Supreme Court
State Can Withdraw or Modify Electricity Duty Exemptions: Supreme Court
The Supreme Court has upheld the power of the State Government to withdraw or modify the exemption granted under Section 5A of the Bombay Electricity Duty Act, 1958. However, the Court held that the notifications dated April 01, 2000 and April 04, 2001 would operate only after the expiry of a period of one year from their respective dates. The Court ruled that a period of one year would constitute a reasonable notice, enabling the captive power generators to adjust their operations and financial planning, thereby serving the interest of justice.
The Division Bench comprising Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe observed that an exemption granted under a statutory provision in a fiscal statute is a concession granted by the State Government so that the beneficiaries of such concession are not required to pay the tax or duty they are otherwise liable to pay under such statute. The recipient of a concession has no legally enforceable right against the Government to grant of a concession except to enjoy the benefits of the concession during the period of its grant. This right to enjoy is a defeasible one, in the sense that it may be taken away in exercise of the very power under which the exemption was granted.
High Courts
The Delhi High Court has held that amounts receivable by a taxpayer company by way of reimbursement of provisions made for customer claims and warranty from its Associated Enterprise (AE) constitute an “asset” within the inclusive definition provided under Explanation 2 to the fourth proviso to Section 153A of the Income-tax Act.
For initiating reassessment beyond three years but up to ten years under Section 149(1)(b) read with the fourth proviso to Section 153A, the Court held that it is a mandatory jurisdictional pre-condition that the income escaping assessment must be represented in the form of an asset, and the Assessing Officer must demonstrate the fulfilment of this condition in the recorded reasons. An assessment cannot be reopened merely to verify the genuineness or allowability of expenses, as that would amount to an impermissible fishing or roving enquiry without tangible material showing escapement of income.
The Court clarified that even in cases of search where the Assessing Officer is in possession of material likely to be incriminating for more than one assessment year, the Assessing Officer must necessarily record reasons to reopen assessment qua each specific assessment year to establish the correlation between the material gathered and the particular assessment year.
The Bombay High Court has ruled that a public charitable trust is deemed irrevocable by operation of law unless the instrument of trust expressly provides for a power of revocation. The absence of an explicit irrevocability clause is not a ground for rejecting an application for registration or renewal under section 12AB of the Income Tax Act.
For trusts registered under the Maharashtra Public Trusts Act, 1950 (MPT Act), the statutory framework (including sections 22(3A), 22(3B), and 55) ensures that assets can never revert to the settlor, making them inherently irrevocable for the purposes of the Income-tax Act, added the Court.
Further, the Court clarified that the absence of a dissolution clause in a trust deed is not a valid ground for rejecting registration, as there is no such requirement in the Act, and state laws like the MPT Act provide a mechanism for the application of assets upon dissolution.
The Delhi High Court has clarified that an order passed by an Assessing Officer under Section 197 of the Income Tax Act, while being provisional, cannot be arbitrary or devoid of reason. The AO must provide a reasoned basis for their conclusions, especially when deviating from a position taken in a prior period on the same facts and under the same contract. Further, the AO is bound by judicial precedents, particularly a judgment rendered by a higher court in taxpayer’s own case on the same issue.
The High Court noted that the AO summarily concluded that the services are in the nature of FTS/Royalty without providing any reasoning, and without specifying whether the receipts in connection with the prospecting or extraction of mineral oil were FTS or Royalty, which are distinct categories. Most significantly, the Court found that the impugned order of the AO did not consider the previous judgment of the High Court in the petitioner’s own case, which had already determined that such services do not constitute FTS. This lack of reasoning for deviating from the previous year’s certificate and for concluding the income was Royalty was also a critical flaw.
While clarifying that an appeal under Section 35G of the Central Excise Act, 1944, lies only on a substantial question of law, the Delhi High Court has held that the impugned order from the CESTAT, being essentially one of remand that directs factual verification of documents to ascertain compliance, does not give rise to any substantial question of law that would warrant any writ interference.
