TIOL-DDT 1621 · the untouched capture
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1621</font><br>
02.06.2011 <br>
Thursday</strong> </font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Income Tax - Top Lawyer Shanti Bhushan claims his heart is akin to a plant - High Court Not Impressed - What is cost of acquiring heart? </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>HERE</strong> is a very interesting case decided by the Delhi High Court yesterday. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">At the heart of the matter, as a matter of fact, is the heart itself. The High Court says, “When one speaks of heart it brings forth imagery of myriad emotions. Emotions which encompass, often varied passions, of soulful love, abominable deceit, unremitting treachery and revenge. No two individuals deal with matters of heart similarly; often confounded, as to how to deal with it” </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“The issue raised is both ingenious and novel. The question raised is the product of experience, deftness and obvious artfulness of the petitioner (Shanti Bhushan) who is a seasoned, experienced and an eminent Advocate of the country”. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">During the Course of the assessment of Shanti Bhushan's Income Tax return for 1983-84, the Revenue found that he had claimed as expense a sum of Rs. 1,74,000/- incurred evidently by him, on coronary surgery performed on him, in Houston, USA. He claimed waiver under Section 31 of the I.T. Act which, inter-alia permits deduction of <strong>expenditure incurred on current repairs of plant</strong>. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The assessee's stand was that the expenditure incurred by him on coronary surgery conducted on him, was akin to expenses incurred on current repairs of a plant. The assessee's stand thus is that a human heart is in the nature of a plant. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Assessing Officer, however, was of the view that the expenditure in issue, was in the nature of a personal expense and hence, not allowable as deduction either under Section 31, or even, under Section 37 of the I.T. Act [we will deal with Section 37, a little later]. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Having failed with the AO, the Appellate Commissioner and the Tribunal, the really learned assessee, Shanti Bhushan is before the High Court. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">He submitted that Coronary surgery was not a life saving operation but was undertaken due to professional and commercial expediency in order to enable assessee to carry out his profession efficiently. It was stressed that the medical procedure had enabled the assessee to travel extensively all over the country in connection with his professional duty of putting in appearances in various High Courts of the country. He also submitted that after the surgery, his income had increased from 3.55 Lakhs in 1982 to 106 Lakhs in 1992. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The High Court was of the opinion that deduction under section 31 of the IT Act would not be available for two reasons: </font></p>
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ <strong>Cost of Acquiring heart?</strong> If the heart of a human being, as in the case of the assessee, were to be considered a plant, it would necessarily mean that it is an asset which should have found a mention in the assessee's balance sheet of the previous year in issue, as also, in the earlier years. Apart from the fact that this is admittedly not so, the difficulty that the assessee would face in showing the same in his books of accounts would be of arriving at the cost of acquisition of such an asset.
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ <strong>Heart is not a professional tool:</strong> Even if one were to give the widest meaning to the word “plant? in section 31 of the IT Act, it would still not fall within the definition of the word plant . It cannot be said that the assessee who is a lawyer would have used his heart as a tool for his professional activity. The fact that a healthy and a functional human heart is necessary for a human being irrespective of his vocation or social strata is stating the obvious. But this would not necessarily lead to the conclusion that the heart is used by, a human being, as a tool of his trade or professional activity. General well being of the heart and its functionality cannot be equated with using the heart as a tool for engaging in trade or professional activity. At least the facts in this case do not demonstrate the same. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Hence, the petitioner's claim for allowing deduction of the expenses incurred by him on his coronary surgery under section 31 of the IT Act, is rejected. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Now the alternate plea of claim under Section 37</strong>: The High Court held that the claim for deduction under section 37 of the IT Act should satisfy three conditions: </font></p>
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ It should be an expense which is incurred wholly and exclusively for the purpose of the assessee's business or profession;
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ It should not be an expense incurred to bring into existence a capital asset; and
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ It should not be an expense of a personal nature. </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The High Court held that the assessee's claim under section 37 of the IT Act does not fulfil the first condition which is that the expense in issue have been incurred wholly and exclusively for the purposes of the assessee's profession. An impaired heart would handicap functionality of a human being irrespective of his position, status or vocation in life. Expenses incurred to repair an impaired heart would thus add perhaps to the longevity and efficiency of a human being per se . The improvement in the efficiency of the human being would be in every activity undertaken by a person. There is thus no direct or immediate nexus between the expenses incurred by the assessee on the coronary surgery and his efficiency in the professional field per se . Therefore, to claim a deduction on account of expenses incurred by the assessee on his coronary surgery under section 37(1) of the IT Act would have to be rejected. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But Shanti Bhushan is not one to lose heart. It seems he has decided to appeal to the Supreme Court. Shanti Bhushan's income is around 10 -15 Crores now and the amount disallowed by the High Court is paltry, but the 80 plus lawyer will not leave this case so close to his heart. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">On the cost of acquiring the heart, Business Standard reported that he said, “it is not a ‘purchased asset' but a ‘God-given gift.' If the asset is given free, the cost of repairs should be allowed to be deducted.” </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We will bring you the full text of the case on Saturday.</font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">US IRS Officer sentenced for false tax return </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>A</strong> Revenue Agent with the Internal Revenue Service has been sentenced to 36 months in federal prison for filing fraudulent tax returns for himself and innocent relatives that claimed, among other things, bogus deductions for alimony and mortgage payments. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Albert Bront, the IRS Agent falsely claimed approximately USD 16,819 in mortgage interest for a home on Birmingham Place in Santa Clarita, even though the property had been given to him by his mother. Bront also falsely claimed an approximately USD 12,000 deduction for "alimony paid" and failed to report as income more than USD 10,000 he received when he stole a federal tax refund that was paid to a relative who was unaware of Bront's fraudulent activity. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Prosecution charged: </font></p>
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Bront is an IRS Revenue Agent who not only filed numerous false tax returns, but stole tax refunds from others.
