DIRECT TAXES

Supreme Court

Madhur Agrawal, Niraj Sheth, Nikhil Ranjan & Nishanth Thakkar

1. S. 9 : Income deemed to accrue or arise in India Finance Act, 2010

Since by Finance Act, 2010, section 9 has been amended with effect from 1-6-1976, department was permitted to move to High Court by way of review petition against its judgment in Jindal Thermal Power Co. Ltd. vs. Dy. CIT (2009) 182 Taxman 252 (Kar.)

Dy. CIT vs. Jindal Thermal Power Co. Ltd. (2011) 196 Taxman 495 (SC)

2. Article 245 of the Constitution Ss. 9(1)(i), (vii)(b), Income Tax Act Extra-territorial Jurisdiction Legislative Power of the Parliament

Parliament is empowered to make laws, with respect to aspects or causes that occur, arise or exist, or may be expected to do so, within the territory of India, and also with respect to extra-territorial aspects or causes that have an impact on or nexus with India. Such laws would fall within the meaning, purport and ambit of the grant of powers to Parliament to make laws "for the whole or any part of the territory of India", and they may not be invalidated on the ground that they may require extra-territorial operation. Any laws enacted by Parliament with respect to extra-territorial aspects or causes that have no impact on or nexus with India would be ultra vires Parliament and would be laws made "for" a foreign territory.

G.V.K. Industries Ltd. and Another vs. ITO and Another (2011] 332 ITR 130 (SC) / (2011) 52 DTR 1 (SC)

3. S. 28(va) Business income- Non-compete Fee Capital Revenue Receipt

An assessee, engaged in manufacturing, selling and distribution of pharmaceutical and medical preparations, received payment of a sum under a non-compete agreement (negative covenant) pursuant to transfer of trademarks. The agreement was for a period of 20 years and the payment was made in consideration of the restrictive covenant undertaken by the assessee for loss of a source of income. The payment received by the assessee was held to be in the nature of capital receipt. It should be noted that it is only by section 28(va) inserted by Finance Act 2002 w.e.f.
1-4-2003, which is amendatory and not clarificatory that the said capital receipt is now made taxable.

Guffic Chem. P. Ltd. vs. CIT / CIT and Another vs. Mandalay Investment P. Ltd. (2011) 332 ITR 602, 239 CTR 225, 198 Taxman 78 (SC) / (2011) 52 DTR 289 (SC)

4. S. 80HH : Process of ship breaking activity, whether "production" of "new goods" Words and Phrases "Manufacture" and "Production", scope of

In view of Explanation 2 added to section 10(15(iv)(c), usance interest paid for purchase of imported ship for ship breaking is exempt from payment of income tax. Distinct articles emerge in process of ship breaking. Process of ship breaking is akin to "production". Assessee entitled to benefit of sections 80-HH and 80-I.

"Manufacture" and "Production" are distinct terms. Reiterated, "production" has a wider connotation than "manufacture". "Production" takes in bringing into existence new goods by a process which may or may not amount to "manufacture". It also includes bye-products, intermediate products and residual products which emerge in course of manufacture of goods.

Vijay Ship Breaking Corporation and Others vs. CIT (2010) 10 SCC 39

5. S. 115JA : MAT Credit admissible against tax payable Interest (Ss. 234A, 234B)

MAT credit admissible in terms of section 115JAA has to be set off against the assessed tax payable, before calculating interest under sections. 234A, 234B and 234C. There is no provision under section 115JAA which postpones the right of the assessee to claim set off to the determination of the total income by the Assessing Office.

A form prescribed under the Rules can never have any effect on the interpretation of the parent statute.

CIT vs. Tulsyan NEC Ltd. (2011) 330 ITR 226 (SC) / (2011) 2 SCC 1 / (2011) 49 DTR 129 196 Taxman 181 (SC)

6. S. 115JB : Book Profits Computation Reduction of net profit by amount withdrawn from revaluation reserve

Held reduction of revaluation reserve from the net profit under clause (i) to the Explanation of section 115JB could be availed of only if such revaluation reserve had gone to increase the book profits.

Indo Rama Synthetics (I.) Ltd. vs. CIT (2011) 330 ITR 363 (SC) / (2011) 2 SCC 168 / (2011) 49 DTR 241 (SC)

7. S. 145 : Method of Accounting Rejection of Accounts Reference to Valuation Officer

Assessing Authority cannot refer any matter to the Departmental Valuation Officer without books of account being rejected.

Sargam Cinema vs. (2011) 197 Taxman 203 (SC)

8. S. 194J : Tax Deduction at Source Fees for Technical Services TDS on interconnect / access/port charges under interconnect agreement between cellular service providers

In the present case the question, whether cellular services provider had rendered technical services and therefore required to deduct tax at source, was a matter requiring examination by technical experts. Held the Department should not have proceeded merely on the basis of contract between the parties. Matter remanded to the Assessing Officer.

CIT vs. Bharti Cellular Ltd. / CIT vs. Hutchinson Essar Telecom Ltd. (2011) 330 ITR 239 (SC)

9. S. 234B : Interest MAT Book Profits Advance Tax (S. 115JAB) Circular No. 13 of 2001 dated November 9, 2001

Sections 115JA/115JB is not excluded from levy of interest under section 234B.

