Income from sale of Government Securities is ‘capital gains’, not ‘interest’ under DTAA

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HIGH COURT OF BOMBAY

Director of Income-tax (International Taxation)

v.

Credit Suisse First Boston (Cyprus) Ltd.

IT APPEAL NO. 1026 OF 2011

JULY 9, 2012

  As regards, more particularly, government securities, and bonds and debentures, the text specifies that premiums or prizes attaching thereto constitute interest. Generally speaking, what constitutes interest yielded by a loan security, and may properly be taxed as such in the State of source, is all that the institution issuing the loan pays over and above the amount paid by the subscriber, that is to say, the interest accruing plus any premium paid at redemption or at issue. It follows that when a bond or debenture has been issued at a premium, the excess of the amount paid by the subscriber over that repaid to him may constitute negative interest which should be deducted from the interest that is taxable. On the other hand, any profit or loss which a holder of such a security realises by the sale thereof to another person does not enter into the concept of interest. Such profit or loss may, depending on the case, constitute either a business profit or a loss, a capital gain or a loss, or income falling under Article 21

Assessment can’t be held void if search warrant issued in joint names

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High Court of Allahabad (Full bench)

Commissioner of Income-tax

v.

Devesh Singh

IT APPEAL NOs. 99 to 110 OF 2010

JULY 23, 2012

In the present case we find that the warrant of authorisation under Section 132 of the Act has been issued on 10th November, 2006 in the joint name of three persons. We are, therefore, of the considered opinion that in view of the provisions of Section 292CC, as inserted by Finance Act, 2012 in the Statute Book i.e. the Income-tax Act, 1961, the assessments made in the individual capacity of each persons named in he warrant of authorisation was perfectly within the jurisdiction of the Assessing Authority and the Commissioner of Income Tax (Appeals) as also the Tribunal were not justified in annulling the assessment on the ground that if the warrant of authorisation was issued jointly in the name of more than one person, the assessment could not have been made in the capacity of an individual.We, therefore, set aside both the orders passed by the Commissioner of Income Tax (Appeals) and the Tribunal and remand the matter to the Commissioner of Income Tax Appeals to decide the appeals on merits. The substantial question of law on which the appeals have been admitted is decided in favour of the Revenue by holding that where the warrant of authorisation has been issued jointly the assessment can be made individually. In view of the retrospective effect having been given to Section 292CC of the Act, the law propounded in the cases of Smt. Vandana Verma and Smt. Madhu Chawla (supra) loses its significance.

If search warrant mentions name of all partners of firm, search can be conducted in partners premises too

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HIGH COURT OF CHHATTISGARH

Naresh Chand Baid

v.

Assistant Commissioner of Income-tax

IT APPEAL No. 55 of 2004†

October 17, 2011

The Tribunal held that the assessee was not eligible for immunity benefit under the Scheme, 1997, as the assessee, in whose case search was conducted under section 132 was not eligible for making a declaration of his undisclosed income in respect of any earlier years prior to the previous year in which the search had been initiated and this position was further clarified in the Circular No. 753 issued on 10-6-1997.

There is no dispute that in the warrant of authorization for search, the name of the assessee was clearly stated and pursuant to the search conducted on 11-11-1997, it was found that a declaration of undisclosed income of Rs. 4 lakhs was made by the assessee under the Scheme, 1997 on 13-12-1997, for which there was no immunity to the assessee. Thus, the finding recorded by the Tribunal was strictly in accordance with law and the same cannot be held as perverse.

The contention of the assessee that warrant of authorization was not issued individually in the name of the assessee, thus, the case is distinguishable and the assessee was not prohibited from making any declaration of undisclosed income as the search itself conducted under section 132 was bad, does not merit acceptance. It is an admitted fact that the name of the assessee was in the warrant of authorization for search. The assessee participated and the article found in the search could not have been ignored on the basis that no warrant of authorization was issued in the name of the assessee, individually. The assessee had not raised this objection in the course of search proceedings or immediately, thereafter.

The Tribunal has rightly appreciated the facts, circumstances and the materials available on record. The finding of the Tribunal in allowing the appeal filed by the department was just and proper. Thus, it was to be held that the authorities were competent to conduct search in the premises of the partners of the firm when the names of all the partners were specifically mentioned in the warrant of authorization. The finding of the Tribunal in respect of declaration made under the Scheme, 1997 is also just and proper.

No Service tax on supply of Ready Mix Concrete (RMC) at place desired by customer

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CESTAT, NEW DELHI BENCH

Ultratech Concrete

v.

Commissioner of Service Tax, Delhi

FINAL ORDER NO. ST/A/476 of 2012-CUs

STAY ORDER NO. ST/S/714 OF 2012-cus

STAY APPLICATION NO. 31 OF 2012

SERVICE TAX APPEAL NO. 9 OF 2012

JUNE 12, 2012

Appellants are engaged in business of manufacturing Ready Mix Concrete (RMC). While supplying the goods they delivered it at the desired location on site by pumping of the RMC to the spot where it was required. Revenue has made out a case that this activity is covered under ‘Commercial & Industrial Construction Services’ and imposed service tax on the entire consideration received for RMC after allowing the abatement of 67% under Notification No.l/06-ST.

The submission of the appellant is that this activity is part of the sale transaction and it is not part of any construction services. The counsel submits that the same issue was considered by the Tribunal in the case of GMK Concrete Mixing (P.) Ltd. v. CST [Final Order No. ST/591/2011 (PB), dated 4-11-2011]. He also submits that the same issue was decided by Hon’ble Karnataka High Court in the case of ACC Ltd. v. State of Karnataka [STRP No. 124 of 2011(Tax) and STRP Nos. 146-156 of 2011, dtd. 25.08.11.] The submission of the counsel is that since the issue has been decided by the Tribunal and a High Court, the matter may be decided without pre-deposit and the appeal itself may be decided on the basis of above decisions.

