A Service provider can take Cenvat Credit on machinery imported prior to date of its registration

Global Digital Color Lab

v
Commissioner of Central Excise

In the instant case the assessee took Cenvat credit in respect of machine imported prior to its registration under service tax law. The department denied the credit on the ground that no credit can be taken on machine imported prior to registration: On appeal, the Tribunal held in favour of assessee as under: There is nothing in the rules prohibiting a person from maintaining proper account. There is no statutory record presently prescribed like "RG-23" as was earlier in force; Therefore, procedures, as was prevalent in old rules that credit entries in register for taking credit should not belong to a date prior to the date of granting of registration, are not in force now. Accordingly, the credit in respect of machine imported even prior to registration was allowed to assessee

"No concession no perquisite" is for employee and not for employer for TDS computation

Supreme Court interprets its Arun Kumar v. UOI ruling on perquisite of concession in rent under section 17(2)(ii)

"No 'concession', no perquisite under section 17(2)(ii)" stand available to employees in their individual assessments and not to the employer for deducting TDS under section 192

• The stand that the value of the accommodation provided to the assessee was not really a "concession" can be taken only by individual employees in their assessment proceedings and not by the employer for deducting TDS under section 192.
• This is because the scheme of the Act provides that after the employer deducts tax from the salary of the employee and pays the same to the Central Government, a Tax Deduction Certificate is furnished to the employee and it is for the employee to claim before the Assessing Officer in the assessment proceedings and get a determination done and in case he succeeds before the Assessing Officer, he will be entitled to refund out of the amount of tax deducted at source by the employer.
• Employer has to deduct TDS in respect of accommodation provided at concessional rent under section 17(2)(ii) on 10 per cent of salary as per rule 3.
• Individual employees are free to make their respective claims before the Assessing Officer for the refund of the deduction made by the employer on 10 per cent of the salary towards 'perquisite' in respect of any concession given to the assessee by claiming that there is no 'concession'.
• During the period the interim order of the High Court was in force, , the ONGC cannot be held to be in default under the provisions of the Act inasmuch as the ONGC was prevented by the Order of the High Court from deducting the tax on 10 per cent of the salary of its employees under Section 192(1) of the Act, and to pay the same to the Central Government under section 200 of the Act.
• Hence, during the period , the ONGC cannot be deemed to be an assessee in default under the provisions of the Act. Consequently, the provisions of sub-section (1A) of section 201 of the Act for payment of interest by an assessee in default under the provisions of the Act will not be applicable to the payments not made by the ONGC because of the interim order passed by the High Court.

Director not liable to pay due taxes of company if he is not grossly negligent for such default

Maganbhai Hansrajbhai Patel 

v. 

ACIT

The Tax Recovery Officer attached personal property of the petitioner-Director on account of dues of company. The petitioner contended that he couldn't be held liable for company's demands as requirement of Sec. 179 was not fulfilled. In this regard he submitted that department could take necessary steps against the company to recover the demand as department had already issued a prohibitory order against the sale of the company's assets. The ACIT, however, was not convinced with the petitioner's argument, thus, this present writ was filed by the petitioner.

The High Court held in favour of director as under:

• Over the attached property of the company another company, namely, GSFC had first charge. Such property was sold by GSFC to recover its dues. Moreover, the company didn't have any other property from which dues could be recovered;

• Thus, it couldn't be said that basic requirement of section 179(1) of the Act was not satisfied;

• However, corporate veil of company could be lifted under Sec. 179(1) if the taxes couldn't be recovered from company and the director was unable to prove that non-recovery couldn't be attributed to gross negligence, misfeasance or breach of duty on his part in relation to the affairs of the company;

• The Legislature advisedly used the word 'gross neglect' and not a 'mere neglect' on his part, however, the focus of revenue was with respect to petitioner's neglect in functioning of the company;

• Further, the factors, dates and events referred to by ACIT which, according to him, established gross negligence on part of the petitioner were without putting the petitioner to notice about such factors and events.

Therefore, the petitioner's writ was allowed by High Court and it was held that the director couldn't be held liable under section 179 for recovery of due taxes of company.

[2012] (Gujarat)

ITAT should order deeper investigation if material is creating doubt about presence of artificial losses

Where there is sufficient material to show that the claim of the assessee is not genuine or could be a sham, the Tribunal should order a deeper investigation and if required, remit the matter to the income tax authorities

CIT 

v. 

