(2013) 352 ITR 484 (Mad)

Issue :

Whether addition to valuation of stock on the basis ofstatements of third parties is valid ?

Held :

Assessee had placed the sales tax returns before the A.O.in respect of assessment years 1998-99 to 2001-02.Therefore, sufficient materials were placed before theA.O. in respect of those assessment years and acceptedby the authorities. The Tribunal rightly found thatdepartment could not have made the addition merelyon the basis of the statements of third parties and,consequently, set aside the order of the CIT(A) anddirected the A.O. to adopt the figures of turnover finallyassessed by the sales tax authorities and apply the grossprofit rate accordingly.

Evidentiary value of statement recordedduring survey proceedings.

CIT v/s. S. Khader Khan Son

(2013) 352 ITR 480 (SC) (Not available in CTRDVD)

Issue :

What is the evidentiary value of statement recordedduring survey proceedings ?

Madras High Court decision at 350 ITR 157 affirmed.

Head Notes :

A survey was conducted in the premises of the assesseefirm. One of the partners in his statement offered anadditional income of Rs. 20 lakhs for the I.T.A.Y. 2001-02 and Rs. 30 lakhs for the ITAY 2002-03, but thestatement was retracted by the assessee stating that thepartner from whom the statement was recorded duringthe survey operation u/s 133A of the I. T. Act, 1961, wasnew to the management and had agreed to an adhocaddition. The A.O. based on the admissions made bythe assessee computed the income. The order was setaside by the CIT(A) and his order was upheld by theI.T.A.T. On appeal to the High Court, the High Courtheld that in view of the scope and ambit of the materialscollected during the course of survey, the action u/s 133Awould not have any evidentiary value and that it couldnot be said solely on the basis of the statement givenby one of the partners of the assessee firm that thedisclosed income was assessable as lawful income ofthe assessee.

On appeal to the Supreme Court :

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The Supreme Court dismissed the appeal in view of theconcurrent finding of fact, and affirmed the decision ofthe High Court.

Applicability of Sec. 73 :

CIT v/s. Appollo Vikas Steels (P) Ltd.

(2013) 214 Taxman 642 (Guj) (CTR DVD :214 Taxman 0653)

Issue :

Whether provisions of Sec. 73 can be applied when thereis income?

Held :

The assessee earned certain income during the previousyear from sale of shares.

The A.O. applied Explanation to Sec. 73 and held thatincome arose out of speculation business of the assesseeand taxed the income as business income.

The CIT(A) allowed the appeal of the assessee and heldthat Sec. 73 applies only in case of losses.

The Tribunal confirmed the view of the CIT(A).

From the Courts

On appeal to High Court it is held as under :-

The A.O. committed an error in resorting to Explanationto Sec. 73. The issue before him was whether theincome earned by the assessee through sale of sharesshould be taxed as business income or should be treatedas capital gain. Such issue had to be decided on thebasis of the question whether the assessee is involved inany business of buying and selling shares or hadpurchased and sold the shares by way of investment.Unfortunately, the A.O. went completely in a wrongdirection and relied on the Explanation to Sec. 73. Sectionpertains to “Losses in speculation business”.

Thus the entire section has application when the assesseehas incurred loss or intends to carry forward un absorbedloss.

The explanation only provides for a deeming fiction incertain circumstances, where the assessee would bedeemed to be carrying on a speculation business. Suchdeeming fiction would apply in situation not covered u/s73 since such Explanation is applicable to section 73 only.

In the result appeal of the Department is dismissed.

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contd. from page 498 The Concept of Hindu Family

Declaration On Oath

I, ABC, adult, Hindu, Indian Inhabitant, occupation

business, residing at (resident address), in my capacity

as Karta and Manger of “ABC Hindu Undivided

Family (HUF)” hereby solemnly affirm and state as

under: 1) I confirm having received from my beloved

father/mother/brother XYZ, adult, Hindu, Indian

Inhabitant, occupation retired, residing with me, a sum

of Rs. 11,000/- (Rupees eleven thousand only) by cheque

no ………….. dated ………… drawn on

……………………………Bank, …………….Branch,

…………., as gift out of natural love and affection towards

me and other members of my HUF consisting of my wife

D, my son E, and daughter F. 2) As Karta and manager

of my HUF, I shall open a separate bank account with

the said amount of Rs. 11,000/- (Rupees eleven thousand

only) received as aforesaid in the name and style of “ABC

HUF” and operate the same in my capacity as Karta

and manager of my HUF for the benefit of all the

members of my HUF. 3) Any addition or accretion in

future to the said amount so deposited in a separate

bank account as aforesaid shall also belong to “ABC

HUF” ,

Solemnly affirmed at Ahmedabad on this ______ day of

_________ .

______________________

DEPONENT

On behalf of ABC HUF its Karta and Manager

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Sabarmati Ashram Gaushala Trust v/sADIT144 ITD 280 (Ahd)

Assessment Year 2006-07, Order Dated:18th May 2012

Basic Facts

The assesse-trust was created with an object to breedcattle and to improve the quality of cows and oxens. Itwas denied benefit of section 11 on the ground thatassesse was selling cattle semen, fodder, milk etc., at aprofit over the years, that the assesse trust had a pricemechanism and therefore it was directly hit by the provisoto section 2(15). The CIT(A) held that the object of theassesse was ‘any other object of general public utilityand accordingly covered by proviso to section 2(15), heaccordingly denied benefit of section 11. The assesse isin appeal against the CIT(A)’s order.

Issue

Whether according to the facts of the caseassesse is eligible for exemption u/s 11 of Incometax Act, 1961?

Held

The aims and objects of the assesse trust are admittedlycharitable in nature and was granted registration by theCharity Commissioner as well as by the Commissioner(exemption) under section 12A. The assesse has carriedout its activity for the fulfillment of its object of breedingthe cattle and to improve the quality of the cows andoxen and had sold semen, fodder, milk, etc. and in thisprocess some profit was earned by the assesse trust whichis incidental in nature. The activities undertaken by theassesse trust for the fulfillment of its charitable object onnon-commercial lines are not hit by proviso to section2(15). There is no material/evidence brought on recordby the revenue which may suggest that the assesse wasconducting its affairs on commercial lines with motive toearn profit or has deviated from its objects as detailed inthe trust deed. The proviso to section 2(15) is notapplicable to the facts and circumstances of the caseand the assesse was entitled to exemption provided undersection 11 for the relevant assessment year.

Hercules Pigment Industry vs. ITO157 TTJ362 (Mum)

Asst. Year 2007-08, Order Dated:29 th

May, 2013

Basic Facts

The AO while completing the assessment added theoutstanding in the unutilized Cenvat Credit (UCC) accountunder section 145A. On appeal, the CIT(A) found thatthe entire unutilized cenvat credit pertained to currentyear and the same represents the excise duty on the rawmaterial, semi finished goods and finished goods in stock.He directed the adjustment of excise duty included inclosing stock and sustained the addition for the balance.Accordingly the assesse was in appeal before the Tribunal

Issue

Whether addition of unitized Cenvat Credit madeby AO under section 145A of the Act was correctin law?

Held

Since the assesse is accounting for excise duty onpurchases and sales in a separate account i.e. unutilizedcenvat credit account and valuing the closing stock ofraw material inclusive of excise the operating statementof the assesse is to be modified by increasing the valueof opening stock of raw material and finished goods bythe amount of excise duty, if any suffered thereon andsimilarly stating the closing stock of raw material andfinished goods at values inclusive of excise duty thereon,instead of adding the debit amount outstanding in theunutilized cenvat credit account.

Micro Inks Limited vs. ACIT 157 TTJ 289(Ahd)

Asst. Year 2002-03 to 2004-05, OrderDated: 6thAugust, 2013

Basic Facts

The assessee company, a major global player in the fieldof printing inks, set up a wholly owned subsidiary, ‘M’ inUSA. The assessee was the sole vendor of raw materialsand semi finished goods to ‘M’, which constituted 90per cent of assessee’s total exports and 50 per cent of itstotal sales. During the year, the assessee gave some

CA. Yogesh G. [email protected]

Tribunal News CA. Aparna [email protected]

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Tribunal News

advances to ‘M’ from its exchange earners foreigncurrency account.The advances were later converted intoequity capital contribution when assessee obtainedpermission of RBI for subscribing to equity capital abroad.The TPO made adjustments for giving interest freeadvances to foreign subsidiary and for allowing excesscredit period. On appeal, the CIT(A) confirmed thedisallowance, but restricted the rate at which interestwas computed.

Issue

Whether, upward adjustment made by AO onaccount of determining ALP in the transactionof interest free advance given to subsidiary wasin conformity with law?

Held

LIBOR plus rate cannot be adopted in this situation fortwo fundamental reasons- (i) first, that it is not a simplictorfinancing transaction between the assessee and ‘M’ USA,as it is a transaction of investing in a step down subsidiaryas quasi-capital pending formal capital subscription withthe approval of Reserve Bank of India; and (ii) second,that it is not a case of granting advance to a businessconcern without significant and decisive commercialconsiderations, as the monies are given for strengtheningassessee’s marketing apparatus in US and to keep aliveits biggest exports customer. There is a difference in thenature of transaction and there is also a difference in thenature of the enterprises, including their inter secommercial relationship, entering into this transaction.The differences are so fundamental that these differences,to use the phraseology employed in rule 10 B (1)(a)(ii),“could materially affect the price in the open market”.On account of these peculiar factors, the application ofLIBOR plus rate or, for that purpose, any bank rate wouldbe inappropriate to this case.

The comparable uncontrolled price for interest on such atransaction in which advances are made pending capitalsubscription in a company which plays strategicallysignificant commercial role in assessee’s business, wouldbe nil. The levy of interest would not come into play insuch a case. The variations in the nature of transactionsand relationship between the assessee and ‘M’ USA areso fundamental that the entire LIBOR plus rate, whichwas the starting point of computation of ALP of theseinterest free loans, is to be reduced to zero to take careof the differences in terms of rule 10B(1)(a)(ii). Theimpugned ALP adjustment, to this extent is unsustainablein law and the same is deleted.

IL & FS Maritime Infrastructure Co. Ltd.vs. ACIT 144 ITD 559 (Mum)Asst. Year 2009-10, Order Dated: 24 th

July, 2013

Basic Facts

The assessee-company filed belated transfer pricing reportin Form 3CEB. The AO initiated penalty proceedingsagainst the assessee under section 271BA. The assessessubmitted that the executive incharge of taxation mattersof the assessee-company was under a bona fide beliefthat the transactions of investments in shares of subsidiarycompany did not fall within the scope of ‘internationaltransactions’ as defined under section 92B. It was furthersubmitted that the delay in obtaining the report undersection 92E was not intentional, rather was due to bonafide mistaken belief. The AO did not consider theexplanation of reasonable cause of bona fide belief givenby the assessee and imposed penalty under section271BA. On appeal, the CIT(A) confirmed the order ofthe AO. The assessee is in appeal before the Tribunal.