The High Court observed that there is no dispute regarding the legal principle that an exemption notification must be strictly construed. However, it clarified that this strict interpretation is applicable only at the stage of determining a taxpayer’s eligibility to claim the exemption. Once eligibility is established, the conditions within the notification must be applied according to their tenor, and the principle does not justify denying an exemption where substantive compliance is demonstrated and the issue is merely one of factual verification.
The Division Bench comprising Justice Nitin Wasudeo Sambre and Justice Ajay Digpaul noted that the substantive condition, i.e., the provision of services to diplomatic missions, was not in dispute, as recorded by the CESTAT, whose order did not grant the exemption outright but remitted the matter for the adjudicating authority to verify the certificates and extend the benefit only to the extent the conditions are met. This direction was found to be limited, conditional, and did not dilute the mandatory character of the Notification.
The Bombay High Court has clarified that the limitation period for passing an order under Section 201(1) of the Income Tax Act, is to be computed quarter-wise, with each quarterly TDS Return furnishing a separate starting point for limitation under Section 201(3). Essentially, the limitation is not to be computed on an annual or cumulative basis.
The Court asserted that the scheme of the Income Tax Act and Rules treats each quarter as a separate compliance period, and the statutory language does not permit extension of the limitation period by implication. Accordingly, orders passed beyond two years from the end of the financial year in which the TDS statement for a particular quarter is filed are barred by limitation.
The Division Bench comprising Justice M.S. Karnik and Justice Gautam A. Ankhad observed that Section 201(3), as it stood at the relevant time, stipulated that no order under Section 201(1) shall be made after the expiry of two years from the end of the financial year in which the TDS statement is filed. The commencement of limitation is thus linked to the filing of the TDS Return.
In a civil writ petition filed before the Rajasthan High Court seeking a declaration that the warrant of authorization under Section 132 of the Income Tax Act, 1961 (Act), was bad in law, and to call the Director of Income Tax (INV), Chandigarh to transmit the records regarding the warrant so that the search warrant as well as proceedings can be quashed, among other things, a Division Bench of Acting Chief Justice Sanjeev Prakash Sharma and Justice Sangeeta Sharma allowed the petition and held that the re-assessment proceedings were initiated based upon an illegal notice under Section 153A of the Act.
The Court referred to the provisions of the Act and stated that after the enforcement of the faceless regime, it was apparent that there was no fundamental right of any assessee to be assessed at a particular place. It was observed that under Section 124, the assessment must be carried out at the principal place of business, whereas under Section 127, it can be done at any other place as well.
Referring to K.P. Mohammed Salim v. CIT (2008) 11 SCC 573, the Court stated that one of the grounds for transfer can be to conduct a coordinated assessment, but the power must not be exercised capriciously. It was said that if the venue is changed periodically for no apparent reason, it may be an example of abuse of power.
The Bombay High Court has clarified that goods requiring a mandatory license for import under the Drugs and Cosmetics Act, 1940, are classified as ‘prohibited goods’ under Section 2(33) of the Customs Act, 1962, if imported without such a license. The act of ‘import’ is complete upon the entry of goods into the territorial waters of India, and at that point, the prohibition attaches.
Since the intention to warehouse the goods and subsequently re-export them does not cure the illegality of the initial import, the Court held that such ‘prohibited goods’ are liable for seizure and confiscation under the Customs Act, and the facility of re-export under Section 69 is not available for goods that were not legally imported in the first place.
The Division Bench comprising Justice G. S. Kulkarni and Justice Aarti Sathe observed that the definition of ‘import’ under Section 2(23) of the Customs Act means bringing goods into India from a place outside India, and ‘India’ under Section 2(27) includes its territorial waters. Therefore, the import process commences when the goods enter the territorial waters of India, not upon arrival at a port or warehouse.
The Bombay High Court has clarified that the Maharashtra Settlement of Arrears of Tax, Interest, Penalty or Late Fee Act, 2023 is a self-contained code, and Authorities designated under this Act cannot invoke and exercise powers from another statute, such as the power of refund adjustment under Section 50 of the MVAT Act, 2002, while processing a settlement application.