J.B. ROY

During assessment the AO noted that assessee had declared a loss under head "income from other sources". The said loss represented the interest paid on loans borrowed from group companies for purchase of unquoted shares of the other group companies. It was further noticed that no income was shown under the aforesaid head. The AO opined that the above method adopted by assessee was a colorable device for transferring the funds of some group concerns to other group concerns. Consequently, AO disallowed the said loss on the ground that the transaction was entered into merely to reduce tax liability. On appeal, the CIT (A) held in favour of assessee. The order of CIT(A) was also upheld by Tribunal. On appeal, the High Court held in favour of revenue as under: The Tribunal, despite being told that there were several unusual features which raised considerable doubt on the assessee's claim for deduction of the interest, did not consider it proper to examine the matter further. It simply chose to take umbrage on the principle that the Tribunal couldn't be expected to act as an investigating agency; It was noted that the Tribunal had failed to assess following surrounding circumstances: a) Though the AO had stated that shares were of the value of "few paise or even zero", yet the assessee brought no material on record to dispute the statement or to show that it was factually wrong; b) That the assessee was neither an investor nor a trader in shares. It was, therefore, for him to show the reasons which impelled him to acquire the shares of the group concerns. Further, the Allahabad High Court in the case of CIT v. Smt. Swapna Roy (2011) 331 ITR 367, has observed that "a man of common prudence shall never like to make investment in a company whose financial status is fragile and not liable to make profit". Thus, the Tribunal ought to have paid due attention to the unusual or even suspicious features of the case. Therefore, the case was decided in favour of the Revenue and the matter was remanded to AO for de novo consideration. [2012] (Delhi)

Penalty waived of as the assessee was under bona-fide belief that transaction wasn't a service

HIGH COURT OF GUJARAT

Commissioner

v.

Welspun Gujarat Sthal Rohren Ltd.

In the instant case, the assessee had imported certain drawings, designs. It classified them as goods and claimed exemption from customs duty. The Bill of Entry for such import was also finalized by custom authorities. Subsequently, the Department alleged that it was import of 'Intellectual Property Services' and accordingly demanded service tax along with interest and penalty. On appeal, the High Court deleted penalty on basis of following findings of the Tribunal: The assessee had paid the entire amount of service tax liability along with interest prior to issuance of the show cause notice and had not disputed the liability to pay service tax and interest; The assessee had a bona fide belief that it was liable to pay customs duty on the drawings and designs imported by it as the same were goods; Under the circumstances, no mala fide intent could be attributed to it in not discharging the service tax liability under the category of "Intellectual Property Rights Services"; and The assessee had shown a reasonable cause for its failure to discharge service tax liability and was, therefore, entitled to relief under section 80.

In case of default by private co., director can be held liable for 'taxes due' and not for interest or penalty

SANJAY GHAI 

v. 

ACIT

In the instant case, the petitioner was the only surviving director of a company. The petitioner was entitled to get refund but the revenue proposed to set off the company's tax liability with the refund payable to the petitioner under section 179. The petitioner contended that the company's outstanding dues were in the form of interest and penalties whereas "tax due" under Section 179 does not include interest and penalty within its ambit. The revenue, however, urged that whatever was recoverable from the private company, inclusive of interest and penalties would become recoverable at the hands of the directors. On appeal, the High Court held in favour of assessee as under: The principal question requiring resolution was to understand the true ambit and scope of the provisions of Section 179; In H. Ebrahim v. DCIT, [2011] 332 ITR 122, the Karnataka High Court held that 'what is contemplated under Section 179 is the tax component and not the penalty and interest'; and In Dinesh T. Tailor v. Tax Recovery Officer (2010) 326 ITR 85, the Bombay High Court held that in Section 179(1), the expression "tax due" and, for that matter the expression "such tax" mean a tax as defined for the purposes of the Act by Section 2(43); "tax due" does not comprehend within its ambit a penalty. Thus, it was held that the petitioner could not be made liable for anything more than the tax as defined in Sec. 2 (43). The revenue was, consequently, directed to determine the liability of the petitioner in the light of the above finding. [2012] (Delhi)

Receipt of corpus donation in shares and its subsequent sale doesn't violate Sec. 11; benefit can't be denied

SERA FOUNDATION 
v. 
ITO

In the instant case, the assessee was a charitable institution. It had received equity shares as corpus donation, which were sold subsequently and the proceeding therefrom were used for giving donation to other charitable institutions. The revenue contended that by selling the aforesaid shares and by making further donations out of it, the assessee had misused the same and had violated section 11(1)(d) and adopted a colorable device to avoid tax. On appeal, the Tribunal held in favour of assessee as under: There is a restriction in section 13(1)(d) as per which the assessee-charitable trust is required to hold its investments in the modes prescribed under Sec. 11(5). However, there is no restriction on accepting corpus donation in the form of shares. The proviso (iia) to section 13(1)(d)(iii) entitles an assessee-trust to hold the shares for a maximum period of one year before which it has to be converted into the modes of investment as prescribed in section 11(5); The assessee only realized the market value of shares and, therefore, there was no violation of section 11(1)(d), particularly when the donor, while gifting the shares as corpus donation, never imposed any condition that the shares could not be sold. Only the form of asset was changed from shares to cash but the original corpus donation remained as it was in the hands of trust; and The conditions contemplated under sec. 11(1)(d) stand satisfied when a voluntary donation is received with a specific direction that they shall form part of the corpus of the trust. No further condition is prescribed in the Act on utilization of corpus fund. Therefore, the assessee was well within its right to utilize the corpus fund for giving donation towards corpus fund of other charitable institutions. Therefore, the assessee's appeal was allowed. [2012] (Delhi - Trib.)