Retro amendment akin to double edged sword; High Court permits rectification and reopening of assessment

ESTER INDUSTRIES LTD. V. UNION OF INDIA (2013) 39 taxmann.com 107 (Delhi)

In case of retrospective legislative amendment, rectification under section 154, as well as reopening of assessment under section 147 are permissible as they are not mutually exclusive.

The review petition had been filed by the assessee alleging that, so far as the issue regarding the constitutionality of the retrospective amendment was concerned, though the plea was rejected by the Court, but in doing so, the Court had wrongly placed reliance on Section 154 and under Section 147 and to this extent, the order was erroneous. Thus, it was contended that the scope of Section 154 and Section 147 was different and distinct.

The High Court dismissed the review petition with following observations:

• The retrospective amendment constitutes tangible material permitting the reopening of the assessment. It can even permit action for rectification of the assessment on the ground of mistake apparent from record; 
• Just because action for rectification is permissible, it does not mean that no action can be taken for re-opening the assessment because the powers under section 147 and section 154 are not mutually exclusive and there can be some overlapping and so long as the conditions for the applicability of either of these sections are satisfied, the action taken thereunder has to be validated; 
• The assessee did not appear to have properly understood and appreciated the purport of observation. It was of the impression that the decision was rendered on the premise that if action under section 154 was permissible, action under section 147 to reopen the assessment was automatically impermissible; 
• There could be overlapping of jurisdiction and so long as the jurisdictional pre-conditions were satisfied, action could be taken by the Assessing Officer under the appropriate section. Thus, there was no merit in the review petition filed by assessee, which was, accordingly, to be dismissed.

Even info from CBI won't authorize search unless it is based on reasons given under sec. 132(1)

PARMA RAM BHAKAR V. DY. CIT (2013) 39 taxmann.com 119 (Jodhpur - Trib.)

Search conducted in pursuance of authorization issued in absence of the eventualities mentioned in clauses (a) to (c) of sub-section (1) of section 132, couldn’t be deemed as valid search.

Facts:

• On the basis of information given by CBI that undisclosed cash was being carried by assessee, search proceedings under section 132 were initiated by issuing warrant of authorization by the Director (Investigation); 
• Some alleged incriminating documents containing details of unexplained payments were found and seized. Thereafter, notice under section 153A was issued by the Assessing Officer; 
• The assessee filed his returns of income and the assessments were completed. On appeal, the assessee challenged the validity of assessments based on said search; 
• The CIT (A) held that the search was valid and the proceedings under section 153A were validly initiated by the Assessing Officer. Aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

• From the provisions of section 132(1) it is clear that it contemplates existence of certain eventualities whereof the competent authority can authorize search; 
• In the instant case, there was no complete information in possession CBI about any bullion, jewellery, cash or any other document, which could reveal that the assessee was in possession of undisclosed assets or incriminating documents; 
• It appeared that the department had acted upon the information provided by the police department on 29-3-2007 and on the same day, the warrant of authorization was issued and the search was conducted, but nothing was brought on record to substantiate that any cash was found, although search was conducted on the information that undisclosed cash was being carried out by the assessee; 
• Thus, the authorization to conduct search based on reason under section 132(1) did not exist and search became invalid. Therefore, the assessment order based on the said search was not valid and had to be set aside.

Mother is natural guardian even during lifetime of father; clubbing provisions not unconstitutional

ANJU MEHRA V. UNION OF INDIA (2013) 38 taxmann.com 383 (Punjab & Haryana)

Sub-section (1A) of section 64, including clause (a) of the Explanation to said sub-section is constitutionally valid

Facts:

• The assessing authority completed the assessment by clubbing the income of assessee’s two minor sons with her income as her income was greater than that of her husband; 
• The assessee contended that the provisions of clubbing the income of the minor child, infringed the right of equality as enshrined by article 14 of the Constitution of India and, thus, were ultra vires; 
• She further contended that clause (a) of the Explanation to section 64(1A), was violative of section 6 of the Hindu Minority and Guardianship Act, 1956, according to which the father is the natural guardian and after him the mother is the natural guardian. Thus, the assessee filed instant writ petition challenging the constitutional validity of section 64(1A).