Issue

Whether the penalty levied under section 271BAwas l iab le to be de leted when there wasreasonable cause for delay in furnishing TP Report

Held

It is observed that as per the wording of section 271BA,the AO may direct the concerned person to pay thepenalty. The word ‘may’ used in the section denotesthat it is the discretion of the AO to impose or not toimpose the penalty. This discretion is subject to therestrictions as imposed by section 273B. However, theword ‘shall’ used in section 273B provides that it ismandatory not to impose penalty, if the assessee gives areasonable cause for his failure in furnishing theparticulars as required by the provisions of section 271BA.The AO & CIT(A) did not consider the explanation ofreasonable cause of bona fide belief given by the assesseein its failure to furnish the report under section 92E intime. The revenue authorities below have imposed thepenalty holding that the same is mandatorily imposableunder the provisions of section 271BA. The revenueauthorities below failed to take note of provisions ofsection 273B as well as the use of word ‘may’ in section271BA. The explanation put forth by the assessee-company, falls within the scope of phrase ‘reasonablecause’ as provided under section 273B. So, the penaltyimposed upon the assessee by the AO and furtherconfirmed by the CIT(A) was deleted.

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Tribunal News

ACIT vs. V.N. Devadoss 157 TTJ 165(Chennai)Asst. Year 2008-09 & 2009-10, OrderDated: 4 thFebruary, 2013

Basic FactsThe assessee was engaged in the business of developingand building of housing projects approved by localauthorities. The Authorised Officer conducted a searchunder section 132 upon the assessee. For the AY 2008-09 to 2010-11, the assessee originally filed the returns ofincome on 11-11-2010, i.e., after the due date prescribedunder section 139(1) and after the search conducted.Thereafter the assessee in response to the notices issuedunder section 153A filed the returns for the aforesaidassessment years on 23-9-2011. In the returns so filedhe claimed deduction under section 80-IB(10).The AO held that as per the provision of section 80AC tobe eligible for deduction under section 80-IB the returnshould have been filed within the time stipulated undersection 139(1). He disallowed the claim of deductionholding that the assessee had not filed the returns ofincome on or before the due date specified under sub-section (1) of section 139. On appeal, the CIT(A) heldthat section 80AC was directory and, therefore, the AOwas not justified in denying the assessee’s claim fordeduction under section 80-IB(10).

IssueWhether deduction claimed under section 80-IB(10) in a return filed under section 153A canbe denied on ground that claim was not madeearlier in a return filed under section 139(1)?

HeldIf the assessee wants to claim deduction under section80-IB(10), it is necessary that he must file his returns ofincome before the due date prescribed under section139(1). The assessee has not filed the returns voluntarilywithin the due date prescribed under section 139(1). Hehas filed the returns after search operation was conducted.But it was before the issue of notices under section 153A.The returns filed by the assessee in response to the noticesissued under section 153A alone are valid returnssustainable in law. The liability to file a return of incomein response to a notice issued under section 153A is asmuch good as the liability to file a return under section139(1). The liability to file return arises under section139(1). All other sub-sections of section 139 are onlyderivatives thereof and Explanations thereto. Therefore,the reference made to section 139 in section 153A(1)(a)is virtually the reference made to section 139(1). Searchunder section 132 enables an Assessing Officer to issuenotice to file return under section 153A. Section 153A byway of adaptation conveys the responsibility for filing ofthe return under section 139. Therefore, a return filed inpursuance of a notice issued under section 153A is asgood as a return filed under section 139 and more

particularly under section 139(1). Where an assessee hasfiled his return of income as prescribed by law, even if asa consequence of search carried out under section 132and in consequence of notice issued under section 153A,the assessee is obviously entitled for claiming correspondingdeductions provided in law. The deduction claimed undersection 80-IB(10) in a return filed under section 153Acannot be denied on the ground that the claim was notmade earlier in a return filed under section 139(1).Therefore, the returns filed by the assessee under section153A are to be treated as returns filed under section 139(1)by virtue of the law stated in section 153A(1)(a). As such,the assessee is entitled for the deduction available undersection 80-IB(1). The rider provided in section 80AC doesnot apply to the instant case, as the returns filed by theassessee under section 153A have been considered asreturns filed under section 139(1) within time.

ACIT V Delhi Public School 2013- TIOL-746-ITAT –DELOrder dated 24 th May 2013, Asst. Year2008-09 & 2009-10.

FactsThe assesse school had taken on hire vehicles which wereused for carrying students from the homes to school &back. The contract provided for transportation of children,drivers and conductors were appointed by the contractor,after school trips were over the contractor was free toutilize the vehicle for any manner and purpose, tax wasaccordingly deducted u/s 194C of the Act. The AO heldthat since the name of the school was written on thebuses and also buses were in exclusive possession of theschool, the transporter cannot ply the buses for anypurposes other than for the school. He accordingly heldthat the payment made qualify for deduction of tax u/s194I. The CIT(A) held in favour of the assesse.

IssueWhether payment made by school to bus owner/contractor for transportation of students from their homesto school and back qualify for deduction of tax at sourceu/s 194 C and not u/s 194I.

HeldOn the fact noted by the CIT(A) that the contract was onper trip basis for period of one year. The vehicle i.e.school bus remained in possession of the transporter andthe staff required to operate the vehicle was also engagedby the transporter. All the costs incurred for running andmaintenance of the buses including the salaries of driverand conductor was incurred by the contractor. Once thetrips made by these buses for carrying and droppingchildren from/ to school was complete the transporter isat liberty to use the vehicle in any manner. Taking intoconsideration, the Delhi Tribunal decision in case of LotusValley Education Society V ACIT (TDS), the tribunal heldin favour of the assessee.

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CA. Rajesh H. [email protected]

FEMA & NRI TaxationNRI Investment in PartnershipFirm / Proprietorship

Non-Resident Indian (NRI) and Person of Indian Origin(PIO) can freely undertake almost all business activitiesin India. These businesses can be undertaken a solo in aProprietorship Firm (Prop. Firm ) or joining hands withothers in a Partnership Firm (Part. Firm ) and also as amember of Association of Persons (AOPs). Suchpartnership can be East meets West type with residentsor a western solo comprising of NRIs /PIOs only. Theseinvestments are covered by provisions of ForeignExchange Management (Investment in Firm or Proprietaryconcern in India) Regulations 2000. Although theRegulations pertain to Prop. and Part. Firms , AOPs areincluded recognizing the fact of unregistered Part. Firmsbeing treated as such. NRI participation in Limited LiabilityPartnerships (LLPs) is not covered herein and in any otherprovisions of FEMA and therefore are restricted for thetime being.

Of course for NRIS/PIOs living across continents,investment and business activities through a Prop. or Part.Firms is not advisable as compared to a Limited Companystructure in view of personal liability being total and alsopossible legal tangles that can bruise them personallyand also harm their business interests back home.

FEMA and related tax provisions pertaining to theseinvestments are highlighted herein :

1. Eligible investors –

01 An Non-Resident Indian (NRI) i.e. Indian citizenresiding outside India.

02 Person of Indian Origin (PIO) being foreign citizen ofIndian origin other than citizens of Pakistan,Bangladesh and Sri Lanka. PIO is defined as anindividual :

(i) who held an Indian passport at any time or

(ii) who himself or any of his parents or maternalor paternal grandparents was a citizen of Indiaat any time as per Citizenship Act, 1955 orConstitution of India or

(iii) an individual who is a spouse of an IndianCitizen or person referred to herein above.

03 It may be noted that Citizens of Pakistan,Bangladesh and Sri Lanka are not covered by generalpermission and require prior approval.

2. Non Eligible investors –

It may be noted that persons other than an NRI orPIO residing abroad are not covered by the generalpermission for investment in any Prop. or Part. Firm.Such persons who will require prior permission ofthe Reserve Bank of India are:

01. PIO who is citizen of Pakistan, Bangladesh and SriLanka.

02 Foreign citizen of foreign origin residing abroad sayMr Bill Gates.

03 Overseas entities like a foreign company ; limitedliability firms ; association of persons or Overseastrusts owned by NRIs or foreigners.

3. Source of Investment :–

01 Capital contribution may be made from Non-Resident External (NRE) account; proceeds of ForeignCurrency Non-Resident (FCNR) deposit ; Non-ResidentOrdinary (NRO) account or foreign exchangeremittance from abroad.

02 As such funds retained in continued residentaccounts of NRIs ; transfer of funds from capital orloan account maintained with another Prop. orPart.Firm or Limited Company in India is notpermissible.

03 The Regulations are silent about investment by wayof capital credited against Technical know-how ;Royalty; Remunerations and also conversion ofoutstanding Loans.Therefor payment for theseservices may be made to NRI’s NRO account andthereafter transferred as capital contribution.

4. Mode of investment :-

01 Investment in Proprietorship; Partnership and AOPscan be undertaken only on Non - Repatriation basis.

02 Therefore even though investment is made fromexternal remittance or NRE or FCNR account ,


principal amount and profits will remain on Non-Repatriation basis only.

03 Of course as all current incomes earned in India arefully repatriable,annual income by way of profitsremuneration and interest can be also be repatriatedsubject to compliance of procedural requirementsand payment of tax if any.

04 Although investment is permissible on non-repatriable basis only , capital amount can also berepatriated upto US$ 1 mn out of balance held inNRO account under the liberalised remittance facilityof NRIs/ PIOs and Foreign Nationals.

5. Permissible Business Activities :–

FEMA Regulations enumerate restrictions that Firmshaving NRI/PIO partners cannot undertake being:

01 Agricultural and Plantation activities.

02 Real-estate Business i.e. Trading in plots of land andconstructed properties for earning profits.

03 Print Media business.

04 As prohibitions are specified for these activities onlyoften it is presumed that a Prop. or Part. Firm or anAOP having NRI participation can undertake any orall activities not specifically prohibited. This is a fallacyas the restrictions laid down by Foreign DirectInvestment (FDI) Policy of the Government of Indiafrom time to time equally applies to Prop. & Part.Firms and AOPs and as such prohibited activities likelottery business ; chit funds; trading in TDRs ;manufacturing of tobacco and cigarettes; and atomicenergy etc. cannot be undertaken by Prop. & Part.Firms having NRI participation.

6. Extent of ownership –

01 NRIs and PIOs can own entire capital of Part Firm

02 As such a Part Firm / AOPs comprising of NRIs andPIOs only and Prop. Firm of an NRI will needprofessional management to look after businessaffairs.

7. Procedural Compliance –

01 There are no procedural requirements as regardsinvestment by NRIs/PIOs in Prop. & Part. Firms orAOPs.

02 As the investment is on non-repatriation basis NRIs/PIOs or the Prop. & Part. Firm or AOPs are not

required to submit any information or file any Formswith any Authority whosoever at the time of initialinvestment or any time thereafter.