The High Court therefore ruled that once a taxpayer applies for settlement of tax arrears for a specific period under the Settlement Act and pays the requisite amount, the dues for that period are considered settled. Consequently, no ‘outstanding dues’ remain for that period against which a refund pertaining to another tax period can be adjusted.
The adjustment of a refund from one financial year against the dues of another year for which a settlement application has been made is impermissible, as the Settlement Act mandates that arrears and settlement amounts be calculated separately for each financial year, added the Court, while observing that passing a settlement order that adversely affects an applicant by adjusting a refund without affording an opportunity of being heard constitutes a violation of the principles of natural justice and renders the order liable to be set aside.
The Gujarat High Court (Ahmedabad Bench) has held that the transfer of unutilized Input Tax Credit (ITC) under Section 18(3) of the CGST Act, 2017, read with Rule 41 of the CGST Rules, 2017, is permissible between a transferor and a transferee company located in different states, following a scheme of amalgamation approved by the NCLT.
The Court clarified that an administrative or technical restriction on the GST portal, which is not supported by the statute, cannot be used to deny a benefit legally available under the CGST Act. Accordingly, the directed that until a proper mechanism is provided on the GST portal, the respondent department shall accept Form ITC-02 manually and process the transfer of ITC.
The Division Bench comprising Justice A.S. Supehia and Justice Pranav Trivedi observed that the denial of ITC transfer was based on an endorsement on the GST portal, which stated that the transferee and transferor must be in the same State/U.T. The Bench held that the respondent department cannot incorporate a condition into a statutory form (Form GST ITC-02) that is absent in the statutory provisions themselves.
The Gujarat High Court (Ahmedabad Bench) has held that payments for gratuity and leave encashment, even when made upon an employee’s exit under a Voluntary Retirement Scheme (VRS), are not considered part of the VRS compensation. They are terminal benefits related to the employee’s service, fully deductible as business expenses in the year of payment, and are not subject to amortization over five years under Section 35DDA of the Income Tax Act.
On transfer of self-generated trademarks, the High Court observed that the consideration received from the transfer of self-generated trademarks prior to Assessment Year 2002-2003 is a capital receipt that is not chargeable to tax under the head ‘capital gains’. This is because such assets have no conceivable cost of acquisition, which causes the computation machinery under Section 48 of the Act to fail. The amendment to Section 55(2)(a) of the Act, which deems the cost of such assets as ‘Nil’, is prospective in nature and does not apply to transactions before its effective date.
On transfer of marketing rights, the Court observed that the compensation received for the transfer and extinguishment of exclusive marketing rights, which function as an income-earning apparatus, is a capital receipt and not a revenue receipt. When the transfer of such rights severs the appellant’s connection to a source of profit, the consideration received is on the capital account.
The Delhi High Court has held that an assessment order passed in the name of an amalgamating company that has ceased to exist following a merger is a ‘substantive illegality’ and is void ab initio, especially when the Assessing Officer was duly informed of the amalgamation prior to framing the assessment. Further, framing an assessment against a non-existent entity is a fundamental jurisdictional error, not a mere procedural mistake, defect, or omission. Consequently, such a defect is not curable under Section 292B of the Income Tax Act.
The High Court explained that technical glitches or limitations within the Revenue’s internal systems, like the ITBA portal cannot serve as a valid excuse for non-compliance with the substantive provisions of the law. The onus is on the Revenue to ensure its systems are compliant. Also, mere participation in proceedings by the successor (amalgamated) company does not operate as an estoppel against the law and cannot validate an assessment order that is fundamentally void for being framed against a non-existent entity.
Relief for MakeMyTrip: Delhi HC Flags Arbitrary Denial of Lower Tax Withholding, Orders Review
The Delhi High Court has held that an order rejecting an application for a lower or nil rate of tax withholding must be a reasoned and speaking order, passed in compliance with the parameters laid down in Rule 28AA of the Income Tax Rules, 1962. A non-reasoned, one-line rejection based solely on the existence of an outstanding demand, without justifying the departure from a consistent practice of granting such certificates in previous years under similar facts, is arbitrary and liable to be quashed.