The High Court dismissed the petition with following observations:

• HC relied on following interpretation of SC in case of Githa Hariharan v. Reserve Bank of India (1999) 104 Taxman 220:

1. Under the Hindu law both mother and father are the natural guardians of the minor sons or daughters;
2. Gender equality is one of the basic principles of our Constitution and in the event the word 'after' is to be read to mean a disqualification of a mother to act as a guardian during the lifetime of the father, the same would definitely run counter to the basic requirement of the constitutional mandate and would lead to a differentiation between male and female;
3. The father by reason of a dominant personality cannot be ascribed to have a preferential right over the mother in the matter of guardianship, since both fall within the same category

• Thus, it cannot be said that the mother is not the natural guardian during the lifetime of the father or until he is disqualified from being the natural guardian; 
• When both mother and father are natural guardians, then adding the income of the minor child in the income of the parent, whose income is greater, can’t be said to be arbitrary, artificial or evasive of the object sought to be achieved; 
• Therefore, the constitutional validity of sub-section (1A) of section 64, including clause (a) of the Explanation to the said sub-section was to be upheld and the same were not violative of article 14 of the Constitution of India or section 6 of the Hindu Minority and the Guardianship Act.

High Court puts ball in DRP’s court to decide applicability of Transfer Pricing provisions on issue of shares(Vodafone Case)

VODAFONE INDIA SERVICES (P.) LTD. V. UNION OF INDIA (2013) 39 taxmann.com 201 (Bombay)

 

• Assessee allotted shares to its foreign holding company (AE) at a premium of Rs. 8,951 per share and received the amount against allotment of shares; 

• The AO referred this transaction to Transfer Pricing Officer (TPO) for determining its Arms Length Price the TPO issued show cause notice to assessee; 
• The assessee contended that Chapter X doesn’t apply to issue of equity shares as no income arises from issue of equity shares and the transaction is a capital account transaction; 
• TPO rejected assessee’s contentions relying on retro amendment to section 92B made by the Finance Act, 2012 by inserting Explanation(i)(c) and (e) which brings capital financing transactions within the purview of international transactions and TP provisions of Chapter X; 
• The TPO determined ALP of shares and made TP adjustments of 1397.27 crores. The AO passed draft assessment order wherein he didn’t deal with assessee’s objections. Thus, the assessee filed the instant writ petition challenging AO’s draft assessment order.

The High Court disposed off the petition with following directions:

• We were not inclined to set aside the draft assessment order of the AO or the order of the TPO and remand the matter to AO, because the AO has already filed an affidavit contesting the petition on merits and justifying the stand that the alleged shortfall in premium upon issue of shares was chargeable to tax under Chapter X."; 
• Thus, instead of remanding the matter to the AO to examine this question, the merits of this question must be considered by DRP; 
• The petitioner would submit before the DRP its preliminary objections to Draft Assessment Order and the TPO's order within two weeks by raising jurisdictional issues; 
• The DRP would decide the issue of jurisdiction before considering issue of valuation raised by the petitioner in its objections filed before the DRP, of course subject to the additional grounds on jurisdiction being filed by the petitioner within two weeks; 
• The DRP would decide the issue of jurisdiction as a preliminary issue within two months from the date on which the petitioner filed its objections on the question of jurisdiction; 
• In case the decision of the DRP on the above preliminary issue was adverse to the petitioner, it would be open to the petitioner to challenge the order of the DRP on the preliminary issue in a writ petition if a case was made out at that stage that the decision of the DRP was patently illegal, notwithstanding the availability of alternative remedy of filing an appeal before the Income Tax Appellate Tribunal.

E-homes with pre-fitted gadgets akin to other residential units; their developer isn’t dominant player

ACHYUT P. RAO V. DESIGNARCH INFRASTRUCTURE (P.) LTD. (2013) 38 taxmann.com 380 (CCI)

E-homes with facilities like wifi, finger print security cannot be said to be different from other residential units

Facts:

• The informant, allottee of e-homes, filed information alleging abuse of dominance by Opposite Party (‘OP’) for adopting anti-competitive practices for the allotment of their e-homes; 
• He alleged that the e-homes developed by OP were likely to attract buyers who wanted to buy homes pre-fitted with hi-tech gadgets like wifi, finger print security system, parkings lots, etc; 
• He also contended that the OP created the special category of e-homes and had acquired a 100% dominant status for being the only real estate developer to design and develop such e-homes in Delhi/NCR; 
• As a result of the dominance enjoyed by OP, it started demanding high premiums and forced allottees to sign an Allotment Agreement.