8. Tax deduction at source (TDS) :-

01 TDS provisions are unique & independent in case ofNRIs except for Capital Gains from mutual funds &securities and Salary. These provisions areconcentrated in Section 195 of Income Tax Act 1961[I.T. Act].

02 Section 195 of I.T. Act is applicable to NRIs / PIOsand Non-Residents at large.

03 Remuneration and interest paid to NRI / PIO partnerwill attract tax deduction under Section 192 & 195respectively.

04 It may be noted that in case of NRIs tax deduction ismandatory.

05 NRI wishing lower rate or no deduction of tax isrequired to apply to the Tax Officer and availcertificate under Section 197 of I.T. Act.

06 Provisions of Double Tax Treaty do override theprovisions of Income-tax Act and relevant Tax Statuteof home country of the NRI. However if NRI wishesto avail the benefit of Double Tax Treaty, TaxResidency Certificate (TRC) of home country is tobe availed and submitted to the resident payer inIndia.

9. Dicey issues –

1. Contravention of TDS when a Resident becomesNRI :

01 Often Partnership Firms wherein a residentpartner leaves India for settlement abroadcontinue to treat the migrating partner as aresident and do not deduct tax at source onthe amount of interest , remuneration orcommission paid to such NRI partner.

02 This is a contravention of TDS Rules and attractspenalty .

2. Taking up prohibited activities :

01 Following the FEMA Regulations pertaining toProp. & Part. Firms literally some Firmsundertake activities which are otherwiseprohibited under FDI policy like chit funds orretail trading.

FEMA & NRI Taxation


02 This contravention attracts penal provisionsunder FEMA.

3. Limited Liability Partnership Act of 2008 (LLP) :

01 As LLP Act permits NRI/PIO participation , manyNRIs/PIOs join LLP in India as partners.

02 Although the LLP Act permit NRIs/PIOsparticipation ; till date such participation is notgranted permission under Foreign ExchangeManagement Act, 1999 [FEMA].

03 As FEMA is the governing laws for NRIs/PIOs ,they cannot join LLP under the Automatic Route.

10. Tax Treaty Benefit –

1. Global income of tax residents is normally taxablein most of the countries .

02 As such profits earned from Indian Prop. & Part.Firms is also taxable in the home country of theNRI.

03 Of course credit for the tax paid in India is normallygranted credit against tax payable on such Indianincome in the home country.

FEMA & NRI Taxation

Jewellery ValuationJewellery Valuation for

Income Tax & Wealth Tax Purpose to

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03 Now in India tax is paid by Partnership Firm whereaspartners are not required to pay any tax on the shareof the profit earned from such firm. A dicey situationmay arise as normally tax treaty allow credit of theIncome-tax paid in India by or on behalf of the NRI.

2. Of course India-USA tax treaty has clarity for USbased NRI earning gains of Part. Firms in India asthey can claim tax credit of prorate tax paid by theIndian Part. Firm which is treated as a pass throughentity in USA.Cross border investments which werea subject matter of meeting at Nariman Point havenow spread across the country and great number ofSmall and Medium sized businesses have startedshaking hands not only with the NRI Jani andJanardan but also with the firangi Johns and Jonnysrequiring Chartered Accountants across the countryto provide expertise and value addition in the subjectmatter.

❉ ❉ ❉


Whether Share Application Money is a deposit

within the meaning of Section 269SS?

Issue:

When a company receives Share Application Money in

cash whether it is to be treated as deposit within the

meaning of Section 269SS and whether penalty under

Section 271D is liveable for the breach of the said

Section?

Proposition:

When Company receives share application money in cash

then it cannot be treated as loan and the penalty u/s

271D is not chargeable. It should be understood clearly

the distinction between loan or deposit and amount

received on account of share application money. In case

of Loan it is ordinarily the duty of the debtor to seek out

the creditor to repay the money according to the

agreement, however in the case of deposit it is generally

the duty of the creditors to seek the depositee and make

a demand for it and it is not so in the case of Share

Capital Contribution. It is proposed when share

application money is received in cash, since it is neither

a loan nor a deposit, section 269SS is not applicable and

hence liability of penalty u/s 271D does not arise.

Relevant provisions of the Act:

Section 269SS of the Income Tax Act, to the extent

relevant for our purpose reads:

No Person shall, take or accept from any other person,

any loans or deposits otherwise than by an account payee

cheque or account payee draft if, the amount of such

loan or the aggregate amount of such loan and deposit,

is Rs.20,000/- or more.

For the purpose of this section ‘loan or deposit’ means

loans or deposit of money.

Section 269T of Income Tax Act provides:

Any branch of a banking company or a cooperative

society, firm or other person shall not repay any loan or

deposit otherwise than by an account payee cheque or

account payee bank draft drawn in the name of the

person, who has made the loan or deposit, if the amount

of the loan or deposit together with interest is Rs 20,000

or more.

Section 271D of the Income Tax Act provides:

If any loan or deposit is accepted and repaid in

contravention of the provisions of section 269SS and 269T

then a penalty equivalent to the amount of loan or deposit

may be levied.

View against the proposition:

In the case of Bhalotia Engineering Works Pvt. Ltd. V.

CIT 275 ITR 399, it was found out by the Assessing Officer

that the assessee, a private limited company, had

accepted an amount of Rs. 20,000 and more in cash

from ten persons as entered in the books. Holding that

the amounts were received in cash which violated the

provisions of the section 269SS, the AO initiated a penalty

proceeding u/s 271D of the Income Tax Act.

The assessee sought to explain that these amounts were

received by it as share application money from ten persons

and subsequently shares were allotted to those persons

and consequently, the amounts received from the ten

persons in cash were not loans or deposits. The

Commissioner concerned took the view that going by

the language of Section 269SS of the Act and the

explanation relating to loan or deposit, these sums

received as share application money had to be held to

be deposits within the meaning of that section and

consequently, the assessee was held to have violated

provisions Section 269SS of the Act.

The Tribunal, on a consideration of the relevant aspects,

took the view that the amounts partook of the character

of deposits and they having been received in cash in

CA. Kaushik D. [email protected].

Controversies


violation of the mandate of section 269SS of the Act,

the penalty was rightly imposed on the assessee by the

Commissioner.

In Md. Akbar Khan v. Attar Singh, AIR 1936 PC 171 the

Privy Council held that a deposit of money is not confined

to bailment of specific currency to be returned in specie.

As in the case of a deposit with a banker, it does not

necessarily involve the creation of a trust, but may involve

only the creation of the relation of debtor and creditor, a

loan under conditions. A deposit is not for a fixed term,

but it does not seem to mean an immediate obligation

on the depositee to seek out the depositor and repay

him. He is to keep the money till asked for it. In Ram

Janki Devi v. Juggilal Kamlapat, AIR 1971 SC 2551, the

Supreme Court stated that a deposit is something more

than a mere loan of money. It will depend on the facts

of each case whether the transaction is clothed with the

character of a deposit of money. The surrounding

circumstances, the relationship of character of the

transaction and the manner in which the parties treated

the transaction, will throw light on the true form of the

transaction. It has also been explained by decisions that

the terms loan and deposit are not mutually exclusive,

though there are a number of common factors between

the two.

If recourse to the Explanation in Section 269T of the Act

is taken, deposit means a deposit of money which is

repayable after notice or repayable after a period. Money

paid to a company in support of an application for shares

is a deposit of money in the company which is repayable

by the company after the period for allotment of shares

comes to an end, or a decision is taken regarding the

allotment of shares. Thereafter, the amount is repayable

to the person who paid the money, even without a

demand in that behalf. In case of refusal of shares the

amount has to be retimed in specie. In that context, it

appears to that there cannot be much difficulty in holding

that the amount paid in support of an application for

shares must be considered to be a deposit till the allotment

of shares or refund of the money on rejection of the

application.

Therefore in the given case, it was held that till allotment

of share, share application money can be treated as

deposit and attract section 269SS. The share application

money was treated as deposit, as the amounts were

liable to be refunded to the applicants if it was decided

not to allot shares to them. Therefore the provisions of

section 269SS were violated when the assessee accepted

the share application money in cash amounting to Rs.

20,000 or more.

View in favour of the proposition:

Let me refer to the recent decision of Delhi High Court

in CIT V. I. P. India Pvt. Ltd. 343 ITR 353wherein the

assessee had received share application money of Rs.

18,00,000 in cash from three private limited companies.

On the ground that the provisions of section 269SS were

contravened, AO was of the view that the assessee was

liable to be proceeded against for levy of penalty under

section 271D.

Their lordships of Delhi High Court have held as under:

“Section 269SS prohibits any person from accepting a

loan or deposit in cash exceeding Rs. 20,000 in the

aggregate in a year from third person. If there is any

violation, the person receiving the loan or deposit will be

liable to penalty u/s 271D in an amount equal to the

amount of the loan or deposit. A loan or deposit is defined

in the Explanation below Section 269SS as a “loan or

deposit of money”. The assessee’s contention, accepted

both by the CIT (A) and the Tribunal, is that share

application money received by a company, pending

allotment of shares, do not amount to loan or deposit.

On the careful consideration of the matter, we find that

the AO has relied on the judgement of the Jharkhand

High Court (supra) and referred the issue of levying

penalty to the Additional CIT. He did not examine

whether the share application money can be treated as

“loan” or “deposit” within the meaning of Section 269SS.

The Additional CIT has merely endorsed the view of the

AO in passing the penalty order.

The CIT (A) has found as a fact that the shares were

subsequently allotted to the applicant companies as

shown by the form filed before the Registrar Of

Companies. Neither the AO nor the Additional CIT has

taken the trouble to examine this aspect while imposing

Controversies


penalty. They have merely relied on the judgement of

Jharkhand High Court (supra). The reliance on this

judgement appears to us to be misplaced. In Baidya Nath

Plastic Industries (P) Ltd. And Ors V. K. L. Anand (1998)

230 ITR 522, a learned Single Judge of this court pointed

out that the distinction betwwen a loan and a deposit is

that in case of the former it is ordinarily the duty of the

debtor to seek out the creditor and to repay the money

according to the agreement while in the case of a deposit

it is generally the duty of the depositor to go to the banker

or the depositee, as the case may be, and make a

demand for it. This judgement was approvingly cited by

a Division Bench of this court in Director of Income Tax

(Exemption) V. ACME Educational Society (2010) 326

ITR 146. In this decision, it was held that a loan grants

temporary use of money, or temporary accommodation,

and that the essence of a deposit is that there must be a

liability to return it to the party by whom or on whose

behalf it is has been made, in fulfilment off certain

conditions. It these tests are applied to the facts of the

case before us, it may be seen that the receipt of share

application money from the three private limited

companies for allotment of shares in the assessee

company cannot be treated as receipt of loan or deposit.

