Supreme Court
1. SC: Importer’s Admission Under Sec. 108 Makes DRI’s Electronic Evidence Admissible Without Sec. 138C(4) Certificate
Additional Director General, DRI vs Suresh Kumar & Co. Impex Pvt Ltd
Considering the Record of Proceedings duly signed by the respondents-importers, including their various statements recorded under Section 108 of the Customs Act, the Supreme Court clarified that when there was due compliance with Section 138C(4) of the Customs Act, which meant that a particular certificate stricto senso in accordance with Section 138C(4) must necessarily be on record, and at no point of time the statements recorded under Section 108 were retracted, the evidentiary value of such statements shall not be discarded.
The Apex Court therefore ruled that the electronic evidence seized by the Directorate of Revenue Intelligence (DRI) is admissible even without a certificate under Section 138C(4), when the importer has duly acknowledged these documents in devices in their statements recorded under Section 108 of the Customs Act.
The Division Bench comprising Justice J B Pardiwala and Justice KV Viswanathan observed that Section 138C(4) makes it abundantly clear that if any statement is to be read into evidence and such documents are computer printouts, then a certificate has to be obtained in accordance with (a), (b), and (c) of sub-section 4. The Indian Evidence Act also declares that the expressions “Certifying Authority”, “electronic signature”, “Electronic Signature Certificate”, “electronic form”, “electronic records”, “information”, “secure electronic record”, “secure digital signature”, and “subscriber” shall have the meanings respectively assigned to them in the Information Technology Act.
2. Supreme Court Bars Parallel Tax Proceedings Once Intelligence-Based Action Is Initiated
Armour Security India Ltd. vs Commissioner CGST
While clarifying that Clause (b) of sub-section (2) of Section 6 of the CGST Act, along with its equivalent provisions in State enactments, bars the initiation of any proceedings on the “same subject matter”, the Supreme Court clarified that actions arising from audits or detailed scrutiny of returns must be initiated by the Commissionerate to which the taxpayer is assigned, but intelligence-based enforcement actions can be initiated by either the Central or State tax Commissionerate, regardless of the taxpayer’s assigned Commissionerate.
The Division Bench comprising Justice J B Pardiwala and Justice R Mahadevan observed that parallel proceedings should not be initiated by one tax administration when the other has already taken intelligence-based enforcement action. Since “Initiation of any proceedings” refers to the formal commencement of adjudicatory proceedings, such as the issuance of a show cause notice, but does not include actions like the issuance of a summons or conducting searches or seizures, the Bench explained that probing, inquiry, or gathering of evidence does not constitute “proceedings” under Section 6(2)(b) of the CGST Act.
3. Major Relief for ITC : SC Holds Officer Conducting Search and Seizure Cannot Bypass Requirements u/s 15 of Legal Metrology Act & CrPC
ITC Limited vs State of Karnataka
While granting relief to ITC, the Supreme Court quashes the seizure and compounding notices issued by the concerned officer in complete disregard of the mandatory safeguards prescribed under Section 15 of the Legal Metrology Act, 2009, and Sections 165, 100(4), and 100(5) of the CrPC. Highlighting that compliance with statutory procedures, including recording “reasons to believe” before initiating search or seizure, is incumbent upon officials, and that non-compliance renders the action futile, the Apex Court ruled that a search & seizure in the absence of a warrant is not justified.
The Two Judge Bench comprising Justice J B Pardiwala and Justice R Mahadevan observed that merely because a place is open at the time of visit does not mean that the requirements under Section 15 of the 2009 Act, or the CrPC can be bypassed, and any officer intending to conduct a search or inspection and effect a seizure, cannot forcibly enter premises without a warrant or reasons duly recorded.
4. Provisional Attachment Cannot Be Used as Recovery Tool; Supreme Court Quashes GST Dept’s Renewal Action
Kesari Nandan Mobile vs Office of Assistant Commissioner, State Tax
While explaining the maxim “ut res magis valeat quam pereat”, the Supreme Court emphasized that a statute is to be interpreted in a way that gives the law force rather than makes it fail, and therefore, allowing the Revenue Department to issue fresh provisional order of attachment after initial order lapsed by operation of law, or to renew such lapsed order, would render text of Section 83(2) of the CGST Act, 2017, otiose. Accordingly, the Court also quashed the fresh attachment orders.
The Division Bench comprising Justice Dipankar Datta and Justice Augustine George Masih observed that there is a complete absence of any executive instruction consistent with the legislative policy and intendment of the CGST Act authorizing renewal of a lapsed provisional attachment order. That apart, having regard to the draconian nature of power conferred on the revenue by sub-section (1) of Section 83 of the CGST Act to levy a provisional attachment, the terms of the entire section have to be construed in a manner so that sub-section (2) of Section 83 is not effectively reduced to a dead letter.
5. Supreme Court exempts LG Electronics from customs duty payable on “G Smart Watch” imported from Korea
L.G. Electronics India vs Commissioner of Customs
The Supreme Court exempted LG Electronics India (appellant) from payment of customs duty on the “G Smart Watch” imported from the Republic of Korea, by holding that its classification within Entry 8517 6290 as a ‘timekeeping device’, shall not disentitle it from seeking the benefit of the Notification No.152/2000–CUS dated December 31, 2009, which exempts certain goods falling under the First Schedule to the Customs Tarriff Act, 1975, that where imported into India from the Republic of Korea.
