(11.7 KiB, 1,101 DLs)

Despite bar in Proviso to s. 14A, s. 147 reopening for earlier years valid

For AY 2000-01, the assessee filed a return on 30.11.2000. As s. 14A was inserted subsequently by FA 2001 (w.r.e.f 1.4.62) and was tabled in Parliament on 28.2.2001, the assessee did not make any disallowance u/s 14A. The AO also did not make a disallowance in the s. 143 (3) order passed on 7.3.2003. After the expiry of 4 years, the AO sought to reopen the assessment to make a disallowance u/s 14A. The assessee challenged the reopening on the ground that (i) under the Proviso to s. 14A, a reopening u/s 147 for AY 2001-02 & earlier years was not permissible, (ii) as s. 14A was not on the statute when the ROI was filed, there was no failure to disclose & (iii) as the AO had also sought to rectify u/s 154, he could not reopen u/s 147. The High Court (click here) (197 TM 415) dismissed the Writ Petition inter alia on the ground that “the Proviso to s. 14A bars reassessment but not original assessment on the basis of the retrospective amendment. Though the ROI was filed before s. 14A was enacted, the assessment order was passed subsequently. The AO ought to have applied s. 14A and his failure has resulted in escapement of income. The object and purpose of the Proviso is to ensure that the retrospective amendment is not made as a tool to reopen past cases which have attained finality“. On appeal by the assessee to the Supreme Court, HELD dismissing the SLP:

In our view, the re-opening of assessment is fully justified on the facts and circumstances of the case. However, on the merits of the case, it would be open to the assessee to raise all contentions with regard to the amount of Rs.98.46 lakhs being offered for tax as well as it’s contention on Section 14A of the Income Tax Act, 1961.

(268.4 KiB, 516 DLs)

CBDT directed to formulate uniform policy with strict parameters on appeal filing

A Central Excise appeal was allowed in favour of the assessee by the High Court inter alia on the ground that the department had not challenged similar orders passed by the Tribunal in cases of other assessees. On appeal by the department, HELD reversing the High Court (on merits as well):

As regards the argument of learned counsel for the respondents that having not assailed the correctness of some of the orders passed by the Tribunal and a decision of the High Court of Karnataka, the revenue cannot be permitted to adopt the policy of pick and choose and challenge the orders passed in the cases before us, it would suffice to observe that such a proposition cannot be accepted as an absolute principle of law, although we find some substance in the stated grievance of the assessees before us, because such situations tend to give rise to allegations of malafides etc. Having said so, we are unable to hold that merely because in some cases revenue has not questioned the correctness of an order on the same issue, it would operate as a bar for the revenue to challenge the order in another case. There can be host of factors, like the amount of revenue involved, divergent views of the Tribunals/High Courts on the issue, public interest etc. which may be a just cause, impelling the revenue to prefer an appeal on the same view point of the Tribunal which had been accepted in the past. We, may however, hasten to add that it is high time when the Central Board of Direct and Indirect Taxes comes out with a uniform policy, laying down strict parameters for the guidance of the field staff for deciding whether or not an appeal in a particular case is to be filed. We are constrained to observe that the existing guidelines are followed more in breach, resulting in avoidable allegations of malafides etc on the part of the officers concerned.

(410.5 KiB, 375 DLs)

Q of “bias” in judicial function must be seen from “reasonable man’s” perspective

A Committee was constituted u/s 3(2) of the Judges (Inquiry) Act, 1968 on 15.1.2010 to enquire into allegations that Chief Justice P. D. Dinakaran had misused his position as a Judge and as Chief Justice of the High Court for material gains. After some delay caused by reconstitution of the Committee, a notice dated 16.3.2011 was sent to Justice Dinakaran asking him to appear on 9.4.2011 to answer the charges. In reply, Justice Dinakaran submitted a representation dated 8.4.2011 with the prayer that the order constituting the Inquiry Committee be rescinded and notice issued by the Committee may be annulled on the ground that one of the members of the Committee (Mr. P.P Rao) had, by actively participating in a seminar organized by the Bar Association “already declared me guilty of certain charges” and “opposed my elevation to Apex Court tooth and nail” and that it would be a “travesty of justice” if Mr. P. P. Rao was permitted to be on the Committee. The Committee rejected the objections on the basis that it was “completely misconceived” and with “oblique motive” “to somehow scuttle the enquiry by causing delay in the Committee’s proceedings”. Aggrieved, Justice Dinakaran filed a Writ Petition in the Supreme Court. HELD dismissing the Petition:

(i) The rule against bias or interest is based on three maxims (i) No man shall be a judge in his own cause; (ii) Justice should not only be done, but manifestly and undoubtedly be seen to be done; and (iii) Judges, like Caesar’s wife should be above suspicion. The first requirement of natural justice is that the Judge should be impartial and neutral and must be free from bias. To decide whether there is “bias”, the “real likelihood test” has to be adopted. In each case, the Court has to consider whether a fair minded and informed person, having considered all the facts would reasonably apprehend that the Judge would not act impartially. To put it differently, the test would be whether a reasonably intelligent man fully apprised of all the facts would have a serious apprehension of bias. In deciding the question of bias one has to take into consideration human probabilities and ordinary course of human conduct;

(ii) On facts, the fact that Mr. P. P. Rao had participated in a seminar and demanded public inquiry into the charges levelled against Justice Dinakaran and drafted a resolution opposing elevation of Justice Dinakaran to the Supreme Court could give rise to reasonable apprehension in the mind of an intelligent person that Mr. P. P. Rao was likely to be biased. Accordingly, Justice Dinakaran’s apprehension of likelihood of bias against Mr. P. P. Rao is reasonable and not fanciful;

(iii) However, Justice Dinakaran was aware of Mr. P. P. Rao’s inclusion in the Committee in January, 2010. His “knowledgeful silence” and “belated plea” that by virtue of the active participation in the meeting held by the Bar Association, Mr. P. P. Rao will be deemed to be biased against him “militates against the bona fides of his objection” and does not merit acceptance. The objection is “a calculated move”. He is an “intelligent person” and “wants to adopt every possible tactic to delay the submission of report” by the Committee. No Court can render assistance in a petition filed with the sole object of delaying finalisation of the inquiry;

(iv) However, given the finding of bias, the Committee is requested to nominate another distinguished jurist in place of Mr. P. P. Rao. The reconstituted Committee shall be entitled to proceed on the charges already framed against Justice Dinakaran.

(131.8 KiB, 856 DLs)

DTAA Does Not Protect Tax Evaders. SIT Formed To Probe Black Money

Pursuant to a Writ Petition alleging inaction by the Government on the unearthing of unaccounted money, the Supreme Court set up a High Level Committee to act as a Special Investigation Team to supervise the investigation by the Government into black money. In the course of the ruling, the Court considered the impact of the Double taxation Avoidance Agreements, the Vienna Convention and the judgement in UOI vs. Azadi Bachao Andolan 263 ITR 706 (SC). The Court strongly disapproved of the stand taken by the Government (click here) that the names of the tax evaders was a “secret” and could not be revealed under the India-Germany DTAA. It HELD:

“We have perused the said agreement with Germany. We are convinced that the said agreement, by itself, does not proscribe the disclosure of the relevant documents and details of the same, including the names of various bank account holders in Liechtenstein. In the first instance, we note that the names of the individuals are with respect to bank accounts in the Liechtenstein, which though populated by largely German speaking people, is an independent and sovereign nationstate. The agreement between Germany and India is with regard to various issues that crop up with respect to German and Indian citizens’ liability to pay taxes to Germany and/or India. It does not even remotely touch upon information regarding Indian citizens’ bank accounts in Liechtenstein that Germany secures and shares that have no bearing upon the matters that are covered by the double taxation agreement between the two countries. In fact, the “information” that is referred to in Article 26 is that which is “necessary for carrying out the purposes of this agreement”, i.e. the Indo-German DTAA. Therefore, the information sought does not fall within the ambit of this provision. It is disingenuous for the Union of India, under these circumstances, to repeatedly claim that it is unable to reveal the documents and names as sought by the Petitioners on the ground that the same is proscribed by the said agreement. It does not matter that Germany itself may have asked India to treat the information shared as being subject to the confidentiality and secrecy clause of the double taxation agreement. It is for the Union of India, and the courts, in appropriate proceedings, to determine whether such information concerns matters that are covered by the double taxation agreement or not. In any event, we also proceed to examine the provisions of the double taxation agreement below, to also examine whether they proscribe the disclosure of such names, and other documents and information, even in the context of these instant proceedings”.