In any case the tribunal has rightly noticed the judicial

opinion and held that provisions of Section 269SS do not

apply to the share application money accepted in cash

and consequently no penalty u/s 271D was leviable.”

Summation:

It is true that in the case of Bhalotia Engineering Works

Pvt. Ltd. V. CIT 275 ITR 399 their lordships of the Jharkhand

High Court decided that, “Section 269SS of the Income

Tax Act 1961, was inserted with a view to prevent

transactions in black money and to ensure that payments

of Rs. 20,000 and above are traceable to transactions

through a bank. If the mischief that is sought is to be

averted is kept in mind, it will be appropriate to hold

that any payment of Rs. 20,000 or above made to a

Company as share application money should be as

provided in section 269SS. Even if share application

money cannot be considered to be a loan within the

meaning of section 269SS it partakes of the character of

deposit, since it is repayable in specie on refusal to allot

shares and it is repayable if recalled by the applicant,

before allotment of shares and the conclusion of the

contract. Hence, the acceptance of share application

money in cash amounting to Rs. 20,000 or more violates

the provisions of section 269SS.”

However, it is submitted that in the case of Rugmini Ram

Ragav Spinners Pvt. Ltd. V. CIT 304 ITR 417 it was held

that money in cash by a company towards allotments of

shares, was neither a loan nor a deposit. The CIT

(Appeals) considered the submission of the assessee in

detail and held that there was no violation of section

269SS since the share application money received by

the company would not amount to loan or a deposit

within the meaning of section 269SS. He further noted

that the shares have in fact been subsequently allotted

to three companies, who have advance money to the

assessee. In this view of the matter he cancelled the

penalty and allowed the assessee’s appeal.

It is respectfully submitted that it is only when the amount

is advanced in cash and is expected to be returned in

cash it can be termed as a loan or deposit. Such situation

cannot beapplied for share application money.

However, the moot question which arises in respect of

share application money which is received in cash and

later on it is refunded in cash without allotment of any

shares. It may be argued that in such situation share

application money is to be treated as loan or deposit

and provisions of section 269SS and 269T will be applied.

It is important to note here that if the transaction is genuine

and the assessee is able to establish genuine and

bonafide reasons, for non-allotment of shares then in

my opinion section 269SS and 269T will not apply.

It is submitted that when there is issue relating to penalty

and if there are two views possible, one which is

favourable to the assessee should be adopted so that

penalty u/s 271D is not leviable.

❉ ❉ ❉

Controversies


CIT v. Smt. Godavaridevi Saraf.(1978) 113 ITR 589 (BOM)

xxx…

Question then arises what is going to be the effect of adecision of the Madras High Court holding that section140A(3) is unconstitutional as violative of article 19(1)(f)of the Constitution. A similar question came up forconsideration before the Supreme Court in the case ofEast India Commercial Co. Ltd. v. Collector of Customs,Calcutta, AIR 1962 SC 1893, wherein it was held thatan administrative Tribunal cannot ignore the law declaredby the highest court in the State. Taking into considerationthe provisions of articles 215, 226 and 227 of theConstitution of India, it would be anomalous to suggestthat a Tribunal over which the High Court hassuperintendence can ignore the law declared by that courtand start proceeding in direct violation of it. If a Tribunalcan do so, for there is no specific provision, just like inthe case of the Supreme Court making the law declaredby the High Court binding on subordinate courts. It isimplicit in the power of supervision conferred on a superiorTribunal that all the Tribunals subject to its supervisionshould conform to the law laid down by it. Suchobedience would also be conducive to their smoothworking; otherwise, there would be confusion in theadministration of law and respect for law wouldirretrievably suffer.

In view of this clear pronouncement of the SupremeCourt, it is not controverted by Mr. Joshi on behalf of therevenue that an Income-tax Tribunal sitting at Madras isbound to proceed on the footing that section 140A(3) ofthe Act is non-existent in view of the pronouncement ofthe Madras High Court in the case of A.M. SaliMaricar[1973] 90 ITR 116. Actually, the question of authoritativeor persuasive decision does not arise in the present casebecause a Tribunal constituted under the Act has nojurisdiction to go into the question of constitutionality ofthe provisions of that statute. It should not be overlooked

that the Income-tax Act is an All-India statute and if anIncome-tax Tribunal in Madras, in view of the decisionof the Madras High Court, has no proceed on the footingthat section 140A(3) was non-existent, the order ofpenalty thereunder cannot be imposed by the authorityunder the Act. Until contrary decision is given by anyother competent High Court, which is binding on aTribunal in the State of Bombay, it has to proceed on thefooting that the law declared by the High Court, thoughof another State, is the final law of the land. When theTribunal set aside the order of penalty it did not go intothe question of intra vires or ultra vires. It did not go intothe question of constitutionality of section 140A(3). Thatsection was already declared ultra vires by a competentHigh Court in the country and an authority like anIncome-tax Tribunal acting anywhere in the country hasto respect the law laid down by the High Court, thoughof a different State, so long as there is no contrary decisionof any other High Court on that question. It is admittedbefore us that at the time when the Tribunal decidedthe question, no other High Court in the country hadtaken a contrary view on the question of constitutionalityof section 140A(3). That being the position, it is notpossible for us to take the view that the Tribunal inBombay, when it set aside the order of penalty, wentinto the question of the constitutionality of that sectionand gave a finding that it is ultra vires following thedecision of the Madras High Court. What the Tribunalreally did was that in view of the law pronounced by theMadras High Court it proceeded on the footing thatsection 140A(3) was non-existent and so the order ofpenalty passed thereunder cannot be sustained.

xxx…

CIT v. Maganlal Mohanlal Panchal(HUF). (1994) (210) ITR 580 (Guj)

xxx…

What is contended by learned counsel for the Revenueis that the Karnataka High Court in UgarmalNemichandv. Second ITO [1987] 163 ITR 630 has held that section171 is not violative of article 14 of the Constitution.Therefore, before the Madras High Court declared section171(9) ultra vires, the decision of the Karnataka High

Advocate Tushar [email protected]

Judicial Analysis

1

A solitary decision even by a non-jurisdictional

High Court b inds a l l t he lower appel l a teauthorities

2


Court was already in the field and, therefore, the Tribunalought to have considered both the decisions and shouldnot, following the Madras decision, have directed theIncome-tax Officer to pass an order under section 171with respect to the partial partition. In our opinion, thereis no substance in this contention. The Karnataka HighCourt was not concerned with section 171(9) and,therefore, it was not called upon to decide whether sub-section (9) of section 171 was invalid or not. The onlyquestion, which had arisen before the Karnataka HighCourt was, whether the classification made between theHindu undivided family which was taxed and the Hinduundivided family which was not taxed was valid or not,and the Karnataka High Court held that it was a validclassification and, therefore, the challenge to section 171on that ground was not sustainable. Before the MadrasHigh Court, the validity of sub-section (9) of section 171was challenged and the Madras High Court has heldthat the said sub-section is invalid. At the time when theTribunal decided the appeal, that was the only decisionin the field and, therefore, in view of what the BombayHigh Court has held in CIT v. GodavarideviSaraf (Smt.)[1978] 113 ITR 589 and CIT v. Smt. Nirmalabai K. Darekar[1990] 186 ITR 242 (Bom), the Tribunal was bound tofollow the said judgment of the Madras High Court. It,therefore, cannot be said that the Tribunal committedan error in following the said judgment of the MadrasHigh Court. In view of the said decision of the MadrasHigh Court, the only course which the Tribunal couldhave followed was to direct the Income-tax Officer toconsider the partial partition on the merits and pass anorder under section 171 first and then under section 143(3)of the Act. We, therefore, answer the question in theaffirmative, that is, against the Revenue and in favour ofthe assessee. No order as to costs.

Jai Kumar Karnani v. Controller of EstateDuty. (1993) 204 ITR 118 (Cal)

xxx…

We have not been able to persuade ourselves to followthe Madras decision in V. DevakiAmmal’s case [1973]91 ITR 24, because we are not concerned with theconstitutional validity of the said provision. The provisionas it stands is unambiguous in its mandate that the sharesof the lineal descendants in the ancestral property shouldbe included for the purpose of aggregation. The Tribunalwas correct in declining to follow the said decision of theMadras High Court. The Bombay High Court has,however, held in CIT v. Smt. GodavarideviSaraf [1978]

113 ITR 589 that, if any section is declared ultra vires bya competent High court in the country, an authority likean Income-tax Appellate Tribunal, acting anywhere inthe country, has to respect the law laid down by theHigh Court, though of a different State, so long as thereis no contrary decision of any other High Court on thatquestion. The crucial aspect of that decision is that anyHigh Court within the country striking down any statuteor part of a statute shall be binding on a Tribunal evenacting beyond the jurisdiction of that High Court providedthat decision is the sole decision as regards the vires ofthe provisions.

xxx…

CIT v. Vrajlal Manilal & Co. (1981)127 ITR 512 (MP)

xxx…

The learned standing counsel for the department arguedthat the Tribunal had no jurisdiction to go into theconstitutional validity of s. 140A(3) and that it ought tohave acted on the assumption that the said provision isvalid. It is, no doubt, true that the Tribunal and otherauthorities under the I. T. Act which are creatures of theAct have no jurisdiction to enquire into the constitutionalvalidity of any provision of the Act in reference proceeding-see K. S. Venkataraman and Co. (P.) Ltd. v. State ofMadras [1966] 60 ITR 112(SC) and CIT v. Stram ProductsLtd. [1966] 60 ITR 156(SC). The position is, however,different when a provision of the Act is declaredunconstitutional by a High Court in its writ jurisdictionunder art. 226 before the appeal is heard by the Tribunal.In such a case, the Tribunal being bound by the ruling ofthe High Court has to give effect to it. In so doing theTribunal does not itself declare a provision unconstitutionalbut only ignores the provision which has already beendeclared to be unconstitutional by a superior authority.As the Madras High Court had declared s. 140A(3)unconstitutional in SaliMaricar’s case [1973] 90 ITR116(Mad.) and as there was no contrary ruling availableat the time when the Tribunal decided the appeal, itwas bound to give effect to that decision. The BombayHigh Court in CIT v. Smt. GodavarideviSaraf [1978] 113ITR 589 (Bom) has taken the same view and we fullyagree with it.

xxx…

❉ ❉ ❉

3

4

Judicial Analysis


CA. Ashwin H. [email protected]

Statute Updates(A) Service Tax Judgements

In this issue, judgement on various issues of

Service tax are reproduced below for the benefit

of Members.

