Tax Practice Is The Best Practice, Young Advocates Should Join The Bench: Justice Sanklecha

Farewell function on the occasion of attaining superannuation of Honourable Justice Mr.M. S. Sanklecha Judge Bombay High Court.

‘Tax practice is the best practice’- ‘As a Judge, every day is a learning process and it is one of most satisfying job’ Honourable Mr .M .S. Sanklecha, Judge Bombay High Court .

A farewell function was held at Mumbai on 12-12 -2019 at CCI by the ITAT Bar Association Mumbai and CECT Bar Association Mumbai. Large number of professionals attended the function.

A flower bouquet and a silver plaque containing “Our fond tribute to Hon’ble Mr. Justice M.S. Sanklecha”.

Speaking on the occasion Honourable Justice Mr. M.S. Sanklecha urged the members of the Bar to join the Bench.

According to honourable Justice every day is a learning process and it is one of most satisfying job. Speaking on the occasion various speakers referred various land mark judgements delivered by the Justice.

Speaking on the occasion the occasion Honourable Justice stated that ;

“I am grateful for all for all the nice things which people have said about me In fact, I have a friend who retired a couple of years ago from insurance and educational manager.

He had come to meet me a few days ago and I told him that I will be having a ‘send off’. My Bar association members would be giving me a party and I will be attending that. He asked as to why was I doing that.

He told me that when he was retiring, his colleagues wanted to hold a farewell for him and he refuse because he said that at the farewell they will all tell you that you worked so hard and you are a man of great industry and then you would realise that these are all the things which I had not done. So never accept such a farewell party.

But I thought to myself that there are people who would bring me back to the ground, where others would speak good about me. And I would like to believe they are true even if I know that I would have to take the same with a palmful of salt but nevertheless I would like to believe they are true and like to proceed on the basis that they are men of great understanding who understand what qualities i have/possess.

I am grateful for all the good things which have been said.

The only thing which I would like to share with you at the time of my retirement is, two things, one is that when I took oath as a judge, oneof the things which caused me great anxiety was – that in my decision making process, I should be extremely fair. I should not let the persona of the person affect me in deciding a matter, I should hear everybody equally.

And that was something which I was always very anxious about, whether I was able to do that or not, I tried to do that to the best of my ability. I tried to persona/ personalities aside, looked at the matter and tried to decide and tried to treat everybody, whether it be the senior most advocate who is appearing before me or he is a fresh advocate who is appearing before me for the first time, with the same yardstick.

That was my attempt, I don’t know how far successful I was, but that was the anxiety which I had and i think from what people have told me when I was exchanging notes with them, I think I have not done very badly on that account. At least I would like to feel I have not done very badly on that account.

The other two things which I would like to say, there is nothing much to be said on your retirement, whatever you had to say, you have already said from the bench. People, some liked it and some did not like it, but that’s the part of the job.

I would like to say – 1)Thank you and 2) Sorry.

Thank you for this reason that a judge never works in a vacuum, it is the industry, the learning and the wisdom of the lawyers which contributes to a large extent to enable a judgment to be rendered, which could be called justice, but at least, a judgment, one is able to render because of the assistance of the lawyers.

I will use a small hindi poem, rather a couplet, which goes like this, and that applies very appropriately to our profession, namely:

‘Mai hi maihoon to kyamaihoon, tum hi tum hotohkya tum ho, tum aurmai mile aur hum bane, tohphir judgment pradhaan ho’.

So it is only the combination of the lawyers and the judges which makes judgments possible. So a big big thank you, whatever I was able to do, good bad, indifferent, you all had had a great role to play in it, so the next time you will criticize the judgment, please bear in mind that you all also had a part to play in it.