The Competition Commission held as under:

• The argument of informant that 'the provision for services of e-home' was a distinct product having separate market for itself, does not seem to be convincing because the facilities being provided by the OP like prefitted hi-tech gadgets, i.e., wifi, finger print security system, parking lots, etc., could easily be installed in any house without much structural modifications and alterations; 
• Thus, e-homes in question couldn’t be deemed as different products from other residential flats; 
• There has been no information in the public domain to prove that the OP was a dominant real estate developer in the relevant market and it had been abusing its position of dominance; 
• As per the information in public domain, there were several upcoming residential projects in Delhi/NCR and OP was not the only real estate developer in the relevant geographical market; 
• Therefore, the OP did not, prima facie, appear to be a dominant player in the relevant market. In the absence of dominance of OP in the relevant market, there was, prima facie, no reason for abuse of dominance in that market.

Revenue exempted from disclosing info obtained from Financial Intelligence Unit justifying search operations

M.D. OVERSEAS LTD. V. DIRECTOR GENERAL OF INCOME-TAX (2013) 38 taxmann.com 433 (Allahabad)

Preparation of satisfaction note on information collected from Financial Intelligence Unit to be treated as unpublished document for which privilege under Evidence Act could be validly claimed.

Facts:

• The assessee was a leading importer and exporter of bullion, platinum bars and other precious metals; 
• The search and seizure operations under section 132 were carried out against assessee on basis of information received from Financial Intelligence Unit (‘FIU’) that heavy cash amounts were deposited in bank accounts of assessee and its sister concern on a regular basis; 
• The assessee filed writ challenging the search and seizure operations and claimed its right to examine satisfaction note to assail validity and bona fides of search and seizure operation; 
• On other hand, revenue filed an application claiming privilege of unpublished material in public interest under the Evidence Act

The High Court held in favour of revenue as under:

• It couldn’t be denied that the FIU, reporting directly to the Finance Ministry, was responsible for receiving, processing, analyzing and disseminating information related to suspected financial transactions; 
• It was also responsible for coordinating with and strengthening the efforts of national and international agencies, investigation into it in pursuance of global efforts against money laundering, terrorist financing and related crimes; 
• The preparation of the satisfaction note on such information could be treated as unpublished documents for which the revenue has validly claimed privilege under sections 123 and 124 of the Evidence Act; 
• A large amount of accounted black money is floating in the market which poses a serious threat to the national economy. The Government of India has adopted several methods to discouraging the parallel economy being run by unscrupulous persons; 
• The FIU is engaged in collecting such information against the money laundering, terrorist financing and related crimes. The sources and methods of the organization collecting and processing such sensitive information couldn’t be subjected to public scrutiny to jeopardize the interest of the organization and national interest. 
• Thus, the application filed by the Income-tax department was to be allowed.

Sale of business in lieu of shares under an amalgamation scheme not a ‘slump sale’

ITO V. ZINGER INVESTMENTS (P.) LTD (2013) (Hyderabad - Trib.)

Where no monetary consideration was involved in transfer of manufacturing division along with all its assets and liabilities under amalgamation scheme, same could not be considered as slump sale under section 50B

Facts:

• The assessee transferred its manufacturing division to NIL under a scheme of amalgamation as per which all the assets and liabilities of the assessee were vested in NIL; 
• The assessee in return received certain investments held by NIL besides allotment of equity shares to the shareholders of the assessee; 
• The Assessing Officer held that the transfer of the manufacturing division to NIL would tantamount to a 'slump sale' attracting liability of capital gains under section 50B; 
• On appeal, the CIT(A) deleted the order of Assessing Officer. The aggrieved revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