1 ) Vippy Indust r ies Ltd.vs.Commiss ioner of

Central Excise, Indore(2013)37Taxmann.com

84(New Delhi – CESTAT)

Facts

Exemptions from service tax - Refund of tax paid

on services used for export goods - Period from

January, 2009 to March, 2009 - Assessee claimed

refund of tax paid on services used for export of

goods, a part whereof was denied on ground that

tax paid in respect of : (1) movement of empty

containers from stockyard to assessee’s factory, and

(2) detention charges, cannot be considered as input

services.

Held

It is held that the refund of Service Tax paid on

transportation of empty containers from yard to

factory for stuffing of export goods is admissible, as

said activity is in relation to transportation of export

goods - As regards detention charges, such charges

were paid on containers waiting for their turn to be

cleared and accordingly, until assessee is given green

signal for clearance of containers, assessee cannot

export goods - Expression ‘in relation to

transportation of export goods’ is wide enough and

until transportation is factually completed, charges

paid for detention prior to completion have to be

held as ‘in relation to transportation of export goods’

- Therefore, such detention charges were in relation

to transportation of export goods and assessee was

eligible for refund in respect of detention charges as

well.

2 ) Katrina R. Turcotte vs. CST, Mumbai-I 2013

(31) STR 670 (Tri-Ahmd.)

Facts

The Appellant has paid service tax on various

promotion or marketing services through her agent

under Advertising Agency Service. The department

sought to demand service tax under Business Auxiliary

Service.

Held

The Tribunal held that, service tax liability

discharged by the agent cannot be denied merely

on the ground that, it has paid service tax under

Advertising Agency service. Just by paying the

service tax liability under wrong head does not

mean that service tax liability has not been

discharged. Further the expression “Assessee”

under section 65(7) means a person liable to pay

tax including his agent.

3 ) Shail Shikhar Associates vs. CCE. Meerut-I

2013 (31) STR 433 (Tri-Del.)

Facts

The appellant has taken Ropeway belonging to

Municipality on license for continuous running

between two fixed points during working hours to

transport tourists who choose to use the ropeway

for their journey and come on their own volition.

Held

The Tribunal held that, Tourists only availed facility

of ropeway provided by assessee and they were

neither beneficiary nor dependent on assessee for

planning, scheduling, organizing or arranging their

journey. Also movement of trolley with aid of power

from one fixed point to another could not be said to

be a mode of transport. It was more in nature of

entertainment and fun industry. Hence, assessee had

not acted as tour operator within the meaning of

section 65(115) of FA, 1994.


4 ) Kera la C lass i f ied Hote l s and Reso rts

Association vs. UOI 2013 (31) STR 257 (Ker.)

Facts

The Kerala High Court in this case held that, service

tax on serving of food or beverages, including

alcoholic beverages, was beyond the legislative

competence of Parliament as transaction were

covered by Entry 54 of List II of Seventh Schedule of

Constitution of India, and within exclusive

competence of State Legislature. Under deeming

provision of Article 366(29A)(f) of the Constitution

of India, incidence of tax was on supply of any goods

by way of or as part of any service and when food

or alcoholic beverages were supplied as part of any

service, such transfer was deemed to be sale.

Held

It is further held by the Kerala High Court that, service

tax on hotel, inn, guest house, club or camp-site by

whatever named called, for providing

accommodation for continuous period of less than

three month trenched on legislative function of State.

It is tax on services on which State Legislature had

enacted Kerala Tax on Luxuries Act by exercising

their legislative power under Entry 62 of List II of

Constitution of India, hence Government of India

cannot impose any service tax on it in exercise of

its residuary power of Entry 97 of List I of Constitution

of India.

5 ) Vodafone Essar Cellular Ltd. vs. CCE, Pune-

III 2013 (31) STR 738 (Tri-Mumbai)

Facts

The appellant, claimed export of telecom services

provided in India to International in bound roamers

registered with foreign telecom network operators,

for which consideration was received in convertible

foreign exchange.

Held

The Tribunal held that, there is no contract/

agreement between assessee and subscriber of

foreign telecom operator and therefore foreign

telecom service provider is paying for services as

recipient of service. Telecom service falls under

category III of ESR, 2005 and CBEC in circular No.

111/5/2009-ST dated 24/02/2009 clarified that

benefit accruing to foreign service provider as

subscriber billed for services rendered. The ratio of

Tribunal’s decision in Paul Merchants 2013 (29)

STR 257 (Tribunal) is squarely applicable to the

present case and therefore service is qualified as

export of service

6 ) Sports Club of Gujarat Ltd. vs. UOI 2013

(31) STR 645 (Guj)

The High Court after relying on the decision in Ranchi

Club Ltd. 2012 (26) STR 401 (Jhar.) held that,

service tax on club rendering services to its members

is ultra vires and beyond legislative competence of

Parliament. There was no loss of mutuality of club

members, even if club was incorporated under

Companies Act, 1956. The Court also rejected

department’s plea that, they have not accepted

Jharkhand High Court judgment and held that

persuasive value of the said judgment was not lost

and more so because it has relied on a Full Bench

decision of High Court.

7 ) Commissioner of Central Excise, Ludhiana

vs. Ca lcutta Boot House (2013) 38

taxmann.com 20 (New Delhi - CESTAT)

Facts

Section 65(19) of the Finance Act, 1994 read with

rule 3 of the Export of Services Rules, 2005 - Business

Auxiliary Services - Assessee was appointed as sub-

agent by Indian agent of M/s. Western Union - M/s.

Western Union was engaged in service of money

transfer from a person abroad to his friend/relative

in India - M/s. Western Union did not have any office

or establishment in India - Sum was collected by M/

s. Western Union along with commission and money

was delivered in India by sub-agent on behalf of M/

s. Western Union - Sub-agent collected commission

along with reimbursement of money delivered in

Indian currency from Agent who in turn, received

same from Western Union in foreign currency -

(A) Service Tax Judgements


Department sought levy of service tax on commission

received by assessee (sub-agent) under Business

Auxiliary Service

Held

In view of judgment in Paul Merchants Ltd. v. CCE

[2013] 38 STT 702/30 taxmann.com 23 (New Delhi

- CESTAT), service provided by sub-agents is business

auxiliary service provided to Western Union and

same has to be treated as export of service and

would not be taxable in India

8 ) Commissioner of Central Excise, Pune -I I,

NT vs. Shree Datta SSK L td. (2013) 37

taxmann.com 424 (Mumbai - CESTAT)

Facts

Section 65(102) of the Finance Act, 1994 - Storage

and Warehousing of Goods Services - Assessee, sugar

factory, received buffer stock subsidy from

Government on which Department sought to levy

service tax on ground that it was granted for expenses

incurred towards storage of goods.

Held

In view of judgment in CCE v. Nahar Industrial

Enterprises Ltd. [2010] 29 STT 172 (Punj. & Har.),

buffer-stock subsidy cannot be considered as a

consideration received for services rendered and,

therefore, service tax would not be leviable on such

activity - Furthermore, sugar factories were storing

sugar for themselves and, therefore, there cannot

be any service to self - Even otherwise, subsidies

are negative taxation and there cannot be a positive

tax on same under service tax [Para 5]

9 ) Commiss ioner of Income-tax , Kolkata - I I

vs .West Bengal In frast ructu re Dev. F in.

Corpn. Ltd.

Section 83 of the Finance Act, 1994 read with section

35G of the Central Excise Act, 1944 - Application of

certain provisions of Excise Act - Appeal to High

Court - In all such cases where there is delay on the

part of Department, High Court must consider

imposing costs but certainly it should examine the

cases on merits - High Court should not dispose of

cases merely on ground of delay, particularly when

huge stakes are involved

10) Bhagwati Security Services (Regd.) vs. UOI

2013 (31) STR 537 (Al l.)

Facts

In this case petitioner provided security services to

BSNL under an agreement. The petitioner deposited

service tax on reimbursement of expenses and

applied for reimbursement of service tax from BSNL,

which was denied on the ground that, the same

was not contemplated in the agreement.

Held

The High Court held that, Service tax is statutory

liability and Statute is imposing the tax upon the

person to whom the service is being provided and

the service provider is merely a collecting agency,

therefore the respondent is liable to make

reimbursement of service tax to petitioner.

11) CST, Bangalore vs. The Grand Ashok 2013

(31) STR 528 (Kar.)

The High Court in this case held that, outdoor

catering consists of article of food etc. which

constitute sales and other part consists of service to

bring food to place designated by client, including

transportation, which alone is liable to service tax

and not the entire cost received from client. It is

composite but divisible contract of service under

Article 366(29A) (f) of Constitution of India on which

State Legislature is competent to levy Sales tax on

sales aspect only. Hence, sale of goods has to be

bifurcated from service provided.

❉ ❉ ❉

(A) Service Tax Judgements


CA. Savan [email protected]

Fore ign Direc t Investment (FD I) in India –definition of ‘group company’

- FDI policy has since been reviewed and it has beendecided to incorporate the definition for ‘groupcompany’ as under;

o ‘Group company’ means two or more enterpriseswhich, directly or indirectly, are in position to:

(i) exercise twenty-six per cent, or more of voting rightsin other enterprise; or

(ii) appoint more than fifty per cent, of members of boardof directors in the other enterprise.

For full text refer to: A.P. (DIR Series)Circular No. 68

h t t p : / / w w w . r b i . o r g . i n / S c r i p t s /NotificationUser.aspx?Id=8551&Mode=0

Amendment to the “Issue of Foreign CurrencyConvertible Bonds and Ordinary shares (ThroughDepository Receipt Mechanism) Scheme, 1993”

- Unlisted companies incorporated in India have beenallowed to raise capital abroad, without therequirement of prior or subsequent listing in India,initially for a period of two years, subject to conditionsmentioned in the circular. This scheme will beimplemented from the date of the GovernmentNotification of the scheme, subject to review after aperiod of two years.

For full text refer to:A.P. (DIR Series) Circular No. 69


Thi rd pa rty payments for export / importtransactions

- With a view to further liberalising the procedurerelating to payments for exports/imports and takinginto account evolving international trade practices, ithas been decided that

o AD banks may allow payments for export of goods /software to be received from a third party (a partyother than the buyer) subject to conditions

o AD banks are allowed to make payments to a thirdparty for import of goods, subject to conditions

For full text refer to: A.P. (DIR Series) Circular No. 70


Foreign Direct Investment in Financial Sector –Transfer of Shares

2 The requirement of No Objection Certificate (NoC)(s)for transfer of shares of a investee company in thefinancial sector from Residents to Non-Residents willbe waived from the perspective of Foreign ExchangeManagement Act, 1999 and no such NoC(s) need tobe filed along with form FC-TRS. However, any ‘fitand proper/ due diligence’ requirement as regardsthe non-resident investor as stipulated by therespective financial sector regulator shall have to becomplied with



Foreign investment in India - participation bySEBI registered FIIs , QFIs and SEBI registeredlong term investors in credit enhanced bonds

2 Allow SEBI registered Foreign Institutional Investors(FIIs), Qualified Foreign Investors (QFIs) and long terminvestors registered with SEBI – Sovereign WealthFunds (SWFs), Multilateral Agencies, Pension/Insurance/ Endowment Funds, foreign Central Banks- to invest in the credit enhanced bonds, as perparagraph 3 and 4 of A.P. (DIR Series) Circular No.120 dated June 26, 2013, up to a limit of USD 5billion within the overall limit of USD 51 billionearmarked for corporate debt.