Accordingly, the impugned order passed under Section 197 of the Income Tax Act, was set aside, and the matter was remanded back to the Assessing Officer to pass a fresh, reasoned, and speaking order within two weeks, after considering the Court’s conclusions.
The Division Bench comprising Justice V. Kameswar Rao and Justice Vinod Kumar rejected the arguments of the respondents that since the impugned order was passed by the DCIT (TDS), Gurugram, the Delhi High Court lacked territorial jurisdiction, and noted that although the impugned order was issued from Gurugram, it was addressed to the petitioner’s Delhi office. Importantly, the certificates for all previous assessment years and the subsequent rectification orders were issued by the TDS Circle 75(1) in Delhi.
The Bombay High Court has clarified that a taxpayer who enters into an agreement with a government body to develop an infrastructure facility is a ‘developer’ and is eligible for deduction under Section 80-IA(4) of the Income-Tax Act, provided it undertakes the entrepreneurial and technical risks associated with the project, including planning, designing, and execution, even if it does not own the land, develops only a part of the entire facility, and receives periodic payments for the work executed.
The act of handing over the completed facility back to the government constitutes a ‘transfer’ for the purposes of this section, and the developer does not need to develop the entire infrastructure facility to qualify for the deduction. Undertaking specific, significant components of an infrastructure facility is sufficient to qualify as a developer, added the Court.
The Division Bench comprising Justice M. S. Karnik and Justice S. M. Modak distinguished between a ‘developer’ and a ‘works contractor’. It observed that a developer is one who brings something into existence through scientific planning, technical expertise, and execution, while a works contractor merely executes work as per the design and direction of another person. The key determining factors are whether the respondent bore the financial, operational, and executional risks, and whether the planning and design were carried out by it.
Tribunals (CESTAT/ ITAT/ GSTAT)
No Tax on EY’s Gross Receipts: ITAT Rejects ‘Virtual Service PE’ Basis Without DTAA
The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has ruled that the fiction of a Virtual Service Permanent Establishment (VSPE) cannot be read into the provisions of the DTAA, as Article 5 of the India-UK DTAA makes no provision for VSPE. Thus, in the absence of explicit language in the DTAA, courts cannot artificially create or read in concepts not expressly provided in the DTAA, including virtual PE.
The physical presence of employees or personnel of the UK enterprise in India for an aggregate period of more than 90 days in any 12 months is a mandatory requirement to constitute a Service PE under Article 5(2)(k) of the India-UK DTAA, clarified the ITAT.
The Division Bench comprising Vikas Awasthy (Judicial Member) and Brajesh Kumar Singh (Accountant Member) observed that Article 5(2)(k) of the India-UK DTAA defines a Service Permanent Establishment (PE) as the furnishing of services within a Contracting State by an enterprise through employees or other personnel, provided activities continue within that State for a period aggregating more than 90 days within any twelve-month period. Thus, the AO’s understanding that there is no requirement for physical presence of the employees/personnel under the DTAA is thoroughly misconceived and untenable.
While grating relief to the Zee Entertainment (appellant), the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that in the absence of proper satisfaction recorded by the Assessing Officer with regard to the correctness of the taxpayer’s computation, disallowance under section 14A of the Income Tax Act read with Rule 8D is not sustainable, and the arbitrary computation of disallowance by the Assessing Officer is liable to be deleted.
The ITAT thus declared the reopening notice issued under section 148 as barred by limitation and invalid in law; consequently, the reassessment proceedings initiated pursuant to such invalid notice are void ab initio and liable to be quashed.
The Division Bench comprising Anikesh Banerjee (Judicial Member) and Arun Khodpia (Accountant Member) observed that the six-year limitation period under the old regime of section 149(1)(b) expired on March 31, 2022. The reassessment notice was admittedly issued on July 29, 2022, which is after the expiry of the six-year limitation period.
