BCCI to pay service tax on reverse charge basis on payments made to foreign Cos for audio-visual coverage of IPL matches

Board of Control for Cricket In India v. Commissioner of Service Tax, Mumbai-I (2015) 53 taxmann.com 533 (Supreme Court)

Services received by BCCI from foreign media companies for coverage of Indian Premier League Matches through audio-visual coverage of the cricket matches are covered under 'Programme production services' and liable to service tax on reverse charge basis.

• Assessee, BCCI, received services from foreign media companies for coverage of Indian Premier League Matches.
• As per agreements, such non-resident service providers were required to provide audio-visual coverage of the cricket matches conducted by BCCI and digitalized images of coverage were uploaded and broadcasted for benefit of the viewers of cricket match all over the world.
• Department demanded service tax from BCCI under reverse charge.

Tribunal held in favour revenue:
 

Section 65(86a) of the Finance Act, 1944 defines "programme" as any audio or visual matter, live or recorded, which is intended to be disseminated by transmission of electro-magnetic waves through space or through cables intended to be received by the general public either directly or indirectly through the medium of relay stations.
The Tribunal in its judgment observed that non-resident service providers had installed cameras in stadium to capture images of cricket matches.
A combination of audio and visual recording would be a programme and expression 'audio or visual matter' in section 65(86a) can be read as 'audio and visual matter' also, hence, activities undertaken by non-resident service providers would fall within definition of 'programme' and service providers would be 'programme producers', as defined.
Even services rendered by way of supply of equipments and personnel for recording live programmes and actually participating in such programmes would also fall within definition of 'programme producer's services'.

The Supreme Court dismissed appeal preferred against the judgment of Tribunal holding there was no infirmity in the said judgment.

Aluminium dross and skimmings aren't manufactured goods; decision of larger bench of CESTAT reversed

Hindalco Industries Ltd. v. Union of India (2015) 53 taxmann.com 156 (Bombay High Court)

Aluminium dross and skimmings and similar non-ferrous metal drosses and skimmings which arise as by-products in process of manufacture of aluminium/non-ferrous metal products are "not manufactured goods" and, hence, not liable to excise duty.

Facts:

• The assessee was a manufacturer of aluminium sheets and coils falling under heading 7607 1190 of the Central Excise Tariff Act using major raw material 'aluminium ingots'. 
• In the course of manufacture of aluminium sheets/coils, aluminium dross/skimmings emerge as by products. The assessee sold these by products on a regular basis.
• The department raised demand of duty on "aluminium dross/skimmings" on ground that it was a manufactured product and liable to excise duty in view of Explanation to section 2(d) of the Central Excise Act, 1944. The Tribunal's Larger Bench held in favour of revenue.
• Assessee argued that 'aluminium dross/skimmings' were not 'manufactured goods' and were not, therefore, liable to duty. It further argued that the Explanation was inserted in section 2(d) in order to clarify that the goods which could be bought and sold in the market were deemed to be marketable. The explanation deals only with the marketability aspect of the question and does not say that even non-manufactured goods are deemed to be manufactured goods.

The High Court held in favour of assessee as under:

• In case of Indian Aluminium Co. Ltd. v. A. K. Bandyopadhyay 1980 (6) ELT 146 (Bom.), it was held that dross and skimmings are not manufactured goods. 
• In Union of India v. Indian Aluminium Co. Ltd. 1995 (77) ELT 268 (SC), the Supreme Court agreed with the reasons and conclusions of the Single Judge and confirmed the view taken in case of A.K. Bandyopadhyay (supra).
• Further, the Supreme Court has held in Grasim Industries Ltd. v. Union of India 2011 (273) ELT 10(SC) that the conditions contemplated under section 2(d) and section 2(f) have to be satisfied conjunctively in order to entail imposition of excise duty under section 3 of the Act, therefore the impugned judgment of the Tribunal could not be agreed with. The larger Bench's decision did not take into account the fact that the authoritative pronouncement by the Supreme Court was binding on it.
• Merely because the goods satisfying the test of being maerketable and saleable, it does not mean that the test of being manufactured in India has been satisfied. The Supreme Court had in aforesaid cases rejected argument of addition of dross, cinder, skimmings, etc. in the list of the items to the Schedule to the Central Excise Tariff and also held 'that is not safe to make it excisable as it has to pass further test of manufactured or produced in India.'
• Fact that the revenue did not wish to abide by them would not mean that the Tribunal was justified in not following them. The issue stood completely covered by the Judgments of the Supreme Court and which had been totally disregarded by the Tribunal. 
• All Circulars impugned in this Writ Petition brought to the notice of this Court would not survive after the legal position had been set out as above.