• To qualify as slump sale two conditions have to be satisfied, viz., (A) there must be transfer of one or more undertakings as a result of sale, and (B) the sale should be for a lump sum consideration without values being assigned to the individual assets and liabilities; 
• In the instant case it was not disputed that there was no monetary consideration involved for transfer of the assets and liabilities of the manufacturing division to NIL, though there might have been transfer of an undertaking; 
• Since there was no monetary consideration involved in transferring the manufacturing division under scheme of amalgamation approved by the High Court, it couldn’t be considered to be a slump sale so as to attract the liability of the capital gain under section 50B – 

Section 35ABB doesn’t deem sums paid on telecom licenses as capital expense, it is operative when expense is of capital nature

CIT V. BHARTI HEXACOM LTD. (2013) (Delhi)

The High Court held as under:

1. Section 35ABB does not stipulate or mandate that any expenditure for a right to operate telecommunication services or payment made for the said license as per the section is deemed to be a capital expenditure;
2. Section 35ABB is not a deeming provision but comes into operation and is effective when the expenditure itself is of a capital nature and is incurred for acquiring a right to operate telecommunication services or is made to obtain a license for the said services;
3. It can be incurred before commencement of business or thereafter, but should be incurred during the previous year. Thus, section 35ABB by itself does not help in determining and deciding the question whether license fee paid under the New Telecom Policy, 1999 (NTP) or under the 1994 agreement, was/is capital or revenue in nature;
4. Variable payments made under the NTP on revenue-sharing basis were revenue expenditure deductible under section 37(1). The expenditure incurred towards license fee was partly revenue and partly capital in nature;
5. License fee payable up to 31st July, 1999 to be treated as capital expenditure and license fee on revenue sharing basis after 1st August, 1999 to be treated as revenue expenditure. Capital expenditure qualifies for deduction as per section 35ABB of the Act.

Assistance in financial and risk management is a ‘technical service’; Fees and Technical Services under India-US DTAA

US TECHNOLOGY RESOURCES (P.) LTD. V. ACIT (2013) (Cochin - Trib.)

Where assessee-company was making use of advice, input, experience and assistance rendered by US based company in its decision making process of financial and risk management, etc., services so rendered would be technical services under India-US DTAA.

Facts:

• The assessee-company, engaged in providing software development services to the customers in India, claimed deduction of payment made to US based company (‘foreign company’) towards management services rendered by it; 
• In course of assessment, the Assessing Officer opined that the payment made by the assessee to foreign company would come within the ambit of consultancy fees and, therefore, the it was liable to deduct tax on these payments under section 195; 
• Since assessee failed to deduct tax at source, the Assessing Officer disallowed payments made by assessee by invoking provisions of section 40(a)(ia). Further, the CIT (A) confirmed said disallowance. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of revenue as under:

• The assessee was making use of the advice, input, experience and assistance rendered by the foreign company in its decision making process of financial and risk management, etc; 
• The foreign company was also giving training to the assessee's employees in making use of the inputs, experience, experimentation, assistance and advice rendered by them for taking a better possible decision in order to achieve the desired objectives; 
• Decision making process is a highly complicated and technical one, unless the assessee gets a technical input and advice from financial and risk management experts it may be difficult to select a right process for the growth of the company; 
• It was not the case of the assessee that in given set of facts/problem, the foreign company gave its solution or advice. The solution or decision was, admittedly, taken by the assessee on the basis of the advice/service rendered by the foreign company; 
• Therefore, the technical knowledge, experience, skill possessed by the foreign company with regard to financial and risk management was made available in the form of advice or service which was used by the assessee in the decision making process not only in management affairs but also in financial matters; 
• Therefore, such service rendered by the foreign company was technical in nature as per India-USA treaty.

No ‘royalty’ from sale of software, High Court ignores amended Section 9 as DTAA more beneficial; Samsung’s case distinguished

DIT v. Infrasoft Ltd. (2013) (Delhi)

The Delhi High Court upheld the order of the Tribunal that amount received by the assessee under the license agreement for allowing the use of the software would not be royalty under the DTAA.