(13.6 KiB, 809 DLs)

Long Delay due to procedural reasons in filing Dept appeals cannot be condoned

The department filed a SLP challenging the order of the Bombay High Court declining to condone delay of 656 days in filing the appeal. The delay was explained as having been caused by “several facts such as non traceability of case records, procedural formalities involved in the Department and the papers are to be processed through different officers in rank for their comments, approval etc. and then the preparation of the draft of appeal memo, paper book and the administrative difficulties such as shortage of staff“. HELD dismissing the SLP:

In our opinion, the said explanation does not make out a sufficient cause for condonation of delay in filing the appeal before the High Court. In that view of the matter, we do not find any ground to interfere with the impugned judgment. The Special Leave Petition is dismissed on the ground of delay as well as on merits.

(7.5 KiB, 1,634 DLs)

Tests to determine whether shares gains assessable as STCG or business profits

The Supreme Court vide order dated 15.11.2010 dismissed the Department’s Special Leave Petition against the judgment of the Bombay High Court in CIT vs. Gopal Purohit 228 CTR 582 (Bom) where it was held that:

(a) it was open to an assessee to maintain two separate portfolios, one relating to investment and another relating to business of dealing in shares,

 

(b) that a finding of fact had been arrived at by the Tribunal as regards the two distinct types of transactions namely, those by way of investment and those for the purposes of business,

 

(c) that there should be uniformity in treatment and consistency when facts and circumstances are identical particularly in the case of the assessee and

 

(d) that entries in books of account alone are not conclusive in determining the nature of income though they have a bearing.

(22.9 KiB, 762 DLs)

If Search & Seizure action violates “human rights”, officers personally liable to pay compensation

The income-tax department conducted search and seizure operations u/s 132 at the premises of the assessee when interrogation & recording of statement was conducted for more than 30 hours and till the odd hours of the night without any break or interval. The assessee filed a complaint alleging violation of human rights. HELD upholding the plea:

The Commission is of the view that the members of the raiding party may take their own time to conclude the search & seizure operations but such operations must be carried out keeping in view the basic human rights of the Individual. They have no right to cause physical and mental torture to him. If the officer-in-charge of the Interrogation/recording of statements wanted to continue with the process he should have stopped the same at the proper time and resumed it next morning. But continuing the process without any break or interval at odd hours up to 3:30 AM, forcing the applicant and/ or his family members to remain awake when it is time to sleep was torturous act which and can not be countenanced in a civilised society. It was violative of their rights relating to dignity of the individual and therefore violative of human rights. Even die-hard criminal offenders have certain human rights which can not be taken away. The applicant’s position was not worse than that. In the opinion of the Commission, the Income Tax Department should ensure that the search & seizure operations at large in future are carried out without violating one’s basic human rights.

The Department was asked to show-cause why the assessee should not be monetarily compensated – from the salary of the concerned officials.

(172.2 KiB, 1,083 DLs)

Pre s. 28(va) inserted w.e.f AY 2002-03, non-compete compensation is a capital receipt

In AY 1997-98 the assessee received Rs. 50 Lakhs from Ranbaxy as a fee for agreeing not to compete for 20 years in the territory of India. The AO assessed the receipt as income though the CIT (A) & Tribunal upheld the assessee’s claim that the receipt was for loss of a source of income and capital in nature. On appeal by the department, the High Court reversed the Tribunal and held the receipt to be revenue in nature. On appeal by the assessee, HELD reversing the High Court:

(i) The position in law is clear and well settled that there is a dichotomy between receipt of compensation by an assessee for the loss of agency and receipt of compensation attributable to the negative/restrictive covenant. While the former is a revenue receipt, the latter is a capital receipt. On facts, as the amount was received for a non-compete covenant, it was capital in nature;

(ii) Payment received as non-competition fee under a negative covenant was always treated as a capital receipt till AY 2003-04. It is only by s. 28(va) inserted by FA 2002 w.e.f. 1.4.2003 that the said capital receipt is now made taxable. S. 28(va) is amendatory and not clarificatory.

