Transferee-Co. can change its name as per Amalgamation Scheme without adhering to Companies Act

Michelin India (P.) Ltd. v. Michelin India Tamilnadu Tyres (P.) Ltd. [2015] 60 taxmann.com 220 (Madras High Court)

Where scheme of amalgamation provided that name of transferee company would be deemed to have been changed to name of transferor company then there is no need to follow the procedures and rules laid down under Companies Act for such change of name.

Facts

• In pursuant to a scheme of amalgamation sanctioned under Section 391 of Companies Act, 1956 (corresponding to section 230 of Companies Act, 2013), it was decided that name of transferee company would be deemed to have been changed to name of transferor company.
• However, Regional director raised an objection that Transferee Company should follow the procedures laid down under Section 21 of Companies Act, 1956 (corresponding to section 13 of Companies Act, 2013) for such name change even if scheme of amalgamation itself provides for such change.

The High Court held that-

• Section 391 is a complete Code under which the Court can sanction a Scheme of amalgamation containing all the alterations required in the structure of the Company for the purpose of carrying out the Scheme.
• In the instant case, scheme was passed through the procedure laid down under Section 391 and approved by the majority of the shareholders.
• Hence, there was no need to follow the repetitive procedures laid down under Section 21 for name change when sanctioned scheme of amalgamation itself provide for the same.

ITAT sounds note of caution for frivolous appeal by revenue; it damages public faith

ACIT v. R.P.G. Credit & Capital Ltd. [2015] 60 taxmann.com 160 (Delhi - Tribunal)

Filing of appeal with complete knowledge of its fate by the Revenue only reflects the mischievous adamancy to attempt to mislead the Tribunal and waste the time of the Court and the officers concerned.

Facts:

• CIT(A) on its first remand order dated 06.06.2012 had accepted the application filed by assessee seeking permission to file additional evidence which was objected to by Assessing Officer (AO).
• On 22.06.2012 CIT(A) issued second remand report directing AO to verify the claim of assessee as same was unverified.
• In the second remand report, AO admitted the assessee’s claim and based on such remand report CIT(A) deleted the addition made under Section 68.
• Still, revenue filed appeal before tribunal referring to the fact that the relief was granted by CIT(A) on the basis of first remand report dated 06.06.2012 thereby consciously ignoring making reference to the second remand report dated 22.06.2012 before the tribunal.

Tribunal held in favour of assessee as under:

• Filing of an appeal by an Assessing Officer ('AO') is a right which is vested in him by the statue. However, same should be exercised by applying proper due diligence in order to avoid any inappropriate litigations.
• Since the claim had been given up in the second remand report by the AO himself in second remand report, he could not claim to be aggrieved by the findings arrived at relying upon his own remand report. The CIT(A) accepted the assessee's claim based on the strength of the second remand report. Reference to this material document, i.e., second remand report in the grounds raised by revenue was curiously missing. This omission appeared to be deliberate and led us to conclude that the revenue had consciously indulged in meritless litigation.
• Once the AO in second remand report had already communicated that the enquiries made after issuing notices under Section 133(6) to the parties/persons who had confirmed the assessee's version and the AO concluded that the loans taken stood verified. No further legitimate grievance could be said to have remained for examination by the AO.
• This deliberate, mischievous and selective reference to facts by such responsible persons grievously damages the public faith and belief in the honest fair play of the tax administration.
• Filing of appeal with complete knowledge of its fate by the Revenue only reflects on revenue’s attempt to mislead the Tribunal and waste the time of the Court and the officers concerned.
• Departmental officers had willfully and deliberately failed to exercise their powers using their minds as was required of them as per law and has abused government machinery to initiate a litigation which entailed financial costs and tarnished the image of the Department and also strained the government resources.