The Delhi High Court held as under:

• What was transferred was neither the copyright in the software nor the use of the copyright in the software, but what was transferred was the right to use the copyrighted material or article which was distinguishable from the rights in a copyright; 
• It further held that the right that was transferred was not a right to use the copyright but was only limited to the right to use the copyrighted material and the same would not give rise to any royalty income and would be business income; 
• The Delhi High Court expressed its disagreement with the decision of the High Court in the case of CIT v. Samsung Electronics Co. Ltd. (2011) 203 Taxman 477 (Kar.) that right to make a copy of the software and storing the same in the hard disk of the designated computer and taking backup would amount to copyright work.

Cenvat credit was allowable to assessee even if supplier hadn’t discharged its duty

Commissioner of Central Excise, Jalandhar v. Kay Kay Industries (2013) (Supreme Court)

Requirement of taking "reasonable steps" does not mean that assessee is required to verify from department whether duty stands paid by supplier because that would be practically impossible and would lead to transactions getting delayed; therefore, assessee is entitled to credit even if supplier has not paid duty to department

In the instant case the assessee took deemed Modvat credit benefit under Notification No. 58/97-CE(NT) on basis of invoices issued by supplier of inputs, but on verification it was found that supplier had not paid duty. The Department opined that since rule 57A(6) required the assessee to take all reasonable steps to ensure that duty had been paid, no credit could be allowed if duty had not been paid on inputs supplied.

The Supreme Court held in favour of assessee as under:

• In this case supplier of inputs had given declaration indicating that excise duty had been paid on said inputs. Fact that supplier had not discharged duty was a lapse on part of seller; it was different and not a condition or rather a precondition postulated in Notification;
• When there was a prescribed procedure and that had been duly followed by the assessee, it could not be said that the assessee had not taken reasonable steps as prescribed in notification;
• Due care and caution were taken by the assessee and it was not stated by Department what further care and caution could have been taken. Requirement of "reasonable care" does not mean verification from department whether duty stands paid by supplier because that would be travelling beyond notification and practically impossible and would lead to transactions getting delayed;
• Thus, the Assessee was entitled to deemed credit under the Notification No. 58/97-CE(NT).

Sum paid to Non Resident to identify potential customers and to conduct market survey abroad held taxable as Fees and Technical Services

ENGLISH INDIAN CLAYS LTD. V. ACIT (2013) (Cochin - Trib.)

Payment made to a foreign company for marketing survey and identifying potential foreign customers for assessee's product was only for consultancy services and it was taxable in India as Fees and Technical Services

Facts:

• The assessee engaged a foreign company ‘SR’ as marketing agent for South East Asian countries; 
• SR had to study the market situation in South East Asia for the products manufactured by the assessee and it had to market the products of the assessee in those countries; 
• The CIT(A) found that payment made to SR was consultancy charge, therefore, tax had to be deducted. Accordingly, it confirmed the disallowance made by the Assessing Officer. Aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of revenue as under:

• The work of SR was to identify the potential customers and file a report regarding the market strategy and developmental studies; 
• The agreement did not enable SR to market the products of the assessee in South East Asian countries. The company SR only had to do survey and file a report so that the assessee could market its products after considering the report filed by the foreign party; 
• Therefore, the payment made to SR was only consultancy charge. It was not a case of marketing the products in the foreign country. The CIT (A) had rightly confirmed the order of the Assessing Officer. Thus, the order of the lower authority holding assessee liable for TDS was to be confirmed.

Subsequent circulars won’t create TDS obligation if circular applicable at time of payment exempted it

CIT v. Model Exims Kanpur (2013) (Allahabad)

Where circular effective at relevant time exonerates an assessee from TDS obligation on payment to non-resident, subsequent circular would not create such an obligation retrospectively

In the instant case the assessee had paid commission to foreign agents on which it did not deduct tax in view of Circular Nos. 23 of 1969, 163 of 1975 and 786 of 2000. The revenue made disallowance of expenditure under section 40(a)(i) holding that it was mandatory for assessee to deduct tax as Circular No. 7 of 2009 had superseded earlier circulars.