❉ ❉ ❉

Statute Updates(B) Foreign Exchange Management Act (FEMA)


CA. Bihari B. [email protected].

Statute Updates(C) Value Added Tax (VAT)

[I] Important Notifications/Circulars:

Guja rat Government Scheme for Tex t i leSector under the Industrial Policy:

Preamble:

The Government has passed the resolution dated25th June 2013 and Notification dated 11th Oct. 2013for declaring various schemes for Interest SubsidyScheme and Vat Benefit to the new and existingtextile industries which is summarized for the benefitof the readers as follows.

Object:

India is the second largest producer of cotton nextto China. The global net cotton production has comedown substantially in the recent past in China & US.On the other hand, besides US and other developednations, cotton textile demands are increasing fromeconomically strong Asian Countries. This hascreated the need for increasing spinning capacity tocounter both domestic and global yarn shortage.

Looking to enormous potential of Technical Textilesand non-woven with application for industries likeMedical, Agro, Automobiles and Constructionindustries, a need is felt to promote technical textileswith higher value addition across the state.

Textile Policy 2012 was announced vide resolutiondated 5.9.2012 with above preamble. Afterannouncement of this policy, State Governmentreceived representations from various stakeholders.After due deliberations with the concerned, it isdecided to announce the revised textile policy 2012with certain changes and clarifications to strengthenthe whole value chain in textile sector.

Operative Period of the Scheme:

The scheme will come into operation from the dateof issue of GR dated 5.9.2012 and shall remain inforce for five years. Only those enterprises whichcomplete and make operational fully their projectsduring the operative period shall be eligible forbenefit mentioned under the respective scheme, asapplicable.

All the textile units/activities commissioned after theannouncement of Gujarat Textile policy 2012 i.e.5.9.2012 are eligible to take the benefit of the newscheme.

Those units which have not taken the benefits underthe old policy and which are going into productionafter declaring the Gujarat Textile Policy 2012 willbe entitled for the benefits.

New Enterprise:

New Enterprise means the enterprise whichcommences commercial production/service duringthe operative period of this scheme and has obtainedacknowledgement of fil ing Entrepreneur’sMemorandum (EM) with the concerned DistrictIndustries Center (DIC) or Industrial Entrepreneur’sMemorandum (IEM) with Government of India.

Existing Enterprise:

The Existing Enterprise means the enterprise whichhas filed EM with the concerned DIC or IEM withGol and is implementing expansion/diversification/modernization in the project for carrying out activityindicated in this resolution.

Gross Fixed Capital Investment:

Gross fixed capital investment means investment inPlant and Machinery before it commencesexpansion/diversification/modernization and/or itobtains sanction of financial assistance from Banks/Financial Institutions.

All machineries specified in TUF list or covered underdefinitions of capital goods in VAT Act would beeligible for benefit of this scheme. However, if suchmachinery is second hand, it will not be eligible forVat concession.

Interest Subsidy:

The scheme will be known as financial assistance byway of credit linked Interest Subsidy in Ginning andPressing. Cotton Spinning, Weaving, Dyeing andProcessing, Knitting, Garments/Made Ups, MachineCarpeting, Machine Embroidery and any otheractivities/process like crimping, texturising , twisting,winding, sizing etc. within the textile value chain.However, synthetic filament yarn manufacturing isexcluded under the scheme. In an alternative, unitsmay avail MSME or other State Government Scheme.


Quantum of Assistance:

Maximum interest subsidy will be at the rate of 5%per annum. (7% for spinning unit and garment/madeups unit). This interest subsidy will be in addition toany other incentives available from other schemesof Government of India.

VAT Concession:

Refund of VAT paid by the unit on purchase ofintermediate product/raw material except for certaingoods and certain transactions which are not eligiblefor tax credit under the Gujarat Vat Act, 2003 andremission of VAT/CST collected on end product/intermediate product within entire value chain fromcotton to Garment and on end made ups to theextent of 100% the eligible fixed capital investmentsin plant and machinery made within one year (twoyears in case of investment more than 500 crores)from the date of production or during the operativeperiod of the scheme whichever is earlier.

This concession will be available within 8 years fromthe date of the production.

The Eligibility Certificate for the above VATconcessions will be issued by the IndustriesCommissioner Office.

For the purpose above, Eligible Fixed CapitalInvestment means investment made in plant andmachineries during the operative period of thescheme.

The finance department will issue suitablenotification in this regard.

Support to Technical Textiles:

Interest Subsidy:

The scheme will be known as Credit Linked InterestSubsidy in Technical Textiles.

Assistance for Energy Conservation, WaterConversation and Environmental Complianceto existing units (more than 3 years old)

Scheme:

The scheme will be known as assistance for EnergyConservation, Water Conservation andEnvironmental Compliance to existing units havingin operation for more than three years.


[i] Assistance up to 50%, Maximum Rs. 50,000/-for Energy Audit/Water Audit/Environmental

(C) Value Added Tax (VAT)

Compliance which will be applicable in eachcase separately.

[ii] Assistance up to 20% of cost of equipments,Maximum Rs. 20 lakhs which will be applicablein each case separately.

[iii] The enterprises will be eligible for the abovebenefit once in 2 years of operating period ofthe scheme.

Assistance for Technology acquisit ion andupgradation:

The scheme will be known as assistance toenterprises for Technology acquisition and up-gradation.


The enterprises acquiring the technology will beprovided financial assistance of up to 50% of theinvestment for technology acquisition/collaboration,with maximum of Rs. 25 lakhs per process/productonce during operative period of the scheme.

The enterprise availing the benefit for the samepurpose under any other scheme of State Governmentwill not be eligible to get benefit under this scheme.

Assistance to Apparel Training Institutionsand Trainees:

The Scheme:

The scheme will be known as Assistance to TrainingInstitutions, Training Centers, Trainers and Traineesfor Apparel related production.

Eligible Activities & Quantum of Assistance:

Setting up of Training Institution:

Under this scheme, any autonomous institutionspromoted by government/public sector undertakingsor private sector with a background of textile andapparel industries or skilled manpower development,will be provided assistance up to 85%, with ceilingof maximum of Rs. 3 crore, of the project cost coveringfixed capital investment in building, equipments andmachinery (including installation cost), electrification,furniture and other miscellaneous investment requiredfor setting up training facilities, excluding land cost.Maximum 25% cost of machineries and trainingequipments will be eligible to consider for infrastructureincluding building.

❉ ❉ ❉


CA. Naveen [email protected]

Statute Updates(D) Corporate Laws

(A ) SEBI Updates:

1 . Standard isat ion and S imp l if icat ion ofProcedures for Transmission of Securities

I. In case of transmission of securities in dematerializedmode, where the securities are held in a single namewithout a nominee, the existing threshold limit ofRs. 1,00,000 (Rupees One lakh only) per beneficiaryowner account has now been revised to Rs. 5,00,000(Rupees Five lakh only), for the purpose of followingsimplified documentation, as already prescribed bythe depositories vide bye-laws / operatinginstructions.

II. In case of transmission of securities held in physicalmode:

a) Where the securities are held in single namewith a nominee, STAs/issuer companies shallfollow the standardized documentaryrequirement as given in Annexure A.

b) Where the securities are held in single namewithout a nominee, the STAs/issuer companiesshall follow, in the normal course, the simplifieddocumentation as given in Annexure A, for athreshold limit of Rs. 2,00,000 (Rupees Two lakhonly) per issuer company. However, the Issuercompanies, at their discretion, may enhancethe value of such securities.

III. The timeline for processing the transmission requestsfor securities held in dematerialized mode andphysical mode shall be 7 days and 21 daysrespectively, after receipt of the prescribeddocuments.

[CIR/MIRSD/10/2013 dated October 28, 2013]

2 . General Information Document (GID):

By virtue of this circular, Lead Manager(s) shallensure that:

· the GID should explicitly incorporate the dateof last updation;

· the number of GIDs printed by every issuercompany shall not be less than five per cent of

the total Abridged Prospectus/ Application Formsprinted or 50,000 in number, whichever is lower;

· copy of GID is provided to an investor as andwhen requested, in form and manner sorequested by the investor;

· the updated GID is made available to investors;and

· the updated GID is made available on thewebsites of the:-

a. Stock Exchange(s) where the sharespursuant to an issue are proposed to belisted; and

b. the respective Lead Manager(s) to the issue,where DRHP / RHP / Draft Prospectus /Prospectus is made available.

[CIR/CFD/DIL/12/2013 dated October 23,2013]

3 . Listing of specified securities of small andmedium enterpr ises on the Inst i tut iona lTrading Platform (ITP) in an SME Exchangewithout making an initial public offer.

A public company seeking listing on ITP should comply with the following requirements:

i. the company, its promoter, group company ordirector does not appear in the wilful defaulters list of Reserve Bank of India as maintained by Credit Information Bureau (India) Limited;

ii. there is no winding up petition against thecompany that has been admitted by acompetent court;

iii. the company, group companies or subsidiarieshave not been referred to the Board for Industrialand Financial Reconstruction within a period of five years prior to the date of application forlisting;

iv. no regulatory action has been taken againstthe company, its promoter or director by SEBI, Reserve Bank of India, Insurance Regulatory and Development Authority or Ministry of


Corporate Affairs within a period of five yearsprior to the date of application for listing;

v. the company has atleast one full year’s auditedfinancial statements, for the immediatelypreceding financial year at the time of makinglisting application;

vi. the company has not completed a period of more than 10 years after incorporationand its revenues have not exceeded onehundred crore rupees in any of the previousfinancial years;

vii. the paid up capital of the company has notexceeded twenty five crore rupees.

viii. In addition to the above requirements, thecompany should have received certainminimum investment from atleast any one ofthe following categories of investors as specifiedbelow in order to qualify for listing on ITP:

a. Atleast one alternative investment fund, venture capital fund or other categoryof investors/lenders approved by SEBI, hasinvested a minimum amount of fifty lakhrupees in the equity shares of the company.

b. One or more angel investor who is amember of an association / group of angelinvestors which fulfils the criteria laid downby the recognised stock exchange, hasinvested a minimum amount of fifty lakhrupees in the equity shares of the companythrough the association/group.

c. The company has received finance from ascheduled bank for its project financing orworking capital requirements and a periodof three years has elapsed from the dateof such financing and the funds so receivedhave been fully utilized.

d. A registered merchant banker has exercised due diligence and has investednot less than fifty lakh rupees in equityshares of the company which shall belocked in for a period of three years fromthe date of listing.

e. A qualified institutional buyer has investednot less than fifty lakh rupees in the equityshares of the company which shall be

locked in for a period of three years fromthe date of listing.

f. A specialized international multilateralagency or domestic agency or a publicfinancial institution under section 2(72) ofthe Companies Act, 2013 has invested inthe equity capital of the company.