The Two Judge Bench comprising Justice J.B. Pardiwala and Justice Sandeep Mehta observed that the Certificate of Origin declared by the exporter and certified by the Customs Department makes it very clear that the goods were imported and originated from the Republic of Korea. Accordingly, the Bench allowed the appeal in favour of LG Electronics.
6. SC Applies ‘Transformation’ And ‘Marketability’ Test; Declares Onshore Drilling Contractor Liable To Excise Duty
Quippo vs Commissioner of Central Excise
Observing that both the ‘transformation test’ and the ‘marketability test’ stand fulfilled, the Supreme Court ruled that the process of placing the Genset within the steel container and fitting that container with additional, integral components brings into existence a new, distinct, and marketable commodity, which would amount to “manufacture” under Section 2(f)(i) of the Central excise Act, 1944. Consequently, the Apex Court held the appellant (onshore drilling contractor) liable to pay excise duty on the goods manufactured by it.
The Two-Judge Bench comprising Justice J.B. Pardiwala and Justice K.V. Viswanathan observed that the change in the form/structure and the addition of new components to the imported Genset have transformed it and brought into existence a different product, i.e., the Power Pack, which has its own distinct character and identity. The Bench also explained that determining the ‘character’ and ‘identity’ of goods is an inherently fact-specific inquiry, necessitating assessment on a case-by-case basis. Given the vast diversity of products and manufacturing processes, it is impossible to lay down a universal definition for these terms.
High Court
Madhya Pradesh High Court
1. MP High Court Slams I-T Dept Over Illegal Jewellery Seizure; Orders ₹50K Costs Against Officers
Arihant Jewellers vs Principal CIT
While quashing the reopening proceedings under Section 148 of the Income Tax Act against an employee of Sequel Logistics, who was present in the vehicle carrying 37 sealed jewellery consignments valued at over Rs. 6 crores, which was intercepted by the Static Surveillance Team (SST), during the enforcement of the Model Code of Conduct in connection with the Legislative Assembly Elections in Madhya Pradesh, as baseless, the Madhya Pradesh High Court (Indore Bench) declared the SST seizure and Income Tax requisition as illegal for violating SOPs and statutory provisions, and directed the Deputy Commissioner of Income Tax to release the jewellery consignments to rightful owners upon verification. Additionally, the Court also awarded costs of Rs. 50,000 to each petitioner, payable jointly and severally by the Respondent Department Officers.
The Division Bench comprising Justice Vivek Rusia and Justice Binod Kumar Dwivedi reviewed the Standard Operating Procedure (SOP) issued by the Election Commission, which mandates that cash or valuables can only be seized when there is a clear link to electoral misuse, and noted that the SST and District Grievance Committee (DGC) did not record any satisfaction that the seized jewellery was to be used for influencing voters, nor did they link the consignments to any political party, candidate, or election campaign. The Bench therefore found clear disregard of SOP, which stipulated that if no electoral offence or FIR is registered, seizure must not be prolonged and valuables must be returned to the person from whom they were taken.
2. Madhya Pradesh HC Denies Customs Duty Rebate to Ranbaxy Over Failure to Submit ARE-1 Forms
Ranbaxy Laboratories vs Union of India
While clarifying that the goods that are being brought to the place of export should be accompanied by ARE-1 to satisfy that the identity and quantity of the goods are the same as are mentioned in the ARE-1, the Madhya Pradesh High Court (Indore Bench) has ruled that the failure of the Petitioner/ Pharmaceutical manufacturer to follow such procedure disentitles him for the rebate on the exported goods in the absence of ARE-1, and the conduct of the Authority in denying such refund is perfectly justified. The Court also clarified that mere shipping bills and export invoices shall not entitle the manufacturer to the rebate of duty paid on exported goods if he deviates from the prescribed procedure and fails to accompany ARE-1 forms.
The Division Bench comprising Justice Vivek Rusia and Justice Binod Kumar Dwivedi emphasized that ARE-1 is not a mere procedural formality but a foundational document under Rule 18 of the Central Excise Rules and CBEC’s Excise Manual, which ensures that the goods cleared from the factory are the same as those exported. Absence of correlation between the two hinders the verification process, and therefore, non-compliance with such a mandatory condition renders it an incurable irregularity.
Madras High Court
Madras HC: CIT Cannot Invoke Sec. 263 to Substitute ITO’s View Unless Order Is Erroneous; Clarifies ‘Lack of Inquiry’ vs ‘Inadequate Inquiry’
Arul Industries vs Additional CIT
The Madras High Court ruled that an order cannot be termed as erroneous unless it is not in accordance with law, and if the Income Tax Officer, acting in accordance with law, makes certain assessment, the same cannot be branded as erroneous by the Commissioner, simply because, according to the Commissioner, the order should have been written more elaborately. The Court clarified that Section 263 does not visualize a case of substitution of the judgment of the Commissioner or that of the Income Tax Officer, who passed the order, unless the decision is held to be erroneous.
The Court added that there must be some prima facie material on record to show that the tax which was lawfully eligible has not been imposed or that by wrong application of the relevant statute on an incorrect or incomplete interpretation, a lesser tax than what was just has been imposed. Since the facts of the present case do not show any case of violation of provisions of law, warranting inference with the order drawn by the AO, the Court allowed the appeal in favour of the taxpayer.
While pointing out that the present case is not classifiable as a case of “lack of inquiry”, the Division Bench comprising Chief Justice Manindra Mohan Shrivastava and Justice Sunder Mohan observed that once there is an inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass order under Section 263 of the Income Tax Act merely because he has a different opinion in the matter. The Bench clarified that such a difference of opinion cannot be said to be a case of erroneous order and prejudicial to the interest of the Revenue.