(385.4 KiB, 1,709 DLs)

S. 9(1)(vii) & Parliament’s power to make laws with extra-territorial effect

The assessee filed a Writ Petition in the AP High Court to challenge the constitutional validity of s. 9(1)(vii)(b). The High Court (228 ITR 564) upheld the vires of s. 9(1)(viii)(b) by relying on Electronics Corporation of India Ltd vs. CIT 183 ITR 44 (SC). On appeal to the Supreme Court, the matter was referred to a Constitutional Bench to determine the extent to which laws enacted by Parliament can have extra-territorial effect under Article 245. HELD by the Constitution Bench:

(i) Parliament is constitutionally restricted from enacting legislation with respect to extra-territorial aspects or causes that do not have, nor expected to have any, direct or indirect, tangible or intangible impact(s) on or effect(s) in or consequences for: (a) the territory of India, or any part of India; or (b) the interests of, welfare of, well-being of, or security of inhabitants of India, and Indians. In all other respects, Parliament may enact legislation with extra-territorial effect. This power is not subject to tests of “sufficiency” or “significance” or in any other manner requiring a pre-determined degree of strength. All that is required is that the connection to India be real or expected to be real, and not illusory or fanciful.

(ii) However, Parliament does not have the power to legislate “for” any territory, other than the territory of India or any part of it. Parliament can only make laws for India and any law which has no impact on or nexus with India would be ultra-vires.

(21.4 KiB, 1,155 DLs)

Supreme Court recalls law requiring PSUs to obtain COD approval

In ONGC vs. CCE 104 CTR (SC) 31, the Supreme Court directed the Central Government to set up a ‘Committee on Disputes’ to monitor disputes between the Government and Public Sector Enterprises and give clearance for litigation. It was held the no litigation could be proceeded with in the absence of COD approval. This was followed in ONGC vs. CIDCO (2007) 7 SCC 39 and it was held that even disputes between PSUs and State Governments would require COD approval.

In CCE vs. Bharat Petroleum Corporation, a 2 Judge Bench of the Supreme Court held that the working of the COD had failed and that the time has come to revisit the law. The matter was referred to a Larger Bench for reconsideration.

HELD by the Larger Bench recalling its orders in ONGC vs. CCE 104 CTR (SC) 31, (2004) 6 SCC 437 and ONGC vs. CIDCO (2007) 7 SCC 39:

The idea behind setting up of the … “Committee on Disputes” (CoD) was to ensure that resources of the State are not frittered away in inter se litigations between entities of the State, which could be best resolved, by an empowered CoD … Whilst the principle and the object behind the aforestated Orders is unexceptionable and laudatory, experience has shown that despite best efforts of the CoD, the mechanism has not achieved the results for which it was constituted and has in fact led to delays in litigation …. on same set of facts, clearance is given in one case and refused in the other.

 

This has led a PSU to institute a SLP in this Court on the ground of discrimination. We need not multiply such illustrations. The mechanism was set up with a laudatory object. However, the mechanism has led to delay in filing of civil appeals causing loss of revenue. For example, in many cases of exemptions, the Industry Department gives exemption, while the same is denied by the Revenue Department. Similarly, with the enactment of regulatory laws in several cases there could be overlapping of jurisdictions between, let us say, SEBI and insurance regulators. Civil appeals lie to this Court. Stakes in such cases are huge. One cannot possibly expect timely clearance by CoD. In such cases, grant of clearance to one and not to the other may result in generation of more and more litigation. The mechanism has outlived its utility. In the changed scenario indicated above, we are of the view that time has come under the above circumstances to recall the directions of this Court