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ He continued his illegal tax-related actions after getting caught by the IRS.
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ He threatened the federal officers who executed the search warrant at his home.
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ He violated his pre-trial release conditions, which further demonstrates that, even after being indicted, he still had no respect for the law. </font></p>
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<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Depreciation for purpose of declaration of Dividend - MCA Clarifies </font></strong></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">IT</font></strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> seems the companies engaged in the generation or supply of electricity are approaching Ministry of Corporate Affairs for fixing rate of depreciation in individual cases. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Ministry has, considered the whole matter and clarifies that: </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Section 616 (C) the Companies Act, 1956 provides that the same shall apply to companies engaged in the generation or supply of electricity, except in so far as the said provision is inconsistent with the provisions of the Indian Electricity Act, 1910 or the Electricity Supply Act, 1948 as repealed by enactment of the Electricity Act, 2003. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Govt. of India, Ministry of Power vide resolution dated 6th January 2006 has notified Tariff Policy in terms of section 3 of the Electricity Act, 2003. The said Tariff Policy inter-alia provides that rates of depreciation as notified by Central Electricity Regulatory Commission (CERC) would be applicable for the purpose of tariffs as well as accounting. CERC has also notified the rates of depreciation as well methodology for computing such depreciation and Depreciation is to be provided up to 90% of the cost of asset. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Since the rates of depreciation and methodology notified under Electricity Act, 2003 are inconsistent with the rates given in Schedule XIV of the Act and the former being special Act, the former shall prevail over rates notified under Schedule XIV of the Companies Act by virtue of section 616(c) of the Companies Act. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Accordingly, companies referred to in Section 616(c) of the Companies Act can distribute dividend out of profit arrived at after providing for depreciation following the rates as well as methodology notified by CERC and the same shall be sufficient compliance of section 205 of the Companies Act, 1956. </font></p>
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<p><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=wnew/mca_cir_31_2011.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">MCA General Circular No: 31/2011 Dated: 31st May, 2011 </font></strong></a></p>
<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"> – Friday's cases</font></strong></font></strong></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a></a><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">Service Tax</font></strong></font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Whether ‘Mithi River' is a river or not is a pure question of fact: CESTAT </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>APPELLANT</strong> claims that dredging activity undertaken by them is in a ‘drain' and not in a river and hence not taxable - even the agreement between the appellant and MMRDA describes the stream as ‘Mithi River' - it cannot be called otherwise merely by reason of the fact that rainwater or domestic sewage from the surrounding areas are also flowing into it or that industrial effluents are discharged into it – Prima facie appellant liable to pay Service Tax – Pre-deposit ordered: </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax</strong></font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Whether, if assessee engaged in business of cosmetics, incurs certain expenses on 'Testers', generally used by customers before purchase, such product promotional expenses are to be treated as capital in nature merely because it also promotes goodwill of company - NO, rules ITAT </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> assessee company, engaged in the business of cosmetics, claimed deduction on account of ‘testers' and ‘merchant display' including materials like spatula, lacquer and lip-gloss applicators, disposable sponges, etc. which were supplied free of cost to the retailers in order to promote product sales. According to the assessee, customers wanted to try the products before purchase. Moreover, the testers supplied to retailers, included the payment of customs duty and clearing and forwarding charges. However, not satisfied with the explanation, the AO held that the assessee had incurred these expenses to earn goodwill that would benefit the business in the long run and bring benefit of an enduring nature. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Excise </strong></font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Conversion from DTA unit to a 100% EOU – reversal of CENVAT Credit – issue no longer res integra - Appellant entitled to carry forward CENVAT credit in view of decision in Sun Pharmaceuticals Industries: CESTAT </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>RULES</strong> did not contain any provision barring the 100% EOUs from availing CENVAT credit or utilizing the same for payment of duty on excisable goods removed to the DTA or for payment of duty on goods exported under claim for rebate. Also there exists no bar for a DTA unit carrying over inputs and the CENVAT credit balance in its accounts when it got converted into an EOU.</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"><strong>vijaywrite@taxindiaonline.com</strong></a></font></p>
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