Chhattisgarh High Court
1. Duty Credit Scrips Are Export Incentives, Not Meant for GST Set-Off: Chhattisgarh High Court Denies BALCO Retrospective ITC Benefit
Bharat Aluminium Company Limited vs State of Chhattisgarh
The Chhattisgarh High Court ruled that Duty Credit Scrips (DCS) are an incentive given to exporters for promoting exports and can be used for setting off Customs Duty, but cannot be used for setting off GST. The Court noted that since DCS is considered as ‘goods’ with HSN 4907 and its supply is exempted from GST, the exemption has been granted by Notification No.35/2017 issued in exercise of the power conferred under Section 11 of the CGST Act.
A Single Judge Bench of Justice Sanjay K Agrawal observed that by an amendment dated July 05, 2022, sale of DCS was excluded from ‘aggregate value of exempt supply’ for the purpose of Rule 42, and therefore, after the amendment, the ITC is available to the BALCO Plant (Petitioner) even on supply of DCS, despite being an ‘exempt supply’, which the petitioner is claiming that the amendment be declared clarificatory and be given retrospective effect so that the petitioner can enjoy the benefit of ITC on sale of DCS from the date of enactment of the CGST Act.
2. Chhattisgarh HC Holds Land Acquisition Compensation Received From NHAI Is Exempt Under Sec 96 Of Income Tax Act
Sanjay Kumar Baid v Income Tax Officer
The Chhattisgarh High Court (Bilaspur Bench) has held that land acquisition compensation from NHAI, determined per the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (RFCTLARR Act), is exempt from income tax by virtue of Section 96 of the Income Tax Act. Accordingly, the Court directed the AO to pass orders in line with this legal position, ensuring the appellant received the exemption as sought.
The Division Bench comprising Justice Sanjay K. Agrawal and Justice Sanjay Kumar Jaiswal observed that once compensation is determined under the RFCTLARR Act framework, the corresponding benefits, such as exemption from income tax, stamp duty, and fees under Section 96, automatically follow and must be extended to affected parties. Reference was made to the 2015 order of the Ministry of Rural Development, which mandated that landowners whose property is acquired under the National Highways Act, 1956 (included in the Fourth Schedule of the RFCTLARR Act) must receive compensation and benefits on par with those under the RFCTLARR Act, 2013.
Allahabad High Court
1. Allahabad High Court: GST Refund Cannot Be Denied to Exporter Merely for Quoting Wrong Provision
Bharat Mint & Aroma Chemicals vs Union of India
While allowing GST refund claims of an essential oil manufacturer & exporter, the Allahabad High Court ruled that citation of a wrong provision or typographical error in submission of the GST forms is no basis for rejecting substantive claims or denying rights accruing to the petitioner-taxpayer, when there is no dispute between the parties that the petitioner was entitled to CGST refund.
A Single Judge Bench of Justice Ajay Bhanot observed that when the application tendered by the petitioner (which is part of the Revenue’s records) had claimed a refund of CGST tax, the same cannot be denied simply because in the form for the tax refund, the amount was entered under an incorrect head, as the cause for such error is not relevant.
2. Allahabad High Court: GST Department can’t enforce demand against Corporate Debtor after approval of resolution plan by NCLT
The Allahabad High Court recently ruled that once the Resolution Plan has been approved by the National Company Law Tribunal (NCLT), all other creditors are barred from raising their claims subsequently, as the same would disrupt the entire resolution process. The Court therefore clarified that the demands raised by the GST Department against the Corporate Debtor (CD) are invalid and cannot be enforced.
The Division Bench comprising Justice Shekhar B. Saraf and Justice Praveen Kumar Giri observed that additional demands made by the GST Department (first respondent) in respect of the assessment years 2012-13 and 2013-14 will operate as roadblocks in implementing the approved Resolution Plan, and appellants will not be able to restart the operations of the CD on a clean slate.
3. Allahabad High Court: GST Department Cannot Invoke Section 74 of UPGST Act Without Proof of Fraud or Tax Evasion
Safecon Lifescience Private Limited vs Additional Commissioner
While quashing the proceedings initiated by the GST Department, the Allahabad High Court recently ruled that an incorrect statement, unless made with the knowledge that it was not correct, would not be a ground of wilful misstatement or suppression, and no inference can be drawn if full information has been disclosed without intent to evade payment of tax. Reference was made to the decision of the Apex Court in the case of Continental Foundation Joint Venture Holding, Nathpa, H.P. vs. Commissioner of Central Excise, Chandigarh-I [(2007) 10 SCC 337].
The Court emphasized that the GST regime has been brought in by the Central Government for ease of business in the country, but the revenue officers are bent on acting against the very theme/intent of it. When it was noticed that, under the garb of Section 74 of the UPGST Act, various dealers are being harassed, the Government issued a Circular dated December 13, 2023, specifically stating that proceedings under Section 74 of the Act can be initiated only if there is a fraud or wilful misstatement or suppression of fact to evade payment of tax and not otherwise.
A Single Judge Bench of Justice Piyush Agrawal observed that proceedings under Section 74 of the UPGST Act cannot be initiated once the actual movement of goods as well as payment of tax through the banking channel stands sufficiently established by the GSTR-3B of both the registered dealer/ manufacturer and the supplier.