So far as the other aspect is concerned, my apologies. You see, when there were times when I have been unfair to some litigants/some advocates. I may not have heard them properly,

I always believe that a judge’s job is to hear the lawyer, give him all the patience hearing which a lawyer deserves. If a lawyer is making/putting forth the case of his client, and a judge’s job is to hear the lawyer patiently and understand his case and then decide. But yet there have been times when i have committed mistakes, there are times when there have been sheer numbers, which put so much pressure on you that you want to get going fast and at times I have curtailed a lawyer, stopped a lawyer from making his point.

And in that process, I have lost some possible gems which may have come. And I am extremely sorry that I have done that. It was not my intent and it was a mistake on my part.

Last thing which I would like to share with you all is now that i am a certified senior citizen/retired man, I can advise the youngsters at the bar. You see, at the bar, the tax bar, I was taken from the excise customs bar, not because I was the most exceptional or outstanding but because the more, the better ones refused to accept that shift. That is the sought of situation that happens.

Even today, we don’t have lawyers from the bar, from the tax bar, ready to accept judgeship. And that leaves a big Vacuum in the judicial body/institution, in the sense, then you don’t have people who are competent, to deal with tax matters. Then everything suffers and it has its own impact over a period of time. And i can tell you after having been a judge for 8 years, it is one of the most enjoyable jobs which a person can have in his life.

It is a job where you are the empire, but everyday is a learning experience. When one party argues, you feel completely convinced with what he says and you wonder what the other side will have to say and yet, the other side is able to show something completely missed. And it’s such a wonderful experience. Every evening you come back wiser that what you were in the morning.

It is a wonderful experience and these days, in the old days ofcourse, the emoluments were not very good and one would not possibly blame a person if he would not accept a judgeship. But today, the wages which a judge gets are reasonably good. You can make a decent life. A Higher middle class life could be easily lived by a judge without making any compromises. So there is no reason why the younger members of the bar should not aspire to judgeship and the senior members who are offered, should not refuse judgeship because that is a responsibility which they also owe to the institution.

Because, as lawyers and judges, they are all together form the institution of the judiciary and if the lawyersare not ready to take up this responsibility, the institution will suffer and when the institution suffers, the lawyers also would not have place to go, to make their grievances addressed. This is all I can say and I thank you again for coming here on a Friday evening and spending time with me.
Thank you very much!”

MESSAGES:

The history of evolution of Tax Laws as interpreted by Courts is very fascinating. The old timers will remember the judicial combination of Chief Justice Shri. M. C. Chagla and Justice Tendulker who laid down the foundation of interpreting tax laws in our country. In those days, stalwarts like Sir Jamshedji Kanga, Sir Nasarwanji Engineer, Shri. Nani Palkhiwala, Shri. R. J. Kollah and Shri. S. P. Mehta were helping the Court in interpretation of a legislation which is the main artery of our Economic System.

The Advocate general will always consider his privilege to appear in tax matters. The judgments were delivered by the Court in a lucid language and the level of discussion was of a very high order.

Thereafter, there were number of judges in the Bombay High Court who interpreted this very intricate and mind-boggling law. One of the names which figure out as an outstanding judge deciding tax laws is Justice Shri. M. S. Sankhlecha who remained on Tax Bench for a great length of time.

He had a very keen mind and understood niceties of this very complicated branch of law. He had inborn capacity to analyze accounting entries and a keen sense of Justice. He was pains taking and sometimes look a long time to hear the case and indeed in delivering his Judgments. By and large and barring few exceptions, his views were legally correct and upheld by Supreme Court. On his retirement one feels that there will be a void for some time. One hopes that he will now write a treatise on ‘Evolution of Taxation’ in country.

Dr. Y.P. Trivedi, Sr. Advocate Supreme Court, Mumbai

Honorable Mr. Justice M.S. Sanklecha has rendered many landmark judgments on taxation which will be remembered in the years to come. Honorable Justice is one of the finest human beings and has rendered justice without any favor or fear. Honorable Justice always believed that judges can deliver better judgments if there is better assistance from the Bar. While dealing in one of the issue on transfer Pricing CIT v. TCL Ltd (2016 ) 241 Taxman 138 / 288 CTR 34(Bom) (HC), Honorable Justice struck down the instruction of the department where in the renewal of the terms of the panel of the departmental counsel was on the basis of how many matters he has succeeded.

