Assessing Officer to transfer VAT collected on activation of SIM cards to Service Tax Department – such transaction is a service and not sales

Idea Cellular Ltd. v. Union of India (2015) 57 taxmann.com 293 (Punjab & Haryana High Court)

Haryana VAT - Where collection of VAT from assessee was without authority of law and Service Tax department had raised service tax demand upon assessee for period for which Assessing Authority had levied and collected VAT, Assessing Authority was to be directed to transfer amount of VAT to Service Tax department.

• Assessing Authority collected VAT from assessee pursuant to assessment orders on premise that activation of SIM cards was a sale.
• Assessee approached State of Haryana for refund of amount of VAT on ground that activation of SIM card was a service and not a sale.
• The Assessing Authority dismissed the assessee's representation for refund of the amount of VAT on the grounds that the assessee did not challenge its liability before the Assessing Authority, it did not file any appeal against the assessment orders, and as the assessee had charged VAT from its customers, the amount could not be refunded.

High Court held in favour of assessee as under:

• Supreme Court in Bharat Sanchar Nigam Ltd. v. Union of India (2006) 3 STT 245 held that activation of SIM cards is a 'service' and not a 'sale'. The assessee is, therefore, liable to pay service tax on the activation of SIM cards and not VAT.
• Since Supreme Court had clearly held that VAT could not be collected on activation of SIM cards, levy and collection of VAT was without authority of law and violative of article 265 of Constitution.
• The Union of India has raised a demand for service tax for the period for which the State of Haryana has levied and collected VAT. If the assessee is called upon to pay VAT and service tax, it would be the case of double taxation.
• In view of the aforesaid, the revenue was to be directed to transfer the amount of VAT collected from the assessee to the Service Tax department of the Union of India.

No section 80QQB relief on royalty received for writing a cookery book as it wasn’t earned in exercise of profession

Mrs. Pratibha A. Kothavale v. DCIT [2015] 57 taxmann.com 257 (Mumbai - Tribunal)

Facts:

• Assessee received royalty for writing a cookery book on which she claimed deduction under Section 80QQB.
• The Assessing officer (AO)disallowed deduction on ground that coking was not an 'art' and was a 'skill'.
• Further, the CIT(A) sustained the disallowance made by AO for the reasons that firstly, according to requirement of Section 80QQB, such income should have been earned in the exercise of the profession and secondly, the cookery does not come in the definition of "art". The aggrieved-assessee filed the instant appeal before the Tribunal.

Tribunal held in favour of revenue as under:

• "Profession includes vocation" as per the definition of profession given under Section 2(36) of income-tax Act. There should be some special qualification of a person apart from skill and ability which are required for carrying on any activity which could be considered as "profession". This could be education in a particular system either in the college or university or it may be through experience.
• In the instant case, the Ld. Counsel for assessee submitted that assessee did not write any other book before or after release of cookery book. Further, no particulars had been placed on record to show that assessee was specially qualified apart from skill and ability to write book.
• There was also no material available on record to show that assessee was having education in the field of cookery either in the college or university or even by experience. Thus, there was no material on record to suggest that the assessee had qualified the parameters laid down for considering particular activity as a professional activity.
• Income earned by assessee as royalty could not be said to be have been earned"in exercise of her profession". Thus, non-fulfillment of such condition would disentitle the assessee to claim deduction under Section 80QQB.

Sum Received in lieu of relinquishment of right to sue 'Coca-Cola' was capital receipt

Satyam Food Specialities (P.) Ltd. v. DCIT [2015] 57 taxmann.com 194 (Jaipur - Tribunal)

Consideration received on relinquishment of right to sue is not taxable under section 28; it is a capital receipt.

Fact: 

• The assessee-company entered into a franchisee soft drink bottling agreement with Cadbury Schweppes Beverages India (P) Ltd. (CSBIPL) to sell its soft drinks. CSBIPL transferred its soft drink brands to Coca Cola. Coca Cola refused to encourage sale of cold drink sold by assessee to avoid competition to its own products.
• Assessee suffered huge losses, thus filed a complaint under Monopolies and Restrictive Trade Practices Act (MRTP) before the MRTP Commission. Thereafter, the assessee and coca cola had entered into a settlement agreement through which the assessee had transferred its bottling business assets as well as immovable property to Coco Cola against a consideration.
• Assessee submitted that the entire compensation received was in lieu of withdrawing the right to sue against Coca Cola and was patently a capital receipt. But Assessing Officer treated the compensation as revenue in nature under section 28(ii)(c) and taxed accordingly.
• CIT (Appeals) held that provisions of section 28(va) were applicable and not section 28(ii)(c).Consequently the part of compensation indicated by Assessing Officer was held taxable under section 28(va). Aggrieved-assessee filed instant appeal before tribunal.