Orissa High Court
Orissa High Court Declines to Stay ₹21 Lakh Tax and Penalty on BSNL; Says Revision under OST Act Not Maintainable in Writ
BSNL vs Additional Commissioner of CT & GST
Finding that the petitioner, though being aware of the legal position regarding the alternative remedy available under the Orrisa Sales Tax (OST) Act, has filed the writ with a view to dragging the proceedings and essentially postponing the payment of tax for a considerable period, the Orissa High Court has held that existence of jurisdictional fact is sine qua non or condition precedent for the exercise of power by a Court of limited jurisdiction.
The Court also clarified that where an adjudicatory process is involved on merits, then the only remedy open to an aggrieved is to go through the procedure provided under the enactment. Nonetheless, where a jurisdictional fact is absent, the Authority cannot wrongly assume the existence of a jurisdictional fact and proceed to decide a matter, and in such an eventuality, the order can be questioned by a writ of certiorari.
The Division Bench comprising the Chief Justice Harish Tandon and Justice Murahari Sri Raman observed that once the power of revision available to the Commissioner under Section 23(4)(a) read with Rule 79 has been delegated, and the Additional Commissioner has passed an order in suo motu revision under Section 23(4)(a) read with Rule 80, then the Commissioner cannot re-initiate the proceeding invoking said provision.
Delhi High Court
1. Common Area Maintenance charges paid by showroom owners to shopping malls are covered under Sec 194C, and not part of ‘rent’: Delhi High Court
The Delhi High Court recently clarified that since the Common Area Maintenance (CAM) charges paid by showroom owners to shopping malls are shared expenses contributed towards cleanliness, utilities, and maintenance, covered under provisions of Section 194C of the Income Tax Act, the said charges cannot be construed as payment of rent for occupying the premises in question. The Court therefore negated the concept of TDS u/s 194I on said CAM charges and dismissed the appeal in favour of the Respondent.
The Division Bench comprising Justice V. Kameswar Rao and Justice Vinod Kumar therefore ended the debate as to under which of the provisions, namely Section 194I or Section 194C of the Income Tax Act, the Tax Deducted at Source (TDS) liability shall be fastened on the Common Area Maintenance (CAM) charges. The Bench reiterated that as the CAM charges are a contractual payment made to a person for carrying out the work in lieu of a contract, the same would clearly fall within the meaning of “work” as defined in Section 194C of the Income Tax Act.
2. Delhi High Court: TDS Under Section 195 not Applicable on Sale of ‘Off-the-Shelf’ Software under Non-Exclusive License
Pointing out that shrink wrapped software does not transfer the right to use the copyright in it, the Delhi High Court recently clarified that the consideration for the resale/use of computer software through EULAs/distribution agreement is not Royalty for the use of copyright of the software and the same does not give rise to any taxable income in India and as a result, the persons referred to under Section 195 of the Income Tax Act were not liable to be deduct any TDS u/s 195.
This clarification was made by the Division Bench comprising Justice V. Kameswar Rao and Justice Vinod Kumar by referring to the decision of the Apex Court in the case of Engineering Analysis Centre of Excellence vs Commissioner of Income tax [2021 INSC 137], whereby it was held that “the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income Tax Act were not liable to deduct any TDS u/s 195”.
3. Classification of Hotels Based on Star Ratings Not Violative of Art. 14; Delhi HC Upholds Higher Property Tax by MCD
EROS Resorts & Hotel Limited vs Municipal Corporation of Delhi
The Delhi High Court recently upheld the classification of hotels based on star ratings for property tax purposes, ruling that it satisfies the constitutional requirements under Article 14 of the Constitution. On similar terms, the Court justified the imposition of a higher rate of property tax on luxury hotels by the Municipal Corporation of Delhi (MCD). The Court, however, granted liberty to the parties to approach the Municipal Taxation Tribunal for individual assessment order challenges.
A Single Judge Bench of Justice Purushaindra Kumar Kaurav observed that the star classification system constitutes a form of self-identification by hotels, representing their voluntary participation in a system designed to benchmark hospitality standards and amenities. Applying the doctrine of approbation and reprobation, the Single Judge clarified that hotels cannot seek the benefits of star accreditation for commercial advantage while simultaneously challenging the consequential fiscal obligations.
4. Delhi HC: No TDS Needed on Purchases From AEs Without PE in India; Relief Granted to Mitsubishi Under Sec. 40(a)(i)
Principal CIT vs. Mitsubishi Corporation (India)
The Delhi High Court recently reiterated that the business connection test has no relevance once it is established that the Associated Enterprises (AEs) does not have a Permanent Establishment (PE) in India. Reference was made to the provision of Section 90(2) of the Income Tax Act, which says that the taxpayer can take recourse to treaty provisions if they are more beneficial.
Accordingly, the Court held that purchases made by Mitsubishi Corporation (respondent-taxpayer) from its AEs cannot be disallowed under Section 40(A)(i) of the Income Tax Act for not deducting Tax at Source (TAS) under Section 195 of the Income Tax Act, since the AEs have no PE in India.
The Division Bench comprising Justice V. Kameswar Rao and Justice Vinod Kumar observed that Section 90(2) makes it abundantly clear that where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India for granting relief of tax, or avoidance of double taxation, then, in relation to the taxpayer to whom such agreement applies, the provisions of the Income Tax Act shall apply to the extent they are more beneficial to that taxpayer.