Jt. CIT vs. Rolta India Ltd. (2011) 330 ITR 470 (SC) / (2011) 2 SCC 408 / (2011) 49 DTR 346 (SC)

10. S. 260A : Appeal High Court Substantial Question of Law Cash Credit (S. 68)

It is manifest from a bare reading of section 260A of the Income-tax Act, 1961, that an appeal to High Court from a decision of the Tribunal lies only when a substantial question of law is involved, and where the High Court comes to the conclusion that a substantial question of law arises from the order of Tribunal, it is mandatory that such questions must be formulated. A finding of fact may give rise to a substantial question of law, inter alia, in the event the findings are based on no evidence and / or while arriving at the said finding, relevant evidence has been taken into consideration or legal principles have not been applied in appreciating the evidence, or when the evidence has been misread. On the facts the Tribunal has given a finding that the assessee has failed to prove the source of cash credit satisfactorily hence, no question of law arise from the order.

Vijay Kumar Talwar vs. CIT (2011) 330 ITR 1 (2011) SCC 673 (SC)

11. S. 269UA(f)(i) :Acquisition of property by Central Government Submission of Form 37-I

The property was let out for 9 years renewable at option of lessee for a further period of 9 years. The lessor could not have refused the renewal if the lessee had complied with the conditions. Held amounted to a lease of more than 12 years. Therefore, Explanation to s. 269UA(f)(i)
was attracted and the parties were obliged to submit Form 37-I within 15 days of draft
agreement.

Govind Impex P. Ltd. and Others vs. Appropriate Authority, Income-tax Department (2011) 330 ITR 10 (SC) / (2011) 1 SCC 529

12. Natural Justice : Adjudication Duty of Disclosure Extent and Scope Foreign Exchange Management (Adjudication Proceedings & Appeal) Rules, 2000 R.4(1)

The documents which the appellants wanted were documents upon which no reliance was placed by the authority for setting the law into motion. The demand for supply of all documents in possession of the authority was based on vague, indefinite and irrelevant grounds. The appellants were not sure whether they were asking for copies of documents in the possession of the adjudicating authority or in the possession of the authorized officer who lodged the complaint. The only object in making such demand was to obstruct the proceedings.

Kanwar Natwar Singh vs. Director of Enforcement (2011) 330 ITR 374 (SC) / (2010) 160 Comp Cas
301 (SC)

13. Appeal Inter Departmental Litigation Public Sector Undertakings Clearance from Committee on Disputes Supreme Court recalls law requiring PSUs to obtain COD approval

Larger Bench of Supreme Court recalled its order laid down in ONGC vs. CCE 104 CTR (SC) 31 and ONGC vs. CIDCO (2007) 7 SCC 39, that no litigation could be proceeded with in the absence of COD approval in case of dispute between Government and PSUs.   It was held that 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. Thus, in view of the said circumstances it was decided by Larger Bench to recall the directions of this Court.

Electronics Corporation of India Ltd. vs. UOI / CCE vs. Bharat Petroleum Corpn. Ltd. (2011) 51 DTR 193 / 238 CTR 353 / 332 ITR 58 (SC) (5 Member Bench).

14. Finance Act, 1994, Ss. 65(105)(zzzy) & 65(105)(zzzj) Marine logistic services Service in relation to mining of mineral, oil or gas Whether Taxable Service

Members of the respondent association supply offshore supply vessels to carry out jobs like anchor handling, towing of vessels, carrying men and materials between base and offshore installations, and provide stand by and rescue operations to ONGC. None of the aforesaid work can be said to be a service rendered in relation to mining of mineral, oil or gas. Therefore, the work carried out by the members of the respondent association cannot be said to be included within the ambit of the expression as found in s. 65(105)(zzzy).

UOI & Ors. vs. Indian National Shipowners Association & Ors. (2011) 51 DTR 139 (SC)

15. Constitution of India, Article 226; Finance Act, 1994, Ss. 65(105)(n), 65(115), 66 & 83 Writ Locus Standi

Show cause notices were issued to private bus operators to levy service tax vis--vis buses hired by petitioner appellant. Appellant herein was merely requested to supply the list of contractual assignment entered into between the private parties who have offered their buses on rent basis to the appellant. Since payment of such tax is demanded from the private bus operators, if anybody is really aggrieved, it is those bus operators and not the appellant. Therefore, appellant had no locus standi to file the writ petition as also the instant appeal to challenge the notices issued by the respondents.

U.P.S.R.T.C. vs. CCE & Anr. (2011) 51 DTR 145 (SC)

16. Condonation of Delay Substantial Justice Appeal Unless mala fides are writ large, delay should be condoned. Matters should be disposed of on merits and not technicalities

Justice can be done only when the matter is fought on merits and in accordance with law rather than to dispose it of on such technicalities and that too at the threshold. Unless malafides are writ large on the conduct of the party, generally as a normal rule, delay should be condoned.

Improvement Trust vs. Ujagar Singh (2010) 6 SSC 786 / 6 Scale 173 (Supreme Court) Source: www.itatonline.org