The High Court held in favour of assessee as under:

• The assessee’s assessment would be governed by Circular, which was operative at the relevant time (i.e., assessment year 2007-08) and which did not oblige the assessee to deduct tax at source; 
• The assessee was not entitled to deduct TDS. The department could not have taken different stand in subsequent years or assessment year 2007-08, when the circulars were operative and were not withdrawn; 
• Circular No. 7 of 2009, dated 22-10-2009 withdrawing earlier circulars became operative only from 22-10-2009; 
• The circulars in the relevant year were binding upon the department and assessee could challenge the affect of the Circular but that the Assessing Officer did not have any right to ignore the circulars and to disallow non-deduction of tax at source under sections 195 and 40(a)(i); 
• Thus, as assessment was governed by that circular which was operative at relevant time assessee was under no obligation to deduct tax at source.

A blood bank isn’t analogous to a hospital or medical institution; not entitled to section 11 exemption

ADVANCE TRANSFUSION MEDICINE RESEARCH FOUNDATION V. ADIT (EXEMPTION) (2013) (Ahmedabad - Trib.)

Assessee engaged in running a blood bank cannot be said to be engaged in providing medical facilities so as to be entitled to exemption under section 11

Facts:

• The assessee, a company registered under section 12AA, had entered into transaction of sale of blood components (FFP) with its associated concern and during the year it had supplied FFP to said concern; 
• The Assessing Officer found that the assessee had supplied FFP to patients at higher price and had also charged service charges from patients which were not charged to the said concern; 
• The Assessing Officer was, thus, held that since the assessee had provided concessional benefit to its associated concern it was not eligible for deduction under section 11; 
• The CIT (A) upheld the order of Assessing Officer. Aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of revenue as under:

• As per section 13(6) a trust running an educational institution or a medical institution or a hospital shall not lose the benefit of exemption of any income other than the value of benefits of educational or medical facilities provided to the specified persons, solely on the ground that such benefits have been provided to specified persons; 
• This section covers, (i) only those trusts running an educational institution or a medical institution or a hospital, (ii) the benefit extends only in respect of educational or medical facilities and not any other facility; 
• In the instant case, it was an undisputed fact that assessee has entered into transactions with the related concerns; 
• Yet assessee couldn’t be said to be a hospital or medical institution as it was not engaged in dispensing medical facility though it was engaged in running a blood bank. Thus, assessee was not entitled to exemption under section 11.

Moisturex cream meant for curing skin is medicament; Supreme Court lays down principles to identity medicament products

COMMISSIONER OF CENTRAL EXCISE, MUMBAI-IV V. CIENS LABORATORIES (2013) (Supreme Court)

'Moisturex' cream having medicinal ingredients and meant for curing of skin ailments/diseases is a medicament (duty @15%) and not cosmetic (duty @70%)

Facts:

The assessee was engaged in manufacture of product 'Moisturex', which it sought to classify as 'medicament', liable to duty at 15% under Heading 30.03. However, the Department classified product as cosmetics liable to duty @ 70% under Tariff Heading 33.04.

The Supreme Court held in favour of assessee as under:

• For deciding whether a product is 'medicament' following principles are relevant:
• Presence of pharmaceutical ingredients that have therapeutic or prophylactic or curative properties, is relevant and proportion of such ingredients is not decisive; 
• Even if a product is sold without a prescription of a medical practitioner or over/across counter, it may be 'medicament';
• People who actually use such products must understand it to be 'medicament'; 
• Its primary function has to be "cure" and not "care", i.e., it must be used mainly in curing or treating ailments or diseases.

• Accordingly, 'Moisturex' cream having medicinal ingredients, though in small quantities, is not primarily intended for protection of skin but for curing of skin ailments/diseases, is a medicament (duty @15% : Tariff Heading 30.03) and not cosmetic (duty @70% : Tariff Heading 33.04).

Madras High Court accepts a novel sale and lease back transaction; allows lessor to claim depreciation on let out asset

FIRST LEASING CO. OF INDIA LTD. V. ACIT (2013) (Madras)

Where there was a tacit agreement in form of offer and acceptance for sale of assets and existence of such assets could not be doubted, said sale and its lease back could not be rejected for purpose of allowing depreciation

Facts:

• The assessee, a leasing company, entered into a sale and leaseback (SLB) agreement in respect of certain assets with Tamil Nadu Electricity Board (Electricity Board); 
• It purchased certain assets from Electricity Board and leased them back to Board. The Assessing Officer, however, disallowed depreciation on such assets to assessee treating those SLB transactions as loan transactions; 
• On appeal, the CIT (A) allowed the depreciation on such assets. Further, the Tribunal held that it was purely a finance transaction and, therefore, no depreciation could be allowed. Aggrieved-assessee filed the instant appeal.