5. Delhi HC: Family Locker Vaults Can Be Seized Without Notice Upon ‘Reasons to Believe’ that Undisclosed Income has Escaped Assessment
Raj Krishan Gupta vs Principal Director of Income Tax
The Delhi High Court recently confirmed the uninformed search & seizure conducted by the Revenue Department under Section 132 of the Income Tax Act on Vault Lockers containing jewellery & bullion jewellery, owned by the petitioners and their family members, after finding that the Department had sufficient “reasons to believe” that benami and undisclosed income & assets, chargeable to tax, had escaped assessment.
The Division Bench comprising Justice V. Kameswar Rao and Justice Saurabh Banerjee observed that the formation of opinion and the “reasons to believe” recorded in the case of search under Section 132(1) of the Income Tax Act are not a judicial or quasi-judicial function but an administrative function. As such, the sufficiency of the information for forming the reasons to believe is not for a Writ Court to examine, and the only scope for judicial review in such matters is to examine if, in fact, there exist reasons to believe or if such reasons to believe are bona fide and not.
Bombay High Court
1. Bombay HC: Honorarium Paid By Hospitals To Consultant Doctors Is Not ‘Salary’; Does Not Attract Tax Under Sec 192 Income Tax Act
CIT vs Dr. Balabhai Nanavati Hospital
The Bombay High Court recently ruled that the variable remuneration paid to the honorary doctors appointed on a probationary basis, without any employee benefits such as PF/ ESIC facilities/ or perquisites, cannot be treated as “salary”, warranting any tax liability under Section 192 of the Income Tax Act. While holding so, the Court clarified that the respondent hospital has no real supervisory control in respect of the work entrusted to the consultant doctors, and there was no “employer & employee” relationship between the doctors and the hospital.
As far as the characterisation of the remuneration paid to the consultant/honorary doctors is concerned, the Division Bench comprising Justice B.P. Colabawalla and Justice Firdosh P. Pooniwalla found that these doctors are appointed firstly on a probationary basis, taking into consideration their qualification and expertise in the area of their specialization, and they do not receive any fixed monthly remuneration. The Bench also noted that a part of the remuneration paid by the patients towards these doctors is retained by the Hospital, and these doctors are also free to practice independently in other Hospitals too.
2. Payments under development agreement on a ‘principal-to-principal basis’, is not ‘commission/ brokerage’ to attract TDS u/s 194H Income Tax Act: Bombay High Court
CIT vs Nish Developers
The Bombay High Court recently ruled that there would have to be an element of agency to characterise any payment as “commission or brokerage”, as contemplated under Section 194H of the Income Tax Act. Reference was made to the decision of the Apex Court in the case of Commissioner of Income Tax, Ahmedabad vs Ahmedabad Stamp Vendors Association [(2014) 16 SCC 114], where it was held that “the definition of “commission or brokerage” as contained in the Explanation to Section 194-H is not so wide that it would include any payment receivable, directly or indirectly, for services in the course of buying or selling of goods, and an element of agency is to be there in case of all services or transactions contemplated by Explanation (i) to Section 194-H”.
The Division Bench comprising Justice B.P. Colabawalla and Justice Firdosh P. Pooniwalla observed that the Revenue Department has not challenged any of the factual findings given by the ITAT, the most important one being that the transactions entered into by the Respondent with another entity were on a principal-to-principal basis. Therefore, the Bench dismissed the appeal and granted relief to the respondent company, holding that once the transaction is accepted to be on a ‘principal-to-principal basis’, the payment of Rs. 80 crores by the Respondent in the course of the development agreement cannot be treated to be in the nature of “commission or brokerage”.
3. Bombay HC: Ad Hoc Estimation of Profit on Disputed Purchases Is No Basis to Levy Penalty u/s 271(1)(C), Income Tax Act
Commissioner of Income Tax vs Colo Colour Pvt Ltd.
The Bombay High Court recently clarified that penalty proceedings are distinct from assessment, and no penalty can be levied in the absence of clear evidence of fraud. The Court therefore deleted the entire penalty imposed on the respondent, observing that ad hoc estimation of profit on disputed purchases does not satisfy either the concealment or the inaccurate particulars threshold under Section 271(1)(c) of the Income Tax Act.
The Division Bench comprising Justice G. S. Kulkarni and Justice Aarti Sathe noted that the AO’s rejection of purchase invoices was primarily based on an internal “investigation” conducted by the department and inquiries made by the Sales Tax Department, which revealed certain entities as hawala dealers and accommodation bill providers. However, the AO failed to furnish specific evidence or documents to the respondent-taxpayer demonstrating the actual forgery or fictitious nature of the transactions.
4. Bombay High Court: No ITC Credit Without Tax Liability; Denial Of Reverse Charge Exemption To ‘Supplier Of Service’ Not Arbitrary Under Article 14
Eagle Security and Personal Services vs Union of India
The Bombay High Court recently clarified that Input Tax Credit (ITC) is in nature of benefit/ concession extended to person under statutory scheme, and even if it is held to be ‘entitlement’, it is always subject to restrictions under GST Act. The Court therefore ruled that merely because Reverse Charge Mechanism (RCM) is not made applicable to supplier of service who is body corporate, whereas it is made applicable to other person, is no ground to invoke Art 14 of Constitution to contend unequal treatment among equals.