Tribunal held in favour of assessee as under: 

• All the clauses of the agreement between the assessee and coca colareflect that the real intent, objective and purpose of the payment of compensation as per settlement agreement was to ensure withdrawal of all the pending litigation by assessee, from various forums instituted for breach of terms or conditions.
• The dominant consideration for compensation being surrendering the right to sue; its neither in lieu of surrender of any agency or agreement for non-competition and thus, the compensation neither fell in the ambit of section 28(ii)(c) nor under section 28(va).
• Assessee had vehemently denied having anywhere admitted that part of the compensation was for non-competition. The compensation in question was meant, intended and paid for withdrawal of aforesaid litigation instituted by assessee which could have resulted in many adverse consequences for the reputation of Coca Cola besides entailing huge cost and efforts of litigation.
• Thus, the impugned amount was a capital receipt hence not liable to Income-tax.

Competition Appellate Tribunal dismisses complaint of Adidas against Nike as latter had taken permission of ICC to use Sachin’s name on T-shirts

ADIDAS INDIA MARKETING (P.) LTD. V. NIKE INDIA (P.) LTD. [2015] 56 TAXMANN.COM 344 (Competition Appellate Tribunal)

Where pursuant to sponsorship agreement with International Cricket Association Nike was permitted to use names of cricketers including Sachin Tendulkar on its sports products for purpose of advertising, it could not be said that Nike had violated separate agreement between Adidas and Tendulkar entered for advertising Adidas sports product; unfair trade practice could not be alleged

Facts:

• The complainant-company Adidas and the respondent-company Nike were engaged in business of manufacturing, distributing and selling quality footwear, sports equipments and other products and were competitors in the market.
• The Complainant's brand, i.e., Adidas was endorsed by Cricketer Sachin Tendulkar pursuant to an agreement between both parties.
• Later on, Nike signed an agreement for sponsorship and supply of footwear, apparel and related cricketing accessories with International Cricket Association and sold T-shirts bearing names of various members of Indian Cricket Team including Sachin Tendulkar’s
• Accordingly, Adidas filed complaint alleging unfair and restrictive trade practice indulged by Nike.

The Competition Appellate Tribunal held as under:

• Since sponsorship and licence agreement entered between Nike and Cricket association permitted former to use name of members of cricket team for purpose of advertising in different ways, same did not amount to unfair trade practice.
• The products such as T-shirts and Tees manufactured by Nike did not violate agreement entered between Adidas and Tendulkar; hence, Nike could not be held to have indulged in any unfair trade practice and, thus, complaint was to be dismissed.

Assessee can be prosecuted anytime when exonerated in penalty proceedings on ground of limitation and not on merits

Superintendent (Prosecution) Central Excise & Customs Department v. Ashok Leyland Ltd. (2015) 56 taxmann.com 309 (Rajasthan High Court)

Where exoneration in adjudication/penalty proceedings is not on merits but on ground of limitation, assessee-accused cannot take shelter thereof to avoid prosecution proceedings; since there is no time-limit for launching prosecution, same can be launched despite recovery/penalty becoming time-barred.

Facts:

• Department initiated prosecution proceedings for wrongful credit.
• Revisional court discharged assessee on ground that penalty proceedings were decided in its favour and department's appeal thereagainst before High Court was dismissed.
• Department argued that penalty was dropped on ground of limitation and not on merits and appeal before High Court was dismissed for non-appearance; hence, same cannot be relied upon in criminal matters, where there is no time-limitation.

High Court held in favour of revenue as under:

• Proceedings for recovery of duty with penalty and prosecution/ punishment are separate proceedings. For recovery, there is time-limit of 1 year/5 years in section 11A, but, for prosecution there is no time-limit in section 9.
• In this case, despite arguments on merits, adjudication/recovery/penalty was dropped on ground of limitation and not on merits and appeal thereagainst was dismissed on ground of non-appearance and not on merits.
• Since exoneration in adjudication/penalty proceedings is not on merits, assessee-accused cannot take shelter thereof to avoid prosecution proceedings. Since there is no time-limit in section 9, prosecution proceedings can be launched despite recovery/penalty becoming time-barred. Hence, prosecution was valid.