The High Court held in favour of assessee as under:

• Merely because terms of SLB agreement provided for deduction of lease installments from current consumption charges by way of priority, same could not be form basis to hold that transaction was not a SLB but a mere loan transaction; 
• The provision for repayment of the lease amount by way of installments from the current consumption charges was one mode of repayment in order to ensure that there was no default in paying the installments. There was no flaw in such a provision made in the agreement for repayment; 
• Merely because the assets were all eligible for 100 per cent depreciation, it could not be held that the entire transaction would become doubtful. So long as the sale-cum-lease back agreement was real as between the parties and the transaction was carried out in accordance with law, in the absence of any flaw in the said agreement, one could not doubt the whole transaction; 
• The fact that sale was accepted as between assessee and Electricity Board and after settlement of lease amount, assessee would continue to retain its ownership in no uncertain terms stipulated in agreement, and when such a transaction was not against law, there was no reason to doubt such transaction; 
• As far as the conduct of the parties was concerned, there were no clandestine dealings involved. Every correspondence between the parties was disclosed and placed before the Assessing Officer. Therefore, depreciation claimed by assessee was to be allowed.

An association of regional stock exchanges sets up to ensure secured trading and safety of funds gets trust registration

INTER-CONNECTED STOCK EXCHANGE INVESTORS PROTECTION FUND (ISE IPF) V. DIRECTOR OF INCOME-TAX (EXEMPTION) (2013) (Mumbai - Trib.)

Where main object of assessee-trust was to protect investors by way of creating a fund, which was a public charitable fund set up to advance an object of general public utility, assessee became entitled to get registration under section 12AA

Facts:

• The assessee-trust was formed by coming together of 23 regional Stock Exchanges of India to provide a common platform for trading in shares and securities;
• Its main object was to protect investors by way of creating a fund, which could provide compensation to them in case of loss on account of default by any member of a participating recognized Stock Exchange;
• The assessee made an application under section 12A for grant of registration which was rejected by competent authority. Aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

• An object beneficial to a section of the public is an object of general public utility. To serve a charitable purpose, it is not necessary that the object leads to the benefit of the whole mankind or all persons in a particular Country or even State;
• It would be sufficient if the intention is to benefit a section of the community, sufficiently defined and identifiable by some common quality of a public or impersonal nature;
• What is to be seen is the intention to benefit a section of the public as distinguished from a specified individual or group;
• Once it was decided that the assessee’s principal object was the advancement of an object of any general public utility, it would not be material if the income by way of contributions from the member stock exchanges was otherwise exempt under section 10(23EA) or not;
• Thus, the fund created by assessee was a public charitable fund having been set up to advance an object of general public utility, assessee was entitled to get registration.

Sum paid by one advertising agency to another akin to payment to a sub-contractor; section 194C attracted

AAKASH TAH V. ACIT (2013) (Chandigarh - Trib.)

Payment made by one advertising agency to other advertising agency for getting work done would be subjected to TDS under section 194C

Facts:

• The assessee, engaged in business of advertising services, had shown purchase from other advertising agency, namely, RAS without deduction of any tax at source;
• On query raised, the assessee contended that RAS was not advertising agency but media buying agency and as per Circular No. 715, dated 8-8-1995, print or electronic purchase was exempt from TDS;
• The Assessing Officer observed that the assessee was liable to deduct tax under section 194C(2). On further appeal, the CIT (A) dismissed assessee’s appeal. Aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of revenue as under:

• The section 194C(2) clearly shows that provisions of tax deduction are applicable on the work of advertisement because the same is included under expression 'work' in the Explanation (3) which defines 'work';
• Further, the provisions make it clear that whenever a person being main contractor gets some work done from the sub-contractor, even then the provisions of tax deduction would be applicable;
• Circular No. 715, dated 8-8-1995 clearly provides that the provisions of TDS would apply when a client makes payment to an advertisement agency. Admittedly, RAS was not part of media and, in fact, RAS had booked advertisements further with other media group. So, it was a case of one advertising agency getting work done from the other advertising agency, i.e., a sub-contractor;
• It is possible that when an advertisement is booked, some part of the work is done by one agency and some part is done by another agency. In the absence of any evidence to show that RAS had not provided any services, the only conclusion possible was that such agency had provided some services. Therefore, the provisions of section 194C(2) were clearly applicable.