Income Tax authorities can collect relevant information to check tax evasion

Pattambi Service Co-operative Bank Ltd. v. Union of India (2015) 53 taxmann.com 453 (Kerala High Court)

High Court has upheld the constitutional validity of amendment made to section 133(6) by the Finance Act, 1995 which widened the scope of the said section and gave power to AO to call for information not only in case of 'pending proceedings' but also as a part of the enquiry as said amendment was brought in to tackle tax evasion.

Facts:

• The income tax authorities had issued notice to petitioner ('Co-Operative Bank'), asking it to furnish details of cash deposit in 'Savings Bank Accounts', aggregating to Rs.5 lakhs and details of payment of interest exceeding Rs.10,000/- to the depositors.
• Consequently, the petitioner filed the instant writ to challenge the constitutional validity of section 133(6) which empowered the tax authorities to call for information not only in case of 'pending proceedings' but also as a part of the enquiry.
• The petitioner contended that rights of privacy is an integral part of Article 21 of the constitution of India, which in turn, was violated.

The High Court dismissed the writ by holding as under:

• Even assuming that the right to privacy is itself a fundamental right, such fundamental right must be subject to restriction, on the basis of compelling 'public interest'.
• There is no prohibition on the State in gathering information for preventing tax evasion and curbing black money as proceedings can be pursued against wrongdoers only on basis of some information.
• It is well-settled principle that the 'taxation entry' confers powers upon the Legislature to legislate in matters 'ancillary or incidental', including the provisions for evasion of tax.
• Thus, no case was made out for striking down section 133(6) or second proviso thereto as unconstitutional, in so far as they apply to inquiries when no proceeding is pending

Uttarakhand High Court denies quashing of notification that blacklisted Cyprus for not sharing tax information

EXPRO GULF LTD. V. UNION OF INDIA (2015) 53 taxmann.com 413 (Uttarakhand High Court)

The Government had specified 'Cyprus' as notified jurisdictional area' for the purposes of the section 94A via NOTIFICATION NO.86/2013 as it was not providing information sought for by Indian Tax authorities. The instant petition was filed to quash such notification on the ground that "Cyprus" ought not have been declared as notified jurisdictional area as they had never denied any information and they had been ready and willing to supply the information sought for by the Indian Government. The High Court denied quashing of said notification.

Facts:

The instant petition was filed to quash the Notification no. 86/2013, on the ground that "Cyprus" ought not have been declared as notified jurisdictional area as Cyprus have never denied any information and they had been ready and willing to supply the information sought by the Government of India.

The High Court denied to quash the notification and made following observations:

• Bare perusal of the notification would reveal that Cyprus had not been providing the information as requested by the Indian Authorities under the provisions of Exchange of Information Agreement, therefore, Government of India had decided to notify Cyprus as notified jurisdictional area under Section 94-A.
• While exercising the writ jurisdiction ordinarily Court should not proceed to look into whether information sought by the Indian Authorities was declined by the Government of Cyprus or whether the Government of Cyprus was ready and willing to supply the information sought for by the Indian Authorities. Moreover, there seemed to be no valid reason to disbelieve the satisfaction so recorded by the Indian Authorities.
• Thus, relief sought for by petitioner could not be granted. -

Delhi High Court reads down first proviso to sec. 2(15); rescues genuine charities from its clutches