Honorable Justice stated in his order “CBDT also sets out the parameters of performance of the counsel for renewal of his appointment, one of the criteria mentioned therein is the number of cases won by the Counsel for the Income Tax department. This can never be a measure of competence of an Advocate i.e. an officer of the Court. In fact, the quality of the Advocate would be best judged by his performance and not in the result of the litigation. This evaluation can take place only when the Advocate is seen in action.”

In the said judgment Lordship also directed the Income tax department of Mumbai to host all the judgments of the Bombay High Court which are admitted, rejected and which are accepted by the revenue in the website of the department, called “Legal corner”.

Lordship’s sincerity to the justice delivery system can be remembered in dealing with the PIL filed by the Chamber of Tax Consultants [CTC v.UOI (2014) 271 CTR 155/ 227 Taxman 143 (Mag) (Bom) (HC)] for the extension of the date for filing of the return. Honorable Mr. Justice M.S.Sanklecha and Honorable Mr. Justice Nitn Jamdar continued the hearing till 8.30 PM in the night,dictated the order, uploaded the order immediately on the website of the High Court and provided a copy to the petitioner. This shows the sincerity of the judge for rendering justice to the tax payers of our country.

I, on behalf of myself and the Tax Bar, wish the Honorable Mr.Justice M.S. Sanklecha a happy and healthy retired life and his knowledge on the subject of taxation will immensely benefit the tax payers and tax practitioners of Mumbai.

–Dr. K.Shivaram, Senior Advocate

Message .

‘Honorable Mr. Justice M .S. Sanklecha has been presiding on the tax branch of the Bombay high Court for the past many years and has authored many landmark judgments. We wish him all the best for the future.’

–Vinay Patkar

IMPORTANT JUDGEMENTS DELIVERED BY MR .JUSTICE M.S. SANKLECHA

1. S. 10A: Free trade zone – Condition to claim deduction was satisfied in first assessment year -Exemption in subsequent years cannot be denied.

The benefit of deduction under section 10A is available for a particular number of years on satisfaction of certain conditions under provisions of Act, and unless relief granted for first assessment year in which claim is made and accepted, is withdrawn or set aside, AO cannot withdraw relief for subsequent years.

CIT v.Western Outdoor Interactive (P.) Ltd.(2012) 349 ITR 309/ 25 taxmann.com 340 (Bom.) (HC)

2. S. 28(i): Business loss- Bad debts – If the conditions of bad debt is not satisfied loss can be allowed as business loss- Tribunal should have considered alternative claim as business loss. [ S.36(2), 254(1)]

If an amount claimed as bad debt is held to be not deductible in view of non-compliance of condition provided under section 36(2), same could be considered as an allowable business loss- Even if amount in question was not allowable as bad debts, Tribunal ought to have considered assessee’s claim for deduction as business loss

Harshad J. Choksi v.CIT (2012) 349 ITR 250 / 25 taxmann.com 567 (Bom.) (HC)

3. S. 41(1): Profits chargeable to tax – Remission or cessation of trading liability – liability to repay the loan –
liability to repay a loan taken to purchase a capital asset does not result in a revenue receipt and it is neither taxable under section 41(1) nor it result in a revenue receipt and it is not taxable under section 28(iv)of the Act.
CIT v. Xylon Holdings (P.) Ltd. (2012) 26 taxmann.com 333/ 211 Taxman 108 (Mag.) (Bom.) (HC)

4. S. 41(1): Profits chargeable to tax – Remission or cessation of trading liability – Waiver of loan- Cannot be assessed as cessation of liability or as business income.[ S.28(iv) ]