[CIR/MRD/DSA/33 /2013 dated October 24,2013]

4 . Centralized Database for Corporate Bonds/Debentures.

By this circular the SEBI has made compulsory forboth the depositories i.e. NSDL and CDSL to jointlycreate, host, maintain and disseminate thecentralized database of corporate bonds/debentures.

The depositories shall obtain requisite informationregarding the bonds/debentures from Issuers, StockExchanges, Credit Rating Agencies and DebentureTrustees.

In the first phase, the bonds/debentures available inthe demat form shall be considered. Subsequently,in co-ordination with Ministry of Corporate Affairs(MCA), the database in respect of bonds/debentureswhich are unlisted and in physical form will beconsidered and such Database can be accessed bythe public or any other users without paying anykind of fees or charges.

[CIR /IMD/DF/17/2013 da ted October 22,2013]

(B ) MCA Updates:

1 . Exemption to Electoral Trusts:

Companies incorporated with the name containingthe expression “electoral trust” and approved inaccordance with the procedure laid down in theElectoral Trusts Scheme, 2013, notified vide numberS.O. 309 (E), dated 3151 January, 2013, and to whichlicence is granted under section 25 of the said Act,shall be exempt from the provisions of clause (b) ofsub-section (1) and sub-section (2) of section 293Aof the said Act which has since been replaced bysub-section (1) of section 182 of the Companies Act,2013 (18 of 2013).

[F. No 17/27 /2013-CL-V dated 07thNovember, 2013]

(D) Corporate Laws



Income Tax

1) Notification No. 92, dated 29/11/2013

The Central Government hereby notifies the Multi

Commodity Exchange of India Limited, Mumbai as

a recognized association for the purpose of clause

(e) of the proviso to clause (5) of section 43 read

with sub-rule (4) of rule 6DDD.

Sec 43(5)(e):-

‘‘an eligible transaction in respect of trading in

commodity derivatives carried out in a recognized

association, shall not be deemed to be a speculative

transaction.”

Rule 6DDD:-

“ Notification of a recognized associate for the

purpose of clause (e) of proviso to clause (5) of sec

43.”

2 ) Notification No. 88, dated 6/11/2013

In pursuance of clause (c) of sub-section (2) of

Section 80G of the Income-tax Act, 1961 (43 of

1961), the Central Government hereby specifies

‘Archery Association of India’, New Delhi as an

association for the purposes of said clause for the

assessment years 2013-14, 2014-15 and 2015-16

provided that the conditions specified in said rule

18AAAAA(Guidelines for specifying an association

or institution for the purpose of notification under

clause © of sub-sec(2) of sec 80G.

Service Tax

1) The Central Government hereby amends the Service

Tax Rule 6 (Payment of Service Tax)of Service Tax

Rules ,1994 by reducing the mandatory limit of online

payment of service tax from Rs 10,00,000 to Rs

1,00,000 w.e.f. 01/01/2014 vide Notification

No 16 /2013, dated 22/11/2013

2 ) The Central Government hereby amends the

Notification No. 12, dated 01/07/2013 by

substituting the clause (d) , which reads as

under:-

“(d) the SEZ Unit or the Developer shall furnish to

the jurisdictional Superintendent of Central Excise a

quarterly statement, in Form A-3, furnishing the

details of specified services received by it without

payment of service tax, by 30th of the month

following the particular quarter:

Provided that for the quarter of July, 2013 to

September, 2013, the said statement shall be

furnished by the 15th of December, 2013.”.

(Notification No.15/2013, dated 21/11/2013)

3 ) Further clarification regarding “The Service

Tax Voluntary Compliance Encouragement

Scheme .”

CBDT vide Circular No.174 dated 25/11/2013

further clarifies certain issues regarding scope and

applicability of the Service Tax Voluntary Compliance

Encouragement Scheme (VCES).

❉ ❉ ❉

CA. Kunal A. [email protected]

Statute Updates(E) Circulars and Notifications

(Income Tax and Service Tax)


AS-2 - Valuation of Inventory

Indian Oil Corporation Ltd.-Annual Report 2012-13

Significant Accounting Policies

7 . Inventories

7.1 Raw materials

7.1.1 Raw materials including crude oil are valued atcost determined on weighted averagebasic or net realizable value, whichever is lower.

7.1.2 Stock in process is valued at row material costplus conversion costs as applicable or netrealizable value, whichever is lower.

7.1.3 Crude oil in Transit is Valued at cost or netrealizable value, whichever is lower.

7.2 Finished Products and stock-in-trade

7.2.1 Finished products and stock in trade, other thanlubricants are valued at cost determined on ‘firstin first out’ basis or net realizable value, whicheveris lower. Cost of Finished Products produced isdetermined basis on row material and processingcost.

7.2.2 Lubricants are valued at cost on weighted averagebasis or net realizable value, whichever is lower.Cost of lubricants internally produced isdetermined based on cost of inputs and processingcost.

7.2.3 Imported products in transit are valued at CIF costor net realizable value whichever is lower.

7.3 Stores and spares

7.3.1 Stores and Spares (including Barrels & Tine) arevalue at weighted average cost. Specific provisionis made in respect of identified obsolete stores &spares and chemicals for likely diminution value.Further, an adhoc provision @ 5% is also madeon the balance stores and spares (excludingbarrels, tins, stores in transit, chemicals, crude oiland own products) towards likely diminution inthe value.

7.3.2 Stores & Spares in transit are valued at cost.

Godawari Power & Ispat Limited–Annual Report2012-13

2.1 Summary of significant accounting policies

f ) Inventories

i) Inventories are valued at lower of cost and netrealizable value, after providing for obsolescences,if any.

ii) Cost of Raw Materials and stores & spares, FinishedGoods & Goods in Process are computed on MovingWeighted average basis.

iii) Cost of Finished Goods and Goods in Process includesdirect materials, labour, conversion and proportionof manufacturing overheads incurred in bringing theinventories to their present location and condition.

iv) Proceeds in respect of sales/disposal of raw materialsis credited to the raw material purchases.

KPR Mill Limited - Annual Report 2012-13

2. Significant Accounting Policies

E ) 1 ) Inventories –Textile

Items of Inventories are valued at lower of costand net realizable value. Cost is ascertained onspecific identification method /FIFO method asappropriated. Cost includes all direct cost andapplicable production overheads, to bring thegoods to their present location and condition.

2 ) Inventories –Sugar

i) The cost for the finished goods is inclusive ofcost of purchase, cost of conversion, exciseduty, cess if any and other costs incurred inbringing the inventories to their presentlocation and condition.

ii) Stock-in-process, Stores, Spares,Consumables, Packing and Other Materialsare valued at lower of Cost or Net Realizablevalue.

iii) Waste and scrap are valued at Net realizablevalue.

CA. Pamil H. [email protected]

From Published Accounts


Manjushree Technopack Limited - Annual Report2012-13

A. Significant Accounting Policies and Notes to FinancialStatements

vii. Valuation of inventories

· Raw material, packing material stores & spares andconsumable are valued at cost computed on FIFObasis or market value whichever is less on therelevant valuation date. Cost for the purposes ofvaluation of raw-material, packing materials andstores, spares and consumables are inclusive of dutiesand taxes, freight inward, octroi and inward insuranceand is net off credit under the CENVAT/VAT scheme.

· Finished Goods are valued at cost of manufactureor net realizable value whichever is lower. Costincludes the provision for excise duty likely to bepayable upon clearance of the finished goods lyingat the year end in factory/bonded premises, suchFinished Goods value includes the expenses incurredon conversion stocks under company’s control.

Fiem Industries Limited -Annual Report 2012-13

1. Significant Accounting Policies Followed by TheCompany

E . Inventories

(i) Raw Materials, components, stores and spare arevalued at lower of cost or net realizable value.However materials and other items held for use inthe production of inventories are not written downbelow cost if the finished products in which they willbe incorporated are expected to be sold at or abovecost. Cost is determined on a First In First Out basis(FIFO).

(ii) Semi-finished goods and finished goods are valuedat lower of cost or net realizable value. Cost includesdirect materials and direct labour and a proportionof manufacturing overhead based on normaloperating capacity. Finished stock lying in the factorypremises, branches, Depots are valued inclusive ofexcise duty.

(iii) Manufacturing and bought out moulds, block & diesfor sales are valued at lower of cost or net realizablevalue. Manufactured moulds, block & dies includedirect material, direct labour and a proportion ofmanufacturing overhead based on normal operating

capacity. Cost is determined on a First in First outbasis.(FIFO)

(iv) Inventories of non-reusable waste say scrap for whichfacilities for reprocessing do not exist have beenvalued at net realizable value.

(v) Goods in transit are stated as a component ofinventories if the significant risk and rewards ofownership have passed to the company and valuedat actual cost incurred up to the date of Balance Sheet.

Kiri Industries Limited - Annual Report 2012-13

2. Significant Accounting Policies

h ) Inventories

Inventories are valued at follows:

Raw Material, Packing Material & Stores and spares

Lower of cost and net realizable value however,materials and other items held for use in theproduction of inventories are not written down belowcost if the finished products in which they will beincorporated are expected to be sold at or abovecost. Costs include all costs in bringing the inventoriesto their present location and condition .Cost isdetermined on First in First out (FIFO) basis.

Work-in-progress and Finished goods

Lower of cost and net realizable value. Cost includeddirect material, labour and a proportion ofmanufacturing overheads based on normal operatingcapacity. Cost of finished goods held by parentcompany includes excise duty.

Obsolescence of inventory is determined on a specificreview and is accordingly provided for, if any. Netrealizable value is the estimated selling price in theordinary course of business, less estimated cost ofcompletion and estimated costs necessary to makethe sale.

Bafna Pharmaceuticals Limited - Annual Report2012-13


h . Inventories

Raw Materials, components, stores and spares arevalued at lower of cost and net realizable value.However, materials and other items held for use inthe production of inventories are not written downbelow cost if the finished products in which they will



be incorporated are expected to be sold at or abovecost. Cost of raw materials, components and storesand spares is determined on a weighted averagebasis.

Work in progress and finished goods are valued atlower of cost and net realizable value. Cost includesdirect material and labour and a proportion ofmanufacturing overhead based on normal operatingcapacity.

Net realizable value is the estimated selling in theordinary course of business, less estimated cost ofcompletion and estimated cost necessary to makethe site.