INDIA TRADE PROMOTION ORGANIZATION V. DGIT (EXEMPTIONS) (2015) 53 taxmann.com 404 (Delhi High Court)

Facts:

• The instant writ petition was filed for quashing of the first Proviso to Section 2(15) of the Income-tax Act, 1961 ('Act').
• The petitioner contended that the first proviso was arbitrary and unreasonable since the Finance Act, 2008 introduced it to deny the benefit of exemption to "purely" commercial entities, which wore the mask of a charity but it, hit even genuine charitable organizations.
• The petitioner also contended that the first proviso clubs together two unequal entities, i.e., 'purely business and commercial entities' and 'charitable entities'; therefore, it is violative of Article 14 of the Constitution of India.

The High Court upheld the constitutional validity of first proviso and made following observations:

• The Finance Act, 2008 introduced the first proviso to prevent the unholy practice of pure trade, commerce and business entities from masking their activities and portraying them in the garb of an activity with the object of a general public utility. It was not designed to hit those institutions, which had the advancement of the objects of general public utility at their heart and were charitable institutions.
• First Proviso carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. In order to determine whether the institution would fall within the ambit of first proviso to section 2(15), the dominant and the prime objective has to be seen behind both the activities.
• If the dominant and prime objective of the institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpose'.
• On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it would be regarded as an institution established for charitable purposes.

Mere cash deposit of above 10 lakhs in bank account doesn't indicate that income has escaped assessment, says ITAT

BIR BAHADUR SINGH SIJWALI V. ITO (2015) 53 taxmann.com 366 (Delhi - Tribunal)

 

The assessee had deposited cash in excess of Rs 10 lakhs in his saving bank account but he had not filed return of income. The AO reopened the assessment of assessee, as he had reason to believe that there was an escapement of income in respect of cash deposited in bank account. The Tribunal held that the AO proceeded on the fallacious assumption that bank deposits constituted undisclosed income and overlooked fact that the source of deposit need not necessarily be income of the assessee.

Facts:

• The assessee had deposited Rs 10 lakhs (approx) in his saving bank account but no return of income was filed by him. The AO reopened the assessment of assessee, as he had reason to believe that there was an escapement of income of Rs 10 lakhs on part of assessee.
• The instant appeal was filed against validity of reassessment proceedings.

The Tribunal held in favour of assessee as under:

• At the stage of recording the reasons for reopening the assessment, the formation of prima facie belief that an income has escaped the assessment is necessary. However, it is also necessary that there must be something which indicates, even if not establishes, the escapement of income from assessment.
• Merely because some further investigation had not been carried out, which, could have led to detection to an income escaping assessment could not be a reason enough to hold the view that income had escaped assessment.
• In the instant case, merely the fact that deposits have been made in a bank account do not indicate that these deposits constitute an income which had escaped assessment.
• AO proceeded on the fallacious assumption that bank deposits constituted undisclosed income and overlooked the fact that the sources of deposit need not necessarily be income of the assessee. The reassessment proceedings could not be resorted to unless there was reason to believe, rather than suspect, that income had escaped assessment. Thus, reassessment proceeding was to be set aside.

Acceptance of the Order of the High Court of Bombay in the case of Vodafone India Services Private Limited

The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, in a major decision, has decided to accept the order of the High Court of Bombay in the case of Vodafone India Services Private Limited (VISPL) dated 10.10.2014. This is a major correction of a tax matter which has adversely affected investor sentiment.

Based on the opinion of Chief Commissioner of Income-tax (International Taxation), Chairperson (CBDT) and the Attorney General of India, the Cabinet decided to:

• accept the order of the High Court of Bombay in WP No. 871 of 2014, dated 10.10.2014; and not to file SLP against it before the Supreme Court of India;
• accept of orders of Courts/ IT AT/ DRP in cases of other taxpayers where similar transfer pricing adjustments have been made and the Courts/ IT AT/ DRP have decided/decide in favour of the taxpayer.