Assessing Officer can issue section 133 notice to financial institutions seeking information of depositors on deposit above Rs. 1 lakh

Kathiroor Service Cooperative Bank Ltd. v. Commissioner of Income-tax (CIB) (2013) (Supreme Court)

Assessing Officer can issue ‘general’ notice under section 133(6) to Financial Institutions to furnish information regarding account holder with cash transactions or deposits of more than Rs. 1,00,000

The Supreme Court held as under:

• Powers under section 133(6) are in the nature of survey and a general enquiry to identify persons who are likely to have taxable income and whether they are in compliance with the provisions of the Act;
• It would not fall under the restricted domains of being ‘area specific’ or ‘case specific’;
• Section 133(6) does not refer to any enquiry about any particular person or assessee, but pertains to information in relation to ‘such points or matters’ which the assessing authority issuing notices requires;
• This clearly illustrates that the information of general nature can be called for. Seeking names and addresses of depositors who hold deposits above a particular sum is certainly permissible.

Product Life Cycle

Product life cycle refers to the market response to a new product over a period of time. It is based upon the biological life cycle and shows the different stages through which a product goes from development to decline. In order to achieve the desired level of profits, the introduction of the new product at a proper time is crucial.

Stages of Product Life Cycle


Product life cycle comprises four stages:

1. Introduction stage 
2. Growth stage
3. Maturity stage 
4. Decline stage

Introduction Stage
The product has just been launched in the market; sales will be low until consumers become aware about the product and its features.  Here, the company’s core focus will be on establishing a market and arising demand for the product.  At this level the total initial cost incurred by the company will be high as substantial research and development costs have been incurred in getting the product to this stage, also marketing costs may be high in order to test the market, undergo launch promotions and set up distribution channels. Therefore, it is highly unlikely that the company will make profits at this stage.

The marketing strategy that can be used at this stage will be:

• Price skimming may be used if the product is a new invention and has no competitors
• Competitive pricing: Companies base their prices according to competitors? prices.  may be used if it already has lot of competitors. 
• Low pricing may be used if the aim is to penetrate and gain the market share. 
• At this promotion is done with intention to build brand awareness. Therefore, samples/trials are to be provided which would be helpful in attracting early and potential customers. Promotional programs are more essential at this stage.
  

Growth Stage

This stage is characterised by rapid growth in sales, profits and competition also begin to increase. The product becomes well recognised at this stage and some of the buyers repeat their purchase patterns. Here, the company seeks to build brand preference and increase its market share.

The marketing strategy that can be used at this stage will be:

• Prices are maintained or increased as company gets high demand at low competition
• Prices may be reduced if faced by stiff competition
• Distribution channels to be enhanced due to increase in demand
• Persuasive advertising may be used
• Quality is maintained and additional features or services are added
• Distribution channels to be enhanced due to increase in demand

Maturity Stage

At this stage, the sales keeping growing but at a declining trend. Brand awareness is high and also competition is fierce. Increased competition results in decrease in market share and decrease in prices. The primary objective at this stage is to defend the market share and maxmise profits.

The marketing strategy that can be used at this stage will be:

• Additional features to be introduced to differentiate between competitors product
• Promotional pricing can be used as an option
• Incentives to be offered to consumers
• Repetitive advertising is done to remind the consumers
• Prices can be reduced in order to retain consumers

Decline Stage

As the markets saturate, the sales will decline. Sales might also decline to change in consumer preferences and obsolete technology. Overall profitability also falls.

The marketing strategy that can be used at this stage will be:

• Maintain the product, add additional features and find alternative use of the product
• Reduce cost by transferring production to cheaper markets and reducing advertising cost
• Discontinue product and liquidate all inventory
• Sell the product to a competitor