No Retrospective Denial of CENVAT Credit; CESTAT Quashes ?3.24 Cr Demand on Jindal Stainless
The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has clarified that an extended period of limitation for demanding duty cannot be invoked when the taxpayer has regularly disclosed the relevant facts, such as availing of an exemption notification, in its statutory returns (ER-1 returns) filed with the department. Such disclosure means the facts were within the knowledge of the Revenue, precluding allegations of suppression required to invoke the extended period.
The Tribunal ruled that a notification that introduces new procedural requirements, such as Notification No. 8/2014-Central Ex. (NT), is applicable only prospectively from its effective date. It cannot be applied retrospectively to transactions that occurred before its implementation to deny benefits like CENVAT credit. Accordingly, the CESTAT dropped the demand of Rs. 3.24 Crores and upheld the eligibility of CENVAT credit.
As far as the duty demand for alleged clandestine removal is concerned, the Division Bench comprising Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) observed that the demand was raised for the period of January 2013 to January 2014, while the Show Cause Notice was issued on December 27, 2017, by invoking the extended period of limitation.
No Confiscation for Minor Errors Without Impact on Classification or Policy: CESTAT
The Mumbai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has clarified that the essential ingredient necessary for invoking Section 111(m) of the Customs Act, 1962, namely a mis-declaration affecting revenue or assessment, is clearly absent when the declared transaction value stands accepted and there is no differential duty demand.
The CESTAT held that confiscation of goods under Section 111(m) is not sustainable for minor, inconsequential, or technical discrepancies regarding description or thickness that do not affect classification, duty, import policy, compliance, or assessment. Once the confiscation is held to be unsustainable, the consequential redemption fine and penalties imposed under Section 112(a) and Section 114AA of the Customs Act cannot survive.
A Single Bench of Ajay Sharma (Judicial Member) observed that the entire foundation of the adjudication order, including the confiscation and imposition of penalties, was premised on the allegation that the appellant had undervalued the goods and thereby attempted to evade customs duty. However, the Commissioner categorically set aside the rejection of the transaction value and accepted the value declared by the appellant, yet proceeded to uphold the confiscation of the goods and the consequential Redemption Fine and penalties.
The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has clarified that the cancellation of a trust’s registration under Section 12AB(4) of the Income Tax Act, is legally unsustainable if it is based on an alleged violation of Section 13(1)(c) of the Act. Following the amendments introduced by the Finance Act, 2022, the application of a trust’s income for the benefit of specified persons does not constitute a ‘specified violation’ under the Explanation to Section 12AB(4).
The Division Bench comprising Challa Nagendra Prasad (Judicial Member) and M. Balaganesh (Accountant Member) observed that the power to grant, cancel, or withdraw registration under Sections 12A/12AA/12AB is a special jurisdiction vested with the Commissioner of Income Tax (Exemptions) as per CBDT Notification No. 52 of 2014. The Bench held that an order under Section 127 of the Income Tax Act only transfers the ‘case’ for assessment jurisdiction from one Assessing Officer to another. It does not transfer the original jurisdiction for registration matters from the CIT (Exemptions) to a PCIT (Central).
The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has clarified that if a taxpayer’s manufacturing unit is located in a notified area for the purpose of claiming a deduction under section 80-IC of the Income Tax Act, the relevant factor for determining eligibility under section 80-IC(2)(a)(ii) is whether the taxpayer manufactures any item that falls under the Thirteenth Schedule of the Income Tax Act.
Allowing confectionery manufacturer Perfetti Van Melle India (respondent-taxpayer) to claim tax deduction under Section 80-IC of the Income Tax Act on profits from its Rudrapur manufacturing unit in Uttarakhand, the ITAT therefore ruled that the mere fact that the taxpayer also manufactures certain items which are listed in the Fourteenth Schedule of the Act would not automatically make the provisions of Section 80-IC(2)(b)(ii) applicable or disentitle the taxpayer from the benefit of Section 80-IC(2)(a)(ii).