No Transfer Pricing adjustment by treating share application money as loan to Associated Entity merely due to delay in issuance of shares

ADITYA BIRLA MINACS WORLDWIDE LTD. V. DCIT [2015] 56 taxmann.com 317 (Mumbai - Tribunal)

Share application money could not be treated as loan amount merely because there was delay in issuance of shares by subsidiary in name of assessee, particularly when cause for delay was duly explained by assessee

Facts

• The assessee advanced certain sum to its subsidiaryat Philippines, in the form of share application money. However, shares were not allotted till two subsequent years and subsidiary continued to use those funds.
• TPO was of the view that the share application money was actually in the nature of loan as there was considerable delay in issuance of shares by subsidiary in name of assesse. Accordingly, TPO made addition to assessee’s income by determining the arm's length interest rate on the said transaction.
• Commissioner (Appeals)confirmed the addition made by TPO. Aggrieved by the order, assessee filed the instant appeal before the tribunal.
• On appeal, the assessee submitted that the delay was due to obtaining necessary approval from the Securities and Exchange Commission, Phillipines and finally, the shares were issued as per the share certificate, which had been produced by the assessee as additional evidence before the tribunal.

The tribunal held in favour of assessee as under-

• Though there was delay in issuance of shares against the share application money given by the assessee to its subsiary, however, the assessee had duly explained the cause of delay and it was not a deliberate delay for using the money by subsidiary in the garb of share application money
• Since share certificates were not before the authorities below, for limited purpose of considering the said certificates, the issue was remanded to Assessing Officer/TPO to consider the same. 
• As far as the re-characterization of the share application money as loan was concerned, the High Court in the case of DIT, International Taxation v. Besix Kier Dabhol S.A. [2012] 26 taxmann.com 169 (Bom.) had considered an identical issue and held that there were at the relevant time and even on relevant day no thin capitalization rules in force to consider debt as an equity.
• Accordingly, subject to verification of the share certificates by the Assessing Officer, the share application money could not be treated as loan amount merely because there was a delay in issuance of shares by the subsidiary in the name of the assessee, particularly when cause for delay was duly explained by assessee.

Government issues ordinance to allow filing of complaint on cheque bouncing at place where payee maintains the account

Recently, there had been a dispute relating to the place of jurisdiction for filing complaint against dishonouring of cheque. The dispute arose mainly in those cases where complaint was filed in jurisdiction of that Court where cheque was presented even if drawer-bank was located in different jurisdiction. 

The Supreme Court in case of Dashrath Rupsingh Rathod v. State of Maharashtra [2014] 49 taxmann.com 497 (SC) cleared air on this issue and it interpreted provisions of Negotiable Instrument Act relating to place of jurisdiction for filing complaint. It ruled that complaint for dishounouring of cheque can be filed only at territorial jurisdiction of that Court where cheque is dishonoured by bank on which it is drawn. 

Various stakeholder expressed difficulties on Supreme Court’s verdict with regard to the legal interpretation regarding place of jurisdiction in case of dishonouring of cheque. In order to address the difficulties of stakeholders the Government has issued Negotiable Instrument (Amendment) Ordinance, 2015 (‘NI Ordinance, 2015’).

The NI Ordinance, 2015 provides that the offence of cheque dishonour shall be enquired into and tried only by a court within whose local jurisdiction –

• the bank branch of the payee (viz, the place where the payee presents the cheque for payment) is situated, if the cheque is delivered for collection through an account; or
• the branch of the drawee bank where drawer maintain the account is situated, if the cheque is presented for payment by the payee or holder in due course otherwise through an account.

Further, all cases arising out of Section 138* which are pending in any court before the commencement of the Negotiable Instruments (Amendment) Ordinance, 2015 shall be transferred to the court having jurisdiction as per revised position. Also, in case of more that one prosecution filed by the same payee against the same drawer of cheques is pending before different courts, upon bringing the said fact to the notice of court, such court shall transfer the case to the court having jurisdiction under norms. *The Section 138 of the Negotiable Instrument Act, 1881 (‘NI Act’) deals with the offence relating to cheque dishonour for insufficiency, etc., of funds in the drawers account on which the cheque is drawn for the discharge of any legally enforceable debt or other liability. The section 138 of the NI Act provides for penalties in case of dishonour of cheques due to insufficiency of funds in the account of the drawer of the cheque.