The Division Bench comprising Justice M S Sonak and Justice Jitendra Jain observed that no provision of law can be struck down to make any business competitive for particular type of entity, and Article 19(1)(g) of Constitution guarantees freedom to carry on business or profession, but not competitiveness of business entity in market. Since in RCM there is no output tax liability because it is treated as exempt, therefore, in tune with objective of GST, the Bench opined that credit of ITC can’t be claimed in absence of liability but same can be claimed by recipient of service.
5. Sale of online tickets is no separate business activity dehors featuring movies; Bombay High Court upholds entertainment duty levy on convenience fee charged by multiplexes
While clarifying that the activity of selling tickets online does not constitute a separate business activity unrelated to the activity of showing movies in theatres, the Bombay High Court has explained that the payment of “convenience fees” cannot be detached from the buying of a ticket online for attending the entertainment. The Court therefore ruled that making payment of convenience fees is an inextricable part of buying the ticket online for entertainment, and the composite price paid does go a long way in enhancing the experience of the entertainment, i.e., watching the film or gaining seamless admission to the place of entertainment.
The Court went on to clarify that splitting the transaction or styling it as a separate activity having no nexus or connection with payment for admission, cannot be grounds to either strike down the levy of entertainment tax or declare that it would not be attracted. Therefore, the Court held that the “convenience fees” charged would squarely fall within section 2(b)(iv) of the Maharashtra Entertainments Duty Act (MED), which defines ‘payment of admission’ and which forms the measure of tax on which rate of duty is to be paid u/s 3 of the MED Act.
The Division Bench comprising Justice M S Sonak and Justice Jitendra Jain observed that the seventh proviso in Section 2(b) of the MED does not levy duty on the activity of selling tickets online by treating it as a separate and distinct form of entertainment, and what is sought to be taxed is the form of entertainment and admission thereto, which features a movie/film, as the petitioners are engaged in the business of featuring movies/films, which is the subject matter of the tax or duty. Therefore, the Bench clarified that amendments in the measure of tax cannot be construed to mean that the Legislature is seeking to tax a new activity under the MED Act.
6. Bombay HC: Interest on FDs and TDS Refund Qualifies for Sec. 80IA Deduction, Being Linked to Eligible Business
Gateway Terminals vs Deputy CIT
The Bombay High Court recently ruled that the appellant is entitled to the deduction under Section 80IA of the Income Tax Act on the interest earned from fixed deposits which were placed by the Appellant for planning of replacement of equipment as per the provisions of the License Agreement and due to the tariff dispute. The ruling came after finding that a) the placement of fixed deposits was imperative for the purpose of carrying on the eligible business, b) the Appellant had used these fixed deposits for purchasing cranes for the eligible business, and c) there is a direct nexus between the fixed deposits and the eligible business of the Appellant.
With respect to interest on TDS refund, the Division Bench comprising Justice B.P. Colabawalla and Justice Firdosh P. Pooniwalla noted that the TDS was wrongly deducted by the vendors/customers of the Appellant from the payment made to the Appellant for using the port facility, and, therefore, the TDS wrongly deducted was directly a part of the sales receipt of the Appellant from the eligible business. The Bench added that the TDS refund arose to the Appellant due to the excess TDS cut by the customers against payment to be made to the Appellant, and therefore, the TDS was a part of the business receipt of the Appellant. Had the customers not deducted the excess amount of TDS, the Appellant would have received the surplus funds, which would be used for business purposes/ repayment of loans, etc.
7. Bombay High Court: Property bought by husband in joint name doesn’t make housewife liable under Section 148 of Income Tax Act; reopening notice quashed
Recently, a matter landed up before the Bombay High Court, where a reopening notice under Section 148 of the Income Tax Act was wrongly issued to a spouse, solely because her name appeared in a property purchased by her husband, and the Court quashed the reopening notice and held that a housewife having no income cannot be saddled with notices to justify source of income to purchase of any property which was actually purchased by the spouse in the joint name of himself and his wife.
The Division Bench comprising Justice B.P. Colabawalla and Justice Firdosh P. Pooniwalla has observed that after the notices were issued u/s 133(6), the Petitioner not only informed the Income Tax Department that she had not contributed anything towards the purchase of the impugned flat and that her name was added only for the sake of convenience, but also produced the Purchase Agreement as well as the bank statement of her husband, which indicated that the entire consideration was paid by the husband.
8. ‘Purpose of advances’ granted by company to shareholders is irrelevant: Bombay High Court rules advances utilized for payment of Income-tax are ‘deemed dividend’ U/s 2(22)(e)
Jaykumar B. Patil vs Joint CIT
The Bombay High Court has recently held that a business advance granted by a company to its shareholder, who does not actually utilize the said advance for the execution of job work for the company, has to be treated as a deemed dividend under Section 2(22)(e) of the Income Tax Act. The Court clarified that even though the business advance of Rs. 71 lacs against pending orders was repaid within two months, the fact that the Appellant has admittedly utilized the advances for payment of Income-tax under the Kar Vivad Samadhan Scheme (KVSS), the Income Tax Department has rightly treated the amount of the said advance as deemed dividend under provisions of Section 2(22)(e).
Referring to a CBDT Circular No. 19/2017, which provided that the trading advances in the nature of commercial transactions would not fall within the ambit of ‘deemed dividend’ u/s 2(22)(e), the Division Bench comprising Chief Justice Alok Aradhe and Justice Sandeep V. Marne observed that utilization of advance for execution of a particular business transaction is a sine qua non for exclusion of the amount of loan or advance from the ambit of Section 2(22)(e). The Bench clarified that the real key is not the purpose for which the advance is made, but rather, it is the purpose for which the advance is utilized, and it needs to be demonstrated by the sister concern or shareholder that the advance made for a business transaction is actually utilized for the execution of such business transaction.