Service tax paid on courier service used for dispatch of samples abroad eligible for refunded

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CESTAT, NEW DELHI BENCH

Alpine Apparels (P.) Ltd.

v.

Commissioner of Central Excise, Delhi-IV

FINAL ORDER NO. ST/627 OF 2011

APPEAL NO. ST/135 OF 2011

November 15, 2011

Facts -Ld. Counsel submits that service of the courier was used for dispatch of the samples to abroad. When courier service is connected with export and relevancy thereof was not doubted, the appellant cannot be denied relief of credit relating to tax paid for appropriate consequence under different law. Ld. Commissioner (Appeals) without looking into strength of evidence filed, recorded that the appellant failed to correlate the invoices by the courier services with the export of goods. But the relevant evidence given in page 22 to 36 of the appeal folder read with the certificate of the courier agency at page 91 & 92 thereof, followed by details of consignment to different countries abroad apparent from page 106 to 108, clearly proves the claim of the appellant as to dispatch of the consignment through courier for delivery abroad. Accordingly, appeal may be allowed setting aside the impugned order. In the past, even the adjudicating authorities allowed appropriate refund for similar such consignments sent through couriers. A sample copy of the order dated 22.07.09 vide No.l04/SP/Stack/RFD/09, dt. 22.07.2009 of Faridabad Commissionerate establishes the claim of the appellant where refund has been granted.

Exemption u/s. 11 & 12 can be denied for Investment of borrowed fund by trust in Companies in which founders have substantial interest

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ITAT CHENNAI BENCH ‘B’

Income-tax Officer (OSD) Exemptions, Chennai

v.

KAS Foundation

IT APPEAL NOS. 1892 & 1893 (MDS.) OF 2010

C.O. NoS. 83 & 84 (MDS.) of 2011

[ASSESSMENT YEAR 2007-08]

MAY 10, 2012

The assessee borrowed money and instead of financing in rural areas invested the same in the company ‘J,’ where the founders of the assessee-trust are having substantial interest, which is contrary to the object of which the registration was granted to the assessee under section 12AA. Apart from the above, the assessee is paying interest on money borrowed without receiving any benefit from ‘J’. Therefore, the assessee borrowed money for the benefit of ‘J’ and not for the purpose of carrying on its object.

The assessee contrary to its object invested the borrowed funds in the private company ‘J,’ where the founders are having substantial interest. Therefore, the assessee has violated the provisions of section 13(1)(d)(iii). As per the provisions of section 13(1)(d)(iii), to get exemption under sections 11 and 12 the assessee has to invest the money in a public sector company as per section 11(5). It is an undisputed fact that the assessee had not invested money in a public sector company as provided under section 11(5). Therefore, it is clear violation of section 13(1)(d)(iii). On this count alone, the assessee is not eligible for exemption under sections 11 and 12. Insofar as section 13(2)(h) is concerned, the Assessing Officer has already given a specific finding that the investment made by the assessee in company ‘J’ was approximately 10 per cent of the subscribed and paid-up share capital of ‘J’. Therefore, it has also violated section 13(2)(h). Insofar as the decision of the Bombay High Court in the case of Sheth Mafatlal Gagalbhai Foundation Trust (supra) is concerned, the Assessing Officer has distinguished the case by observing that the facts are entirely on a different footing from the case in hand. The Bench is in full agreement with the observation of the Assessing Officer on this count. Apart from that, the Commissioner (Appeals) simply followed the decision in the case of Sheth Mafatlal Gagalbhai Foundation Trust (supra) without examining section 13(1)(d)(iii). Sub-clause (iii) of section 13(1)(d) was substituted by the Finance Act, 2007 w.r.e.f. 1-4-1999. This was not considered by the Bombay High Court in the case of Sheth Mafatlal Gagalbhai Foundation Trust (supra). The Commissioner (Appeals) without examining the legal provisions which are relevant to decide the issue simply by following the decision of the Bombay High Court and the CBDT Circular No. 387, dated 6-7-1984 allowed the claim of the assessee for exemption. In view of the aforesaid, the Commissioner (Appeals) was not correct in allowing the claim of the assessee.

AS-14 is applicable only to amalgamations & not to demerger

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HIGH COURT OF DELHI AT NEW DELHI

Date of Judgment: July 06, 2012

COMPANY PETITION NO. 137/2012

SONY INDIA PRIVATE LIMITED …..Petitioner/Transferor

AND

SONY INDIA SOFTWARE CENTRE PRIVATE LIMITED …..Transferee

In para No. 5 of the affidavit dated 12.06.2012, Mr. B.K. Bansal has observed that “para 8.3 of part II of the scheme provides that” any excess in the value of net assets of software undertaking transferred to the resulting company shall be applicable for distribution to the shareholders of the resulting company. In this regard it has been submitted by the learned Regional Director that excess, if any, in the value of the net assets of the software undertaking should be adjusted to the capital reserve as prescribed in AS-14 (i.e. accounting standards) and not to the general reserve as proposed in the scheme of arrangements.” In response to the aforesaid observation it is clarified that AS-14 (i.e. accounting standards issued by the Institute of Chartered Accountants) is applicable only to amalgamations and not to demerger. On a plain reading of the accounting standard under reference, it is clear that the same is applicable only in case of an amalgamation and not in case of demergers. This has also been held by the Gujarat High Court in the case of 2010 1 CLJ 351 tiled Gallops Realty (P) Ltd. Copy of the order has been placed on record