Dismissing the appeal of the revenue the Court held that argument of Revenue that loan taken from agents/ dealers is on revenue account or that on waiver of the loan, its character undergoes a change and it becomes on revenue account is not correct. S. 28(iv) & 41(1) cannot apply if the loan is on capital account and the assessee has never claimed any deduction therefor in the past (Solid Containers Ltd v. Dy CIT (2009) 308 ITR 417 (Bom) (HC) distinguished, CIT v. Mahindra and Mahindra Ltd (2018) 404 ITR 1 (SC) followed)
PCIT v. Colour Roof (India) Ltd.(Bom)(HC),www.itatonline.org

5. S.45: Capital gains- Business income – Sale of shares- Held to be capital gains. [ S.28 (i)]

Assessee by purchasing shares acquired right to manage MABL Shares acquired by assessee were not freely transferable but regulated and restricted by shareholders’ agreement. Assessee purchased shares out of its own funds and held those shares for almost 31 months before selling them. Income arising from sale of said shares was to be taxed as capital gain.

Accra Investments (P.) Ltd. v. ITO (2013) 359 ITR 116 / 38 taxmann.com 188 (Bom) (HC)

6. S 45: Capital gains – Pledge of shares – No transfer- Not liable to capital gain tax. [ S. 2 (47)]

Where there was no transfer of shares but only a pledge of shares for purposes of obtaining a loan and revenue has not disputed fact of return of loan and also receipt of pledged shares creditor, no capital gain could be charged.

CIT v. Reliance Communication Infrastructure Ltd. (2012) 28 taxmann.com 302 / 254 CTR 251 (Bom) (HC)

7. S. 54EC: Capital gains – Investment in bonds – If bonds of assessee’s choice are not available throughout period of six months – Time to invest in bonds would automatically get extended till bonds are available in market.[ S.45 ]

Section 54EC gives a choice to assessee to invest either in bonds of Rural Electrification Corporation Limited or NHAI,. Revenue cannot insist assessee to invest its capital gain on sale of property in a particular bond only. If bonds of assessee’s choice are not available throughout period of six months as provided under section 54EC, time to invest in bonds would automatically get extended till bonds are available in market and assessee can purchase same and claim exemption under section 54EC accordingly.

CIT v.Cello Plast(2012) 24 taxmann.com 111/ 253 CTR 246 (Bom.) (HC)

8. S. 80HHC: Deductions – Exporters – Where assessee was engaged in export of iron ore and extraction of ore was its main activity, amount received by it for extraction would be included in total turnover

The assessee carried on business of mining and export of iron ore. It entered into agreements with mine owners to extract ore from their mines for a consideration. However, the same was subject to a condition that such ore would be sold only to the assessee and the expenditure incurred by the assessee to extract the ore would be deducted from the purchase price payable by the assessee to the mine owners.

The court held that the extraction of ore was an activity in which the assessee was engaged in and therefore, any amount received for extraction would certainly be included in the turnover of the assessee.

Sesa Goa Ltd. v. CIT [2017] 81 Taxmann.com 98 (Bom) (HC)

9. S.80IB(10): Housing projects – Undisclosed income – Eligible to deduction . [ S.69A, 158BB(1) ]

Assessee declared undisclosed income which was received in course of carrying out business activities.Assessee claimed deduction under S. 80-IB(10) while computing undisclosed income. Court held that in view of amendment made in Explanation (a) to section 158BB(1) by Finance Act, 2002, with retrospective effect from 1-7-1995, while computing undisclosed income for block period assessee was entitled to claim deduction from its income under section 80IB (10) of the Act.