Interpretation of word ‘or’

Spentex Industries Ltd. vs. CCE [2015] 62 taxmann.com 101 (Supreme Court)

The assessee has claimed rebate under certain notifications issued by Board under Rule 18 of Central Excise Rules, 2002. It was held that the word ‘OR’ occurring in Rule 18 cannot be given literal interpretation as that leads to various disastrous results pointed out in the preceding discussion and, therefore, this word has to be read as ‘and’ as that is what was intended by the rule maker in the scheme of things and to carry out the objectives of the Rule 18 and also to bring it at par with Rule 19. The principle that the word ‘or’ is normally disjunctive and ‘and’ is normally conjunctive. However, there may be circumstances where these words are to be read as vice versa to give effect to manifest intention of the Legislature as disclosed from the context

Levy of VAT on Indian liquor sold by hotels in Tamil Nadu is constitutionally valid

Hotel & Bar (FL.3) Association of Tamil Nadu (HOBAT) v. Secretary to Government, Commissioner Taxes Department [2015] 60 taxmann.com 75 (Madras High Court)

Levy of VAT on Indian-made liquor sold by hotels/clubs is constitutionally valid, irrespective of the fact that VAT has been imposed without giving benefit of set-off of tax-suffered turnover at the time of purchase. It is so since liquor is non-vatable goods and provisions imposing non-vatable tax on goods has not been challenged.

Background of the case:

• Hotels and clubs were paying Tamil Nadu VAT on foreign liquor sold by them to their customers. However, no tax was payable on sale of Indian-made-liquor by them to their customers.
• A tax had been levied in 2012 on sale of Indian-made-liquor by hotels and clubs to their customers.
• This tax had to be paid upon total turnover arising on sale of such liquor without any set-off of tax-suffered turnover at the time of purchase.
• Hotels and clubs purchase Indian-made-liquor from Tamil Nadu State Marketing Corporation Limited (“TASMAC”, a State’s instrumentality) after payment of tax. TASMAC has the benefit of paying tax on turnover after setting off tax-suffered turnover at the time of purchase. However, hotels and clubs have no such benefit.
• It was argued by the hotels and clubs that there could not be taxation of entire turnover. It placed fetters on the right of the petitioners to carry on their own business. Therefore, there was violation of Article 19(1)(g).

The High Court held that:

• The rights protected by Article 19(1) are not absolute but qualified. The qualifications are stated in clauses (2) to (6) of Article 19. The fundamental rights guaranteed in Article 19(1)(a) to (g) are,therefore, to be read along with the said qualifications.
• Potable liquor as a beverage is an intoxicating and depressant drink which is dangerous and injurious to health and is, therefore, an article which is res extra commercium, being inherently harmful. A citizen has, therefore, no fundamental right to do trade or business in liquor. Hence, the trade or business in liquor can be completely prohibited.
• The State can create a monopoly either in itself or in the agency created by it for the manufacture, possession, sale and distribution of the liquor as a beverage and also sell the licences to the citizens for the said purpose by charging fees. This can be done under Article 19(6) or even otherwise.
• The petitioners made considerable profit by the escalation of sale price. The petitioners were making considerable value additions to their sales in favour of their customers.When the petitioners were selling liquor at a higher price than the TASMAC, they could not seek parity.
• Liquor is specified as non-vatable item. Provisions as to tax certain goods treating them as non-vatable have not been challenged [Section 3(5) and Second Schedule].
• The petitioners, who are clubs and hotels, cannot be compared with the retail outlets of TASMAC. The customers of the TASMAC and the petitioners form two distinct and different categories based upon their respective socio-economic status. The petitioners are not prevented from doing their business. Thus, there is no violation of Article 19(1)(g). 

Landing and parking charges for Aircrafts are not for ‘use of land’; attracts section 194C

Japan Airlines Co. Ltd. v. CIT [2015] 60 taxmann.com 71 (Supreme Court)

Landing and parking charges payable by Airlines in respect of aircrafts are not for the ‘use of land’ per se but the charges are in respect of number of facilities provided by the Airport Authority of India. Thus, landing and parking charges payable by Airlines would attract TDS under Section 194C and not under Section 194-I.

Facts:

• The issue disputed in the instant case was as to whether landing and parking charges paid by Airlines would attract TDS under Section 194-I or under Section 194C of the income-tax Act (‘the Act’)?
• The High Court of Delhi in case of CIT v. Japan Airlines Co. Ltd. [2009] 180 Taxman 188 (Delhi) has held that landing and parking charges would attract TDS under Section 194-I of the Act.
• However, the Madras High Court in case of CIT v. Singapore Airlines Ltd. [2012] 24 taxmann.com 200 (Madras) has taken a contrary view that landing and parking charges would attract TDS under Section 194C. The two judgments are in conflict with each other.It has to be determined as to which judgment should be allowed to hold the field?