Parabolic Drugs Limited-Annual Report 2012-13


G. Inventories

Inventories are valued in accordance withAccounting Standard -2 “valuation of inventories”and the method of valuation is given as under.

(i) Raw Material, Lower of cost or Net RealizableStores & Spares Value whichever is less on


and Packing FIFO basis. However, materialMaterials and other items held for use in

production of finished goodsare not written down belowcost if the products in whichthey will be used are expectedto be sold at or above cost.

(ii) Works in At cost up to estimated stageprocess / Semi of completion. Cost includesFinished Goods direct materials and labour and

a proportion of manufacturingoverheads based on normaloperating capacity.

(iii) Finished Goods Lower of cost and netrealizable value. Cost includesdirect materials and labour anda proportion of manufacturingoverheads based on normaloperating capacity. Cost offinished goods includes exciseduty.

❉ ❉ ❉

contd. from page 521 (D) Corporate Laws

(C ) Latest Judgements:

Smt . Madhur i S P i t t i , P it t i E le ctr i ca lEquipment Pvt. Ltd. & Shri. Akshay S PittiVerus SEBI:

In this matter, following are the observations of theSAT, Mumbai:

o SEBI cannot presume to issue directions to listedcompanies, terming it mere advice but withoutgiving the latter any choice in the matter. Byusing the expressions “advisory in nature” or “comments” the SEBI cannot turn a blind eye tothe fact that inspite of issuing directions on thepretext of giving comments/ advice, thelanguage of regulation 18(2) of the TakeoverRegulation, 1997 is couched in mandatoryterms, hence, appeal is maintainable beforeSAT against such impugned letter.

o The benchmark of 15% would apply to anindividual when the individual is acquiringshares/ voting rights on his behalf alone.

Similarly, when we attempt to determinewhether or not the said limit has been crossed,shareholdings of all members of the group ofpersons acting in concert would have to bereckoned as a whole.

o For the purposes of acting under various sectionsfrom 15A to 15HB, the SEBI is required toappoint an officer not below the rank ofDivisional Chief to be an adjudicating officerfor holding an enquiry in the prescribed mannerafter giving reasonable opportunity of beingheard to the person concerned.

o The new Takeover Code of 2011 does not applyretrospectively.

[Appeal No. 2 of 2013 & order dated 31stOctober, 2013]

❉ ❉ ❉


GOVT ALLOWS DEDUCTION OF CTT AS PARTOF BUSINESS INCOME

In a relief to commodity exchanges, the government hasallowed deduction of Commodity Transaction Tax (CTT)to traders as it forms part of their business income. Themove will benefit Multi Commodity Exchange of India(MCX), National Commodity and Derivatives Exchange(NCDEX),and Universal Commodity Exchange (UCX).

The government may withdraw the recognition of theseexchanges if found violating specified income tax norms.This notification will remain in force until the approvalgranted by the commodity markets regulator ForwardMarkets Commission is withdrawn or expires. Reactingon the development MCX said: Trading on Exchangewill get tax benefit deduction under Section 43(5) of theIncome Tax Act.

This will instill confidence in the market, increase hedgersparticipation and put commodity futures trading at parwith other exchange-traded asset classes, it said.CTT of0.01%,imposed on both buyer and seller of commodityon exchange platform came into effect on July 1.It isapplicable on non-agricultural commodities and 11processed foods. The tax imposed has dampened thebusiness of these exchanges and their turnover has comedown by 32% to Rs.74.16 lakh crore so far this fiscal.

(Source: www.taxmann.com)

FM SERVES ULT IMATUM ON SERVICE TAXEVADERS

Union Finance Minister P. Chidambaram warned servicetax evaders on Wednesday that the ongoing amnestyscheme for service tax evaders, which ends on December31, would be the “last chance” to comply with taxregulations.

Speaking at the inaugural of an interactive session withbusinesspersons, taxpayers and tax professionals inBangalore, Mr. Chidambaram said the VoluntaryCompliance Encouragement Scheme (VCES) is “anopportunity to come clean and make a fresh start.”

The Finance Minister said the Government’s offer is “fairand generous” and that such a similar scheme is unlikelyfor at least two decades. He pointed out that the last“true” amnesty scheme was launched in 1997. Hepointed out that although 17 lakh service providers have“voluntarily” registered, only 7 lakh pay service tax. Theten lakh service providers who do not pay tax have beenclassified as no-filers and stop-filers, he said.

Mr, Chidambaram said that tax administrators, theCustoms Department and the Financial Intelligence Unithave a lot of information (about tax payers),” gatheredfrom various economic entities, which can be “used toidentify tax evaders.” “Believe me, we have theinformation and the technology to construct a 360-degreeview profile of such persons,” he warned. “This is howwe have identified a number of chronic tax evaders, andarrest a number of such persons,” he added.

The Finance Minister said although 107 applications underthe VCES have been rejected, they would be reviewedafter the December 31 deadline.

(Source: The Hindu)

TAX ROW: I- T DEPT REJECTS NOKIA INDIASOFFER TO PAY RS.2,250 CR

The income tax ( I- T) department on Monday told theDelhi High Court that the offer of Finnish mobile makerNokia to pay a minimum deposit of Rs.2,250 crore to it,out of the companys total tax liability of nearly Rs.6,500crore, is not acceptable.

Nokia India, however, stuck to its offer and said it is forthe department to decide if they are better off with theproposed amount or without it. A bench of justices SanjivKhanna and Sanjeev Sachdeva observed “You (Nokia)are offering nothing”. Earlier, the mobile handset- makerfirm had sought lifting of a stay on transfer of its assets inIndia saying the courts injunction will jeopardise the saleof its Indian arm to Microsoft under the $7.2- billion globaldeal.

(Source: The Business Standard)

Q2 GDP LIKELY TO HAVE GROWN 4.6%:CONSENSUS ESTIMATE

Economic Growth is estimated to have improvedmarginally in the second quarter, driven by a very mildrecovery in the industrial and agricultural output.

While the consensus estimate suggests the economywould have expanded 4.6 per cent in the quarter ended30 September,Deutsche Bank has an optimistic estimateof 5.5 per cent, which would be the best in over a year.

Deutsche Bank’s chief economist Taimur Baig justifiesthis number saying there has been a pick-up in industrialand construction sectors, while finance and trade lookbuoyant.

Compiled by :Mr. Manthan Khokhani

News Lounge



CA. Chintan M. DoshiHon. Secretary

Association News CA. Abhishek J. JainHon. Secretary

Forthcoming Programmes

Date/Day T ime Programmes Speaker Venue

14.12.2013 07.30 am Cricket Match - President XI Sardar Patel Stadium,Saturday onwards v/s Secretary XI Navrangpura, Ahmedabad

18.12.2013 09.00 am 3rd Brain Trust cum Workshop CA. S. K. Sadhwani, ATMA Hall, Opp. City Gold,Wednesday meeting on “Use of RTI in Ahmedabad Ashram Road,

Income Tax Proceedings and CA. Rajesh Dhruva, AhmedabadFEMA & Non Residents - RajkotSome Practical Issues”

28.12.2013 07.30 am Cricket Match - C.A.Asso. v/s Sardar Patel Stadium,Saturday onwards I. T. Bar Asso. Navrangpura, Ahmedabad

Diwali Get Together on 12.11.2013, at Aangan Party Plot, Ahmedabad

Office Bearers Welcoming Members at the Diwali get-together

Launch of E-payment facility on the web-portal of the Association on 22-11-2013 byPast President of the Association CA. J.T.Shah

(L to R CA. Abhishek J. Jain, CA. Shailesh C. Shah CA. Vijay M. Valiya, CA. Anuj j. Sharedalal,CA. J. T. Shah, Past President, CA. Prakash B. Sheth CA. Chintan M. Doshi, )

Glimpses of events gone by:


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7th Study Circle Meeting on the topic of “Overview of Accounting Standards – 2, 7, 9, 15 & 22 by CA. Aniket S. Talati

(L to R CA. Abhishek J. Jain, CA. Shailesh C. Shah CA. Kaushik C. Patel, Faculty CA. Aniket S. Talati, CA. PrakashB. Sheth CA. Chintan M. Doshi,)

Association News

Even if this estimate sounds too optimistic, the factorscited by Baig are not correct. After the drastic cut-backin public spending in the fourth quarter of the previousfinancial year, public spending has remained robust inthe first two quarters of the current year.

Industrial activity on the whole has shown better numbersboth sequentially and annually. Steel production hasgrown by 5.7 per cent y-o-y during the second quarteragainst 3.1 per cent y-o-y growth during April-June.Cement production also grew by 10.1 per cent in Q2compared to 3.3 per cent in Q1. This implies theconstruction sector may clock better growth in Q2 thanQ1 of FY14.

However, the recovery is unlikely to be sustainable.Siddhartha Sanyal of Barclays expects GDP growth toexpand by 4.6 per cent y-o-y during July-September.“Exports and agriculture have seen a pick-up of late, butwe do not see any broad-based turnaround as most otherlead indicators continue to be weak. Also, fiscal austerity,expected to kick in towards the end of the year, andhigh interest rates will impact recovery in the comingquarters.” Overall, any pick up in the economy is nowbeing pushed to the next year, after elections.

(Source: The Business Standard)

MOODY’S EXPECTS CHALLENGES FOR INDIA INCTO CONTINUE IN 2014

Reflecting macroeconomic challenges over the next 12months, Moody’s expects challenges for Indian non-financial corporates to continue in 2014.

“India’s GDP growth to remain weak at 5.5 per cent inthe fiscal year ending March 2015, as elections in mid-

contd. from page 526 News Lounge

2014 will delay reforms needed to revive the economy,”Moody’s Investors Service said in a report.

Companies will also face higher borrowing costs and tightfunding conditions with monetary policy likely to remaintight, it said.

Moody’s could move to a stable outlook if its GDP growthexpectations exceed 6 per cent, the rupee stabilises –such that one-year volatility falls below 5 per cent – anda development and reform-focused government is formedwith a strong majority, it said.

A near doubling of gas prices from April 2014 will liftupstream revenues, with Oil and Natural Gas Corporationseeing the largest boost. However, the fuel subsidy burdenon the upstream companies may remain high, despitean expected decline in total fuel subsidies, it said.

Moody’s outlook for the sector is stable.

The outlook is negative in the refining and marketingsector, where it expects refining margins to stay weakand for companies to suffer delays in subsidyreimbursements due to the mid-year elections.

Meanwhile, the weaker rupee has improvedcompetitiveness for the IT/business process outsourcingsector, where the sector outlook is stable, it said.

Moody’s outlook is negative for the steel, metals andmining sectors, where it expects the weak economy andcapacity expansions to weigh on steelmakers’ marginsand utilisation rates.

(Source: The Indian Express)

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