CIT v.Sheth Developers (P) Ltd. (2012) 25 taxmann.com 173 / 254 CTR 127 (Bom.) (HC)

10. Section 94 of the Income-tax Act, 1961 – Avoidance of tax by certain transactions in securities – Mutual fund units
Units of a mutual fund are governed by provisions of section 94(7)(b)(ii). Therefore, where assessee sold units of mutual fund without holding them for a period of nine months from record date, in view of amendment made to section 94(7)(b)(ii) by Finance Act (No. 2) of 2004, loss arising on sale of said units was rightly disallowed by authorities below

Sista’s (P.) Ltd. v. CIT [2012] 27 taxmann.com 236 (Bom.)

11. S.139: Return- Tax audit time was extended – Representation for made by the petitioner to extend the time for filing of return was directed to be heard before 30 -09 2014.[ S.44AB]

Petition seeking extension of time for filing return of income from 30-9-2014 to 30-11-2014 was disposed of with a direction to CBDT to consider petitioner’s representation and take a just and proper decision before 30-9-2014. (AY. 2014 15) . (Note CBDT extended the date)

Chamber of tax consultants v.UOI (2014) 227 Taxman 143 (Mag.) /271 CTR 155 (Bom) (HC)

12. S. 139: Return – Extention of time for filing return- CBDT is directed to extend the time to file return up to 31-10 -2015 [ S.119 ]

CBDT is directed to issue order/notification under section 119 and extend due date for E-filing of income tax returns in respect of assessee who are required to file return of income by 30-9-2015 to 31-10-2015

CIT v. The Chamber of Income Tax Consultants (2015) 378 ITR 188 (Bom) (HC)

13. S. 147: Reassessment – Professional receipt – 30 percent expenditure – Reassessment is held to be not valid[S.148]

Assessee’s claim for expenditure at 30 per cent of professional receipts in revised return of income which was later withdrawn was subject matter of consideration of Assessing Officer at time of passing original assessment order, Assessing Officer could not reopen assessment on ground that income representing said expenditure had escaped assessment.

CIT v. Amitabh Bachchan (2013) 349 ITR 146 / 33 taxmann.com 535 (Bom) (HC)

14. S.147: Reassessment – Audit objection- Issue already considered during original assessment proceedings – Reassessment is held to be not valid [ S.148 ]

AO passed assessment order under section 143(3). Audit authority raised some audit objections – In view of this, AO reopened assessment – Reasons recorded by AO were identical to objections of audit authority and existing material was already on record – Since there was no independent application of mind by AO before he issued notice, and further since same facts were not only before AO but he had also viewed very issues on which assessment was sought to be reopened, impugned notice issued under section 148 was without jurisdiction.

ICICI Home Finance Co. Ltd.v.ACIT (2012) 25 taxmann.com 241 (Bom.) (HC)

15. S. 151: Reassessment – Sanction for issue of notice – Sanction by CIT – Act provides sanction by JCIT –

Reassessment is held to be bad in law[ S. 147, 158]
Court held that when Act provides for sanction by JCIT the sanction by the CIT does not meet the requirement of the Act and the reopening notice is without jurisdiction. The fact that the sanction is granted by a superior Officer is not relevant.

PCIT v Khusbhu Industries ( Bom) (HC) www.itatinline .org .

16. S. 226: Collection and recovery – Modes of recovery – Withdrawing money from Bank by misrepresentation- Held liable to contempt of Court. [ S. 254(1), Contempt of Courts Act, 1971, S.2 (c ) ]

Where bank account of assessee was attached by revenue for recovery of tax demand and appeal was pending, withdrawing money from attached bank account by misinforming bank that High Court gave directions that relevant amount would not be appropriated against tax dues, would amount to contempt of Court.Respondents were ordered to undergo simple imprisonment in civil prison for seven days and also to pay a fine of Rs.2,000/- each within a period of four weeks from today.
High Court in its Own Motion v. M.N. Navale(2018) 98 taxmann.com 477 (Bom) (HC)

17. S. 254(1): Appellate Tribunal – Precedent – Binding nature – Jurisdictional High Court – Writ is maintainable.[S.14A, Art. 226 ]

Law declared by the decision of the High Court will be binding upon all authorities and Tribunals functioning with in State. Duty of Tribunal to follow decision of jurisdictional High Court and Co. – Ordinate Tribunal. Writ is maintainable.