The Supreme Court held as under:

• In the instant case, the Airlines are allowed to land and take-off their Aircrafts at Indira Gandhi International Airport (‘IGIA’) for which landing fee is charged. Likewise, they are allowed to park their Aircrafts at IGIA for which parking fee is charged. It is done under an agreement and/or arrangement with the Airport Authority of India (‘AAI’). The moot question is as to whether landing and take-off facilities on the one hand and parking facility on the other hand, would mean ‘use of land’.
• In the opinion of the Delhi High Court (Supra) “when the wheels of an aircraft coming into an airport touch the surface of the airfield, use of the land of the airport immediately begins”. Similarly, for parking the aircraft in that airport, there is use of the land. This is the basic, rather, the only reason given by the Delhi High Court in support of its conclusion that landing and parking charges would attract TDS under Section 194-I.
• The Madras High Court (Supra) examined the issue keeping wider perspective in mind thereby encompassing the utilization of the airport providing the facility of landing and take-off of the airplanes and also parking facility. After taken into consideration these aspects, the Madras High Court came to the conclusion that the facility was not of ‘use of land’ per se but the charges for landing and taking-off these airlines were in respect of number of facilities provided by the AAI which were to be necessarily provided in compliance with the various international protocol. The charges, therefore, were not for land usage or area allotted simpliciter. These were the charges for various services provided.
• We are convinced that the charges fixed by the AAI for landing and taking-off services as well as for parking of aircrafts were not for the ‘use of land’. That would be too simplistic an approach, ignoring other relevant details which would amply demonstrate that these charges were for services and facilities offered in connection with the aircraft operation at the airport. These services included providing of air traffic services, safety services, aeronautical communication facilities, installation and maintenance of navigational aids and meteorological services at the airport.
• Thus, payments for landing and parking charges were liable for TDS under Section 194C and not under Section 194-I of the Act.The view taken by the Madras High Court (Supra) was correct view and the judgment of the Delhi High Court (Supra)was to be over-ruled.

Proviso to Section 68 requiring closely held company to explain source of share capital is retrospective

SUBHLAKSHMIVANIJYA (P.) LTD. V. CIT - [2015] 60 taxmann.com 60 (Kolkata - Tribunal)

Proviso to Section 68 casting onus on closely held company to explain source of share capital is applicable with retrospective effect

Issue:

Whether the amendment to section 68 by way of insertion of proviso is retrospective or prospective?

Held:

• Proviso to Section 68 inserted by Finance Act, 2012 w.e.f. April 1, 2013 read as under:

“Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless-

• the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and
• such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory….”
• Ordinarily the courts are required to gather the intention of the legislature from the overt language of the provision as to whether it has been made prospective or retrospective, and if retrospective, then from which date. However, some times what happens is that the substantive provision, as originally enacted or later amended, fails to clarify the intention of the legislature. In such a situation if subsequently some amendment is carried out to clarify the real intent, such amendment has to be considered as retrospective from the date when the earlier provision was made effective.
• Any amendment to the substantive provision which is aimed at clarifying the existing position or removing unintended consequences to make the provision workable has to be treated as retrospective notwithstanding the fact that the amendment has been given effect prospectively.
• A careful perusal of the first para of the Memorandum brings out that the onus of satisfactorily explaining issue of share capital with premium etc. by a closely held company is on the company. In the next para, it has been clarified that : `Certain judicial pronouncements have created doubts about the onus of proof and the requirements of this section, particularly, in cases where the sum which is credited as share capital, share premium, etc…’. Next para recognizes that judicial pronouncements, while considering that the pernicious practice of conversion of unaccounted money through masquerade of investment in the share capital of a company needs to be prevented, have advised a balance to be maintained regarding onus of proof to be placed on the company.
• Thus, the amendment makes it manifest that the intention of the legislature was always to cast obligation on the closely held companies to prove receipt of share capital etc. to the satisfaction of the AO and it was only with the aim of setting to naught certain contrary judgments which `created doubts’ about the onus of proof by holding no addition could be made in the hands of company even if shareholders are bogus.
• As the amendment aims at clarifying the position of law which always existed, but was not properly construed in certain judgments, there can be no doubt about the same being retrospective in operation. Therefore, the amendment to section 68 by insertion of proviso is clarificatory and hence retrospective.

Violations of Principles of Natural Justice

Andaman Timber Industries – CCE [2015] 62 taxmann.com 3 (Supreme Court)

Not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity in as much as it amounted to violation of principles of natural justice because of which the assessee was adversely affected.