The entitlement to the benefit under Section 80-IC(2)(a)(ii) is based on the fulfilment of the eligibility criteria arising from the location of the factory in a notified area and the commencement of production within the specified period, and is not a matter of choice for the taxpayer, added the Tribunal.
The New Delhi Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has clarified that the classification of a product as a medicament (Chapter 30) or a cosmetic (Chapter 33) is determined by its primary function. If the product’s primary purpose is therapeutic or prophylactic, it is a medicament, even if it has subsidiary cosmetic benefits. Conversely, if its primary purpose is cosmetic, it is a cosmetic, even if it has subsidiary therapeutic properties.
Therefore, while granting excise duty exemption relief to Shahnaz Ayurvedics (appellant), the CESTAT ruled that the presence of excipients or other non-active ingredients not mentioned in authoritative Ayurvedic texts does not disqualify a product from being classified as a P&P Ayurvedic medicine, provided its essential character is derived from active ingredients prescribed in those texts.
Where products are manufactured under a license from the Indian System of Medicine, contain active ingredients from authoritative Ayurvedic texts, and are marketed and labelled with specific claims to treat or mitigate medical conditions, they are to be classified as P&P Ayurvedic medicines, added the Tribunal.
Finding that Tata Play (respondent) has not passed the benefit accrued due to introduction of GST, the New Delhi Principal Bench of the Goods and Services Tax Appellate Tribunal (GSTAT) has clarified that a net tax benefit accrued to the respondent post-GST due to subsummation of various taxes and availability of increased ITC & such benefit of GST introduction was not passed on to the consumers. Therefore, profiteering of Rs 450.18 crore stands established, and the GSTAT directed the Respondent to deposit Rs. 450.18 crores in the Central Consumer Welfare Fund as well as in the State Consumer Welfare Funds in the ratio of 50:50 equally, within three months.
The Tribunal noted that with introduction of GST, effective tax burden on DTH services reduced by eliminating Entertainment Tax and other cascading levies, thereby enabling uniform taxation with ITC. Respondent ‘s contentions of Service Tax rate increase on DTH services is irrelevant, as the Respondent has not considered the benefit available with the introduction of GST especially subsummation entertainment tax, VAT and other levies.
Thus, the determination under Section 171 is not confined to a simplistic comparison of main tax rates, but requires examination of the total indirect tax burden before and after the introduction of GST. Viewed in totality, subsumption of Entertainment Tax and Service Tax post-GST, demonstrate reduction in effective output tax burden, added the Tribunal.
The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has clarified that a contractual rebate or discount provided by a builder as per the terms of a buyer’s agreement, for reasons such as timely payment or early move-in, does not constitute taxable income in the hands of the property purchaser under Section 56(1) of the Income Tax Act. No deemed income can be assessed when the actual purchase consideration for an immovable property is higher than its stamp duty value.
For the purpose of claiming exemption under Section 54F of the Income Tax Act, the ITAT explained that the condition of ‘purchase’ of a new residential house is satisfied when the taxpayer (appellant) acquires substantial domain over the property, including the right of possession and enjoyment, upon payment of consideration. The registration of the conveyance deed is not a mandatory pre-condition for the claim.
The ITAT therefore ruled that a gift of property by a husband (taxpayer) to his spouse, executed well before the date of transfer of the original capital asset, cannot be treated as a ‘colourable device’ or ‘camouflage’ to circumvent the eligibility conditions of Section 54F, particularly when there is a significant time gap between the gift and the transfer. Further, co-ownership in a residential property does not disentitle a taxpayer from claiming the exemption under Section 54F.
The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has clarified that for a company to be considered as a valid comparable, it must be functionally similar, and significant differences in functions and business profiles can render such company non-comparable. The ITAT held that mere broad functional similarity is insufficient for a reliable analysis, even under the Transactional Net Margin Method (TNMM).
The ITAT also held that discount on shares issued to employees under an Employee Stock Option Plan (ESOP), calculated as the difference between the market price and the exercise price, is an ascertained liability and an allowable business expenditure under Section 37(1) of the Income Tax Act.