9. ‘Setting Up Industry’ for Wealth Tax Not Same as ‘Commencement of Business’ for Income Tax; Bombay HC Allows Netting of Interest
Modi Business Centre vs DC (IT)
Finding that the financing/money lending business was also included as one of the objects behind the setting up of the Appellant company (builder/ financer) under the Memorandum of Association (MOA), the Bombay High Court ruled that the interest paid by the Appellant on bank funds borrowed for business purposes can be adjusted as a set off against interest received by it from lending part of the said borrowed funds to its sister concerns. Reference was made to the decision of the Apex Court in CIT Versus. Sarabhai Management Corporation Ltd. [(1991) 192 ITR 151], which held that “even if the first stage of acquisition of property cannot be treated as commencement of business, at least the second stage of making the property ready for being rented out constitutes the activity of commencement of business”.
The Division Bench comprising Chief Justice Alok Aradhe and Justice Sandeep V. Marne also pointed out that the ITAT had erred in applying the meaning ascribed to the term ‘set-up’ under the Wealth Tax Act discussed by the Supreme Court in the case of CWT Versus. Ramaraju Surgical Cotton Mills Ltd [63 ITR 478], for deciding the issue arising out of the Income Tax Act. The Bench clarified that for taxation under the Wealth Tax Act, the industry needs to be fully established, whereas the business of letting out premises on hire involves multiple stages, beginning from the acquisition of property, repairing/furnishing the same, and then letting it out to tenants.
10. Profits from Sale of Vintage Car Taxable, No Proof of Personal Use by Taxpayer: Bombay High Court
Narendra I. Bhuva vs Assistant CIT
The Bombay High Court recently ruled that the capability of vintage car for personal use would not ipso facto lead to automatic presumption that every car would be personal effects for being excluded from capital assets of taxpayer, a salaried employee. Reference was made to the decision of the Apex Court in the case of H.H. Maharaja Rana Hemant Singhji vs. Commissioner of Income-Tax, Rajasthan [(1976) 103 ITR 61 SC], where it was held that “the expression ‘intended for personal or household use’ does not mean capable of being intended for personal or household use but it means normally or commonly intended for personal or household use”.
The Division Bench comprising Chief Justice Alok Aradhe and Justice Sandeep V Marne observed that wealth tax returns and non-claiming of depreciation in respect of vintage car, is irreverent for deciding personal use of such car by taxpayer. From perusal of Section 2(14), the Bench clarified that personal effects must be for personal use for being excluded from the definition of the term ‘capital assets’. Thus, for treating a movable property as personal effects, an intimate connection between the effects and the person must be shown.
Kerala High Court
1. Kerala HC: Property Tax Exemption for Govt-Aided Schools Not Arbitrary
Dr Abraham Thalothil vs State of Kerala
While pointing out that the validity of a classification in a taxing statute depends on whether it effectively furthers the objective of the statute, the Kerala High Court ruled that the exclusion of unaided schools from property tax exemption under the amended Kerala Panchayat Raj Act and Kerala Municipality Act is not violative of Article 14 of the Constitution, as there was no unreasonable and arbitrary classification.
The Court explained that government-aided schools are distinguishable from unaided schools because they are financed through public funds, and taxing them would burden the exchequer. The aided schools provide education either free or at nominal cost, in fulfillment of the constitutional obligation of the State to provide education to citizens, whereas the unaided schools, on the other hand, operate on a private, fee-based model.
A Single Judge Bench of Justice Ziyad Rahman A.A. reiterated that the constitutional validity of a statute can be questioned only on two grounds: (i) the enactment is beyond the legislative competence of the Legislature, or (ii) it violates the rights guaranteed under Part III of the Constitution. Since, in the instant case, the petitioners did not dispute the legislative competence of the State of Kerala in amending the Kerala Panchayat Raj Act, 1994, and the Kerala Municipality Act, 1994, the Bench opined that the sole ground of challenge that survived was a violation of Article 14 of the Constitution.
2. Kerala High Court: Displaying Ads on Building Hoardings Not a ‘Transfer of Right’; No VAT Liability Triggered
Vijayakumar vs Assistant Commissioner, State GST
The Kerala High Court quashed the levy of the KVAT Act on the display of ‘advertisement on hoardings’ which were erected on the properties and buildings as per the terms of the agreement, observing that the ‘right to use those hoardings’ has not been transferred in this arrangement. The Court found that the expense of erection as well as the responsibility to maintain the hoarding was with the petitioner only, for which he has collected separate charges as well, and the content was to be supplied by the customer.
A Single Judge Bench of Justice Ziyad Rahman A A found from the contents of the Emails and the work orders that the obligations of the petitioner include erection and maintenance of the hoardings, and charges collected by the petitioner for advertising included the charges for erection, printing, and maintenance. The Bench also added that written contracts in a particular format on stamp papers executed between the parties were not necessary if there are other reliable documents to indicate the terms and conditions based on which the consensus has been arrived at between the parties for carrying out a particular work.
Rajasthan High Court
Rajasthan HC Orders Refund of IGST; Says Subsidiary Rendering Services to Principal Under Bi-Partite Agreement is Not ‘Intermediary’
IDP Education India vs Union of India
The Rajasthan High Court (Jaipur Bench) recently clarified that for someone to be called an “Intermediary”, there needs to be the existence of three parties in the contract. Since, in the present case, the services have been rendered between only the petitioner and its holding company IDP Australia, under a specific contract, the High Court declares that the said rendition of services between this non-resident holding company and its Indian subsidiary qualifies as an ‘export’.