The Cabinet decision will bring greater clarity and predictability for taxpayers as well as tax authorities, thereby facilitating tax compliance and reducing litigation on similar issues. This will also set at rest the uncertainty prevailing in the minds of foreign investors and taxpayers in respect of possible transfer pricing adjustments in India on transactions related to issuance of shares, and thereby improve the investment climate in the country.

The Cabinet came to this view as this is a transaction on the capital account and there is no income to be chargeable to tax. So applying any pricing formula is irrelevant.

VISPL is a wholly owned subsidiary of a non-resident company, Vodafone Tele-Services (India) Holdings Limited, Mauritius. On 21.8.2008, VISPL issued shares (at a premium of Rs.8509/-) which resulted in VISPL receiving a total consideration of Rs.246.39 crore from Vodafone Mauritius, on issue of shares and this was shown as "Capital Receipts" in the books of accounts. VISPL reported this transaction as an "International Transaction" and stated that this transaction does not affect its income.

The Transfer Pricing Officer (TPO), vide order dated 28.01.2013, determined the Arm's Length Price of the shares issued by VISPL on the basis of Net Asset Value, at Rs.53,775/- per share and made an upward adjustment of Rs.1,308.91 crore. In addition, the difference Rs.1,308.91 crore between the transaction price and the Arm's Length Price was treated as 'deemed loan' given by VISPL to the holding company; and interest that would have been payable on the loan in an arm's length transaction was computed at Rs.88.35 crore. In total, transfer pricing adjustment of Rs.1,397.26 crore was proposed by the TPO for Assessment Year 2009-10. The matter was agitated by VISPL at the stage of Draft AO itself and therefore the tax payable could not be crystallized. However, the tax rate of 33 percent was applicable for Assessment Year 2009-10.

The DRP, on 11.2.2014, held that the premium determined by the TPO, to the extent not received, is an income arising from issue of shares, and that the AO and the TPO have jurisdiction.

VISPL filed a 2nd Writ Petition in the High Court of Bombay. The High Court, on 10.10.2014, has amongst other things observed:

• "Section 92(2) of the Act deals with a situation where two or more AEs enter into an arrangement whereby they receive a benefit, service or facility then the allocation, apportionment or contribution towards the cost or expenditure is to be determined in respect of each AE having regard to ALP. It would have no application in the cases like the present one, where there is no occasion to, allocate, apportion or contribute any cost and/ or expenses between the Petitioner and the holding company."
• The crucial words “shall be chargeable to income tax” which are found in Section 42(2) of the 1922 Act are absent in Chapter X of the Act..... Therefore it is clear that the deemed income which was charged to tax under Section 42(2) of 1922 Act was done away with under this Act."
• The tax can be charged only on income and in the absence of any income arising, the issue of applying the measure of Arm's Length Pricing to transactional value/ consideration itself does not arise."
• If its income which is chargeable to tax, under the normal provisions of the Act, then alone Chapter X of the Act could be invoked. Sections 4 and 5 of the Act brings /charges to tax total income of the previous year. This would take us to the meaning of the word income under the Act as defined in Section 2 (24) of the Act. The amount received on issue of shares is admittedly a capital account transaction not separately brought within the definition of Income, except in cases covered by Section 56(2)(viib) of the Act. Thus such capitalccount cannot be brought to tax as already discussed herein above while considering the challenge to the grounds as mentioned in impugned order." 
• The issue of shares at a premium is on Capital account and gives rise to no income. The submission on behalf of the revenue that the shortfall in the ALP as computed for the purposes of Chapter X of the Act is misplaced. The ALP is meant to determine the real value of the transaction entered into between AEs. It is a re-computation exercise to be carried out only when income arises in case of an International transaction between AEs. It does not warrant re-computation of a consideration received / given on capital account.

The Bombay High Court quashed the reference dated 11.7.2011 by the AO to the TPO, order dated 28.1.2013 of the TPO, draft AO dated 22.3.2013 of the AO and order dated 11.2.2014 of the DRP on the preliminary issue of jurisdiction to tax, setting them aside as being without jurisdiction, null and void.

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