HDFC Bank Ltd. v. DCIT (2016) 383 ITR 529 / 132 DTR 89 / 284 CTR 414 (Bom.)(HC)

18. S.254(2): Appellate Tribunal – Rectification of mistake – While recalling the order the Tribunal is not entitle to observe on merit. [ S.158BD]

While recalling its order and placing it before a regular Bench to adjudicate/decide merits of appeal, Tribunal is not entitled to observe on merits of adjudication.

Gyan Construction Co. v. ITAT (2015) 231 Taxman 68 (Bom.)(HC)

19. S. 260A: Appeal – High Court-Jurisdiction – Order of Tribunal -Appeal against order of Appellate Tribunal, Bangalore could only be filed before Karnataka High Court[ S. 269]

Appeal from order of Tribunal is to be filed to High Court which exercises jurisdiction over the Tribunal. The seat of Assessing Officer would not decide jurisdiction of High Court at time of appeal.

PCIT, Pune v.Sungard Solutions (I) (P.) Ltd. (2019)415 ITR 294 (Bom) (HC)

20. S. 260A: Appeal -High Court – Appointment of departmental counsel- General guidelines – System of keeping of record by department -distribution of work amongst panel of advocates of revenue.

High court held that;

(1). Renewal of appointment of counsel on basis of number of cases won by counsel for department was held to be not justified.

(2). Emphasised that department must have in place a system of keeping a record of questions of law which have been admitted or dismissed by Court as it would enable a consistent stand being taken by revenue when a similar question arises before same or different Bench of Court.

(3). Framing of a substantial question of law needs legal acumen and experience in drafting to bring out controversy appropriately; therefore, framing of question of law should be done by counsel briefed to draft appeal, no doubt with aid/assistance of Officers of revenue involved in matter.

(4). Quality of Advocate would be best judged by his performance and not by result of litigation and this evaluation can take place only when advocate is seen in action.

CIT v.TCL Ltd (2016) 241 Taxman 138 (Bom) (HC)

21. Section 264, read with section 10(34) and 10(38), of the Income-tax Act, 1961 – Revision – Of other orders
Circulars and Notifications : Circular dated 11-4-1985
Where in return of income, assessee had sought to exclude its dividend income and long-term capital gains from sale of shares under section 10 but by mistake, omitted to exclude them, Commissioner should rectify return [In favour of assessee]

Sanchit Software & Solutions (P.) Ltd.v.Commissioner of Income-tax-8 [2012] 25 taxmann.com 123 (Bom.)

22. S.271(1)(c): Penalty—Concealment- Initiation for one default and levy for another default – levy of penalty is held to be not valid.

Assessing Officer initiating penalty proceedings for furnishing of inaccurate particulars of income and imposing penalty for concealment of income. Levy of penalty was held to be not valid.

CIT v. Samson Perinchery (2017) 392 ITR 4 (Bom.)(HC)

23. S. 281B: Provisional attachment – Withdrawal from Bank – Held to be not proper- Conduct of lower authorities was high handed and manifestly unfair . [ S.220, 245]
A.O. passed an order for provisional attachment under section 281-B attaching petitioner’s bank account without any basis for apprehension. Rejected petitioner’s application against this, by a non-speaking order. Further, A.O. withdrew certain amount from petitioner’s bank account even before hard copy of order/notice was served upon petitioner. Court held that the conduct of lower authorities was high handed and manifestly unfair towards petitioner. The stay was to be granted without there being any material change in facts or law. Reasonable notice should be given to petitioner before such withdrawal towards adjustment.

Milestone Real Estate Fund v. ACIT (2019) 415 ITR 467 /105 taxmann.com 292 (Bom) (HC)