TIOL-DDT 1342 · the untouched capture
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<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" "http://www.w3.org/TR/html4/loose.dtd"> <html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> </head> <body> <p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1342 </font><br> 21.04.2010 <br> Wednesday </strong></font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Renting of Immovable Property Service - Proposed amendment may not conform to demarcation of Centre-State powers mandated under Constitution </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>GOVERNMENT'S</strong> determination to collect service tax on ‘renting of immovable property' was reinforced in this Budget where it proposed a retrospective amendment to the relevant provisions of Finance Act, 1994 [clause (zzzz) of Section 65(105)] to nullify the path breaking judgment of the Delhi High Court in Home <em>Solutions Retail India Ltd. & Others vs. UOI </em></font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><em><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=43&filename=legal/hc/2009/2009-TIOL-196-HC-DEL-ST.htm" target="_blank">2009-TIOL-196-HC-DEL-ST</a></strong></em>. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In its<a href="http://taxindiaonline.com/RC2/union_budget/ub2010-11/cen/dojstru2.pdf" target="_blank"> <strong><em>D.O. letter D.O.F. No.334/1/2010-TRU Dated 26th February 2010</em></strong></a>, TRU explained that this amendment was proposed to clarify the legislative intent behind bringing this ‘service' into the service tax net so as to put an end to the cascading effect of the High Court judgment on landlords, whose tenants played truant by not coughing up the service tax portion on their rent bills. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The TRU clarification says:</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>“ 9.1. …………. the Hon'ble High court of Delhi in its order dated 18.04.2009 in the case of Home Solutions Retail India Ltd. & Others vs. UOI has struck down this levy by observing that the renting of immovable property for use in the course of furtherance of business or commerce does not involve any value addition and therefore, cannot be regarded as service . Apart from the revenue loss caused to the exchequer, the judgement has placed the landlords in a very precarious situation. In view of this judgement, the commercial tenants have stopped them reimbursing the tax element. However, the landlords are receiving regular demand notices from the department issued to protect government's revenue for the interim period. </em></font></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">9.2 In order to clarify the legislative intent and also bring in certainty in tax liability the relevant definition of taxable service is being amended to clarify that the activity of renting of immovable property per se would also constitute a taxable service under the relevant clause. This amendment is being given retrospective effect from 01.06.2007.” </font></em></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">With the proposed retrospective amendment to clause (zzzz) of Section 65(105) of the Finance Act, 1994 and insertion of validation clause through Clause 76 of the Finance Bill, 2010, all actions that were initiated by the Revenue in this regard to facilitate recovery of service tax dues from the erring service providers (landlords) with interest and penalty stands validated with effect from June 1, 2007. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So far so good. The eagerness of the Government to safeguard its revenue is palpable. But in it's over enthusiasm, the Government lost sight of the Constitutional mandate which demarcates the powers of the Union and the State Government in Article 246 of the Constitution. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Explanation 1 to clause (zzzz) of Section 65(105) of Finance Act, 1994, defines immovable property for the purposes of this Act which includes ‘lands and buildings' amongst others. As per Entry 49 of List II (State List) in Schedule VII of the Constitution only States are empowered to impose taxes on ‘lands and buildings'. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While the Central Government may have every right to categorize the ‘renting of immovable property' as ‘service', it certainly does not have the mandate to levy tax on ‘lands and buildings' by regarding such ‘renting of lands and buildings as service' because such an act would tantamount to levy of tax on a matter enumerated in the State List through the back door. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Though the Constitutional validity of the levy was also questioned by the petitioners in the Home Solutions Retail case before the Delhi High Court, the High Court observed that examination of this aspect becomes irrelevant since the main plea of the petitioners that only ‘services in relation to renting of immovable property' are taxable is upheld. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The High Court categorically held that ‘renting of immovable property for use in the course or furtherance of business of commerce' by itself does not entail any value addition and therefore, cannot be regarded as a ‘service' so as to levy service tax. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Finance Bill is to be enacted in a few days and the renting problem will come back and perhaps this time around the Constitutional validity of the levy will be strongly agitated before High Courts or Supreme Court. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Will the tenants oblige? </font></p> <p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">RBI's Annual Policy Statement for FY 2010-11 - Interest Rates May Rise? </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>RBI</strong> announced the new monetary policy for Fiscal 2010-2011 and the considerations which led to the formulation of the new policy. The excerpts from the monetary policy: </font></p> <p align="justify"><strong><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Indian Economy: </font></em></strong></p> <p align="justify"><strong><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Growth Projection: </font></em></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In India, economic recovery, which began around the second quarter of 2009-10, has since shown sustained improvement. Industrial recovery has become more broad-based and is expected to take firmer hold on the back of rising domestic and external demand. Under the assumption of a normal monsoon and sustained good performance of the industry and services sectors, for policy purposes, the Reserve Bank projects real GDP growth for 2010-11 at 8.0 per cent with an upside bias . </font></p> <p align="justify"><em><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Inflation: </font></strong></em></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Three major uncertainties cloud the outlook for inflation. First, the prospects of the monsoon in 2010-11 are not yet clear. Second, crude prices continue to be volatile. Third, there is evidence of demand side pressures building up. Therefore, keeping in view domestic demand-supply balance and the global trend in commodity prices, the baseline projection for WPI inflation for March 2011 is placed at 5.5 per cent . </font></p> <p align="justify"><em><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Risk Factors: </font></strong></em></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While the indicative projections of growth and inflation for 2010-11 may appear reassuring, major downside risks to growth and upside risks to inflation are: </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ The prospects of sustaining the global recovery hinge strongly on the revival of private demand which continues to be weak in major advanced economies. While recovery in India is expected to be driven predominantly by domestic demand, a sluggish and uncertain global environment can have an adverse impact. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ If the global recovery gains momentum, commodity and energy prices may harden further which could add to inflationary pressures . </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Any unfavourable monsoon rainfall pattern could exacerbate food inflation , and could also impose a fiscal burden and dampen rural consumer and investment demand. </font></p> </blockquote> <p align="justify"><u><strong><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Monetary Policy Measures for FY 2010-2011: </font></em></strong></u></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Monetary Policy Statement for FY 2010-11 specifies the following monetary measures : </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ The repo rate has been raised by 25 basis points from 5.0 per cent to 5.25 per cent with immediate effect. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ The reverse repo rate has been raised by 25 basis points from 3.5 per cent to 3.75 per cent with immediate effect. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ The cash reserve ratio (CRR) of scheduled banks has been raised by 25 basis points from 5.75 per cent to 6.0 per cent of their net demand and time liabilities (NDTL) effective the fortnight beginning April 24, 2010. </font></p> </blockquote> <p align="justify"><em><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Expected Outcome: </font></strong></em></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The four major outcomes from the above policy action are: </font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Inflation will be contained and inflationary expectations will be anchored. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ The recovery process will be sustained. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Government borrowing requirements and the private credit demand will be met. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Policy instruments will be further aligned in a manner consistent with the evolving state of the economy. </font></p> </blockquote> <p align="justify"><strong><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Way Forward: </font></em></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Reserve Bank will continue to monitor macroeconomic conditions, particularly the price situation, closely and take further action as warranted. </font></p> <p align="justify"><em><u><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Developmental and Regulatory Measures: </font></strong></u></em></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Over the last several years, the Reserve Bank has undertaken wide ranging financial sector reforms to improve financial intermediation and maintain financial stability. This process has now become more intensive with a focus on drawing appropriate lessons from the global financial crisis and putting in place a regulatory regime that is alert to possible build-up of financial imbalances. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A few important steps are planned in these areas which are highlighted as follows: </font></p> <p align="justify"><em><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Interest Rates: </font></strong></em></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Mandating banks to switch over to the system of Base Rate from July 1, 2010 to facilitate better pricing of loans, enhance transparency in lending rates and improve the assessment of monetary policy transmission . </font></p> </blockquote> <p align="justify"><strong><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Financial Market Products: </font></em></strong></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Introducing Interest Rate Futures on 5-year and 2-year notional coupon bearing securities and 91-day Treasury Bills . </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Introducing a reporting platform for secondary market transactions in CDs and CPs. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Setting up a Working Group to work out the modalities for an efficient, single-point reporting mechanism for all OTC interest rate and forex derivative transactions. </font></p> </blockquote> <p align="justify"><strong><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Credit Delivery and Financial Inclusion: </font></em></strong></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Permitting banks to engage any individual as banking correspondents (BCs) subject to banks' comfort level and their carrying out suitable due diligence. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Discussing with individual banks their Financial Inclusion Plans (FIPs) and monitoring their implementation. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Mandating banks not to insist on collateral securities in case of loans up to Rs.10 lakhs as against the present limit of Rs.5 lakhs extended to all units in the MSEs sector.</font></p> </blockquote> <p align="justify"><strong><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Regulatory Measures: </font></em></strong></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Treating annuities under build-operate-transfer (BOT) model in respect of road/highway projects and toll collection rights in some situations as tangible securities subject to certain conditions. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Allowing securitisation companies/reconstruction companies (SCs/RCs) to acquire the assets either in their own books or directly in the books of the trusts set up by them. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Treating Core Investment Companies (CICs) having an asset size of Rs.100 crore and above as systemically important core investment companies. Such companies be required to register with the Reserve Bank. </font></p> </blockquote> <p align="justify"><strong><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Customer Service: </font></em></strong></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Setting up a Committee to look into banking services rendered to retail and small customers. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Further strengthening the mechanism for implementing the Reserve Bank's guidelines on customer service, through on-site and off-site inspections. </font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Requiring banks to devote exclusive time in a Board meeting once every six months to review and deliberate on customer service. </font></p> </blockquote> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Jurispruden</font><font color="#FF6633" size="5">tiol</font><font color="#006600"> – Thursday's cases</font></strong></font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" align="left"><strong><font color="#663399">Central Excise</font></strong></font></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Irregular CENVAT Credit taken - inputs seized - release ordered subject to full bank guarantee: High Court </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>BE</strong> careful when you take the CENVAT credit on inputs – the Department may consider them as not qualified as inputs and seize them. If you want seizure to be lifted, you will have to arrange for a hundred percent bank guarantee! </font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Income Tax </font></strong></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">MAT credit available under Section 115JAA represents tax paid by assessee before determination of total income - Forms do not override Legislation: High Court </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> questions before the High Court were</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <em>Whether the Tribunal erred in law in holding that credit for brought forward MAT is to be given from gross demand before charging interest u/s.234B of the Income Tax Act, 1961? </em></font></p> <p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Whether the Tribunal erred in law in holding that interest u/s. 244A of the Income Tax Act, 1961 was allowable on the refundable taxes arrived after giving credit of brought forward MAT from the gross demand ? </font></em></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Service Tax </font></strong></p> <p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Section provides for a penalty for default of service tax simpliciter - there is no requirement that assessee should have committed default with intent to evade payment of the tax: CESTAT </font></strong></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>INSOFAR</strong> as the penalty under section 76 is concerned, the only option for the appellant to avoid such penalty was to state a valid reason as envisaged under section 80 of the Act. In the present case, however, the assessee never invoked section 80, neither in their reply to show-cause notice nor in their appeals filed with the lower appellate authority and the Tribunal. </font></p> <p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns Tomorrow for the judgements</font></strong></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more <strong>DDT</strong> </font></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day. </font></p> <p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com </a></font></p> </body> </html>