The Court also clarified that simply because the petitioner has facilitated and arranged placement services between the Foreign Universities, IDP Australia, and the students, it shall not render it as ‘intermediary’, when the petitioner has no say in the final admission process, nor do they have any contractual arrangement with the Foreign Universities, and their services are only rendered to IDP Australia under a bi-partite arrangement.
The Division Bench comprising the Chief Justice K.R. Shriram and Justice Maneesh Sharma referred to the definition of the term ‘intermediary’ under Section 2(13) of the IGST Act, to observe that only that person who is a broker, agent, or by whatever name called, who arranges or facilitates, inter alia, the supply of services between two or more persons, qualifies as ‘intermediary’.
Meghalaya High Court
Meghalaya HC Declares Meghalaya Bonded Warehouse (Amendment) Rules, 2020, Constitutional & Valid Subject To Compliance Of Directions By State
International Spirits and Wines Association of India vs State of Meghalaya
Declaring that the promulgation of the Bonded Warehouse (Amendment) Rules, 2020, made under the Assam Excise Act, 1910, is a policy decision of the government, which could not be termed as unconstitutional or violative of Articles 14, 19, or 21, the High Court of Meghalaya (Shillong Bench) directed the State Government of Meghalaya to strictly monitor the business carried out by the central bonded warehouse with the other bonded warehouses and with the manufacturers, distillers and suppliers.
The Court clarified that Section 19 of the Assam Excise Act, 1910, does not restrict the State from framing subordinate legislation to otherwise regulate the trade, which includes the creation of the Central Bonded Warehouse for procurement, storage, and distribution of foreign liquor. Accordingly, the Court asked the government to ensure that the Central Bonded Warehouse does not discriminate between the bonded warehouses and carries on its business fairly and transparently.
The Division Bench comprising Chief Justice I.P. Mukerji and Justice W. Diengdoh emphasized that fixing the price of a bottle of liquor by the excise authority is a safeguard against misuse of the Meghalaya Bonded Warehouse (Amendment) Rules, 2020, and the creation of the Central Bonded Warehouse removes the likelihood of bonded warehouses entering into transactions or arrangements with select manufacturers, bottlers and brand owners to trade only in specific brands of liquor where the margin of commission is more.
Calcutta High Court
1. Calcutta High Court: Seizure Is Invalid If Transportation Of Goods Is Supported By Valid Documentation & There Is No Intention To Evade Tax
Jagat Saha vs State of West Bengal
The Calcutta High Court recently deleted the penalty of 100% imposed under Section 129(3) of the CGST Act, simply on the ground that the delivery location was not registered as an additional place of business, and directed the release of the bank guarantee furnished by the appellant, observing that the transportation of goods was fully supported by valid documentation and there was no intention to evade tax.
The Court found that the tax invoice and the E-Way Bill clearly revealed that there was absolutely no intention on the part of the appellant to evade payment of tax, which has been admitted by the appellate authority; however, the appellate authority did not set aside the penalty but reduced it.
The Division Bench comprising the Chief Justice T S Sivagnanam and Justice Chaitali Chatterjee (Das), noted that the documents, including the tax invoice, E-Way bill, stock transfer voucher, and transporter’s statement, clearly established the legitimacy of the transaction, and therefore, no penalty is warranted in the peculiar facts and circumstances of the case.
2. Calcutta High Court Affirms Internal CUP Method for ALP in Captive Power Plant Transactions with Associated Enterprises
Principal CIT vs Dhunseri Ventures
The Calcutta High Court recently held that where taxpayer has transferred power from its Captive Power Plants [CPPs] to non-eligible units and benchmarked transaction using internal CUP method adopting average annual landed cost of electricity paid by its manufacturing units to State Electricity Boards [SEBs], then since CPPs were established for captive use and not for sale to SEB’s, internal Comparable Uncontrolled Price (CUP) would be the most appropriate method in determining the ALP.
The Division Bench comprising the Chief Justice T.S. Sivagnanam and Justice Chaitali Chatterjee (Das) was considering an issue as to the application of the internal CUP applied by the respondent to benchmark the transaction of sale of power to its Associated Enterprise (AE), and reference of the transfer of such goods or services as a specified domestic transaction under Section 92BA, and determination of its arm’s length price (ALP) under Section 92F of the Income Tax Act.
Karnataka High Court
Salary Reimbursement In Secondment Agreement With Employer-Employee Relationship Is Not FTS, Reiterates Karnataka High Court
Principal CIT vs Goldman Sachs Services
The Karnataka High Court (Bengaluru Bench) has recently ruled that when the reimbursement for the technical services provided by the investment banker falls within the employer-employee relationship, then such reimbursement of salary costs without a mark-up for the seconded employees could not be treated as Fees for Technical Services (FTS), and hence no withholding tax would be applicable on the same.
The Division Bench comprising Justice S.G. Pandit and Justice K.V. Aravind was considering the legality of the ITAT’s action in holding that services rendered by the Respondent (Investment banking company) were not in the nature of FTS, and as such, Section 9 of the Income Tax Act read with relevant treaty provisions were not applicable, when it’s the stance of the Department that the services rendered by the Respondent were of technical nature and same would not fall within the employer and employee relationship.