Further, the ITAT explained that expenditure on software that requires frequent upgrades, has a short useful life, and does not provide a benefit of an enduring nature is to be treated as revenue expenditure, not capital expenditure. Also, when a particular receipt is not taxable in the hands of the non-resident payee, the payer is not obligated to deduct tax at source under Section 195 of the Income Tax Act. Consequently, no disallowance under Section 40(a)(ia) can be sustained against the payer for non-deduction of TDS, added the Tribunal.
The Hyderabad Bench of the Income Tax Appellate Tribunal (ITAT) has clarified that where a taxpayer had disclosed all material facts relating to a disallowance in the documents filed with the return of income (such as a tax audit report), and the failure to make the corresponding adjustment in the computation of income is due to a bona fide and inadvertent error, the case is covered by the exception provided under Section 270A(6) of the Income Tax Act.
The ITAT also clarified that if the disallowance is also tax-neutral in nature (i.e., it only reduces a declared loss and is claimable as a deduction in a subsequent year), it further strengthens the bona fide nature of the taxpayer’s explanation. In such circumstances, the ITAT held that the disallowance cannot be treated as under-reported income in consequence of misreporting, and therefore, the levy of penalty under Section 270A(9) is not justified.
CESTAT, Chennai Grants ?56.84 Lakh Relief to R. Rajinikanth; Hotel Lease Not Taxable as Renting Service
The Chennai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that the renting of an immovable property for the purpose of being operated as a hotel falls squarely within the specific exclusion provided under clause (d) of Explanation 1 to Section 65(105)(zzzz) of the Finance Act, 1994. The CESTAT clarified that the inclusion of ancillary facilities such as a restaurant, banquet hall, bar, or health club does not disqualify the property from this exclusion, as these are considered integral to the functioning of a ‘Full-Service Hotel’ and do not constitute a separate or independent commercial use.
Consequently, the CESTAT asserted that the Explanation 2 to Section 65(105)(zzzz), which deems a property with mixed-use as being used for business or commerce, is not attracted in such cases. Therefore, the activity of leasing a building to be used as a hotel is not a taxable service under the head ‘Renting of Immovable Property Service’. Accordingly, the CESTAT quashed the service tax demand of about Rs 56.84 lakh against Tamil actor R. Rajinikanth.
The Division Bench comprising Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member) observed that the central issue was whether a building leased for use as a hotel, which also includes facilities like a restaurant, banquet hall, conference hall, bar, and health club, qualifies for the specific exclusion provided under Section 65(105)(zzzz) of the Finance Act, 1994.
ITAT Delhi Quashes ?20 Crore Tax Assessment Against Lalit Kumar Modi
The Income Tax Appellate Tribunal (ITAT) has quashed reassessment proceedings initiated against businessman Lalit Kumar Modi for Assessment Year 2010–11, holding that reassessment under Sections 147/148 of the Income Tax Act cannot be initiated while regular scrutiny proceedings under Section 143(3) are still pending.
The Tribunal, comprising Judicial Member Vikas Awasthy and Member Brajesh Kumar Singh, observed that the Assessing Officer had issued a notice under Section 148 during the pendency of scrutiny proceedings that had already been initiated through a notice under Section 143(2). The Bench held that such parallel proceedings are impermissible under the scheme of the Act and therefore the reassessment lacked jurisdiction.
The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that an Indian-incorporated company providing ground and cargo handling services at an airport is entitled to a deduction under Section 80IA of the Income Tax Act. Such services are considered integral to the operation of an airport and fall within the definition of an ‘infrastructure facility’.
The ITAT clarified that the requirement of an agreement with the central government is satisfied if the agreement is with a statutory body (like BIAL) that has been granted concession rights by the government. Further, the condition that the enterprise be owned by an Indian company is met if the taxpayer itself is an Indian company, irrespective of its shareholders being foreign entities.
The Tribunal also explained that the proviso to Section 80IA(4), which limits the deduction period upon transfer of a facility, is not applicable unless it is demonstrated that the cumulative period of deduction claimed by the transferor and transferee exceeds the statutory limit.