TIOL-DDT 1835 · the untouched capture
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=14276"><img src="http://www.taxindiaonline.com/RC2/image/ddt/ddt_1794.jpg" alt="DDT in Limca Book of Records" width="175" height="120" hspace="5" border="0" align="right"></a></font></strong></font><font color="#663399" size="3">TIOL-DDT 1835</font><br>
13.04.2012<br>
Friday</strong></font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">'Non-Performance' also a Service - Liable to Service Tax? Retrospective Objection by CAG!</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>MORE</strong> than six years ago, in <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=3496" target="_blank">DDT 330 - 27 03 2006</a></strong>, we had mentioned that <em>Obligation to refrain from an act or to tolerate an act or situation</em>, is also a service in some countries. The Indian Service Tax Department was sure to adopt this theory; it is surprising they waited for six years. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the Finance Bill 2012, as per clause (e) of Section 66E, agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; is a declared service and this is applicable only from a date to be notified. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Guidance Note attached to the JS, TRU letter to the Budget 2012, states: </font></p>
<blockquote>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Activity could be active or passive and would also include forbearance to act. Agreeing to the obligation to refrain from an act or to tolerate an act or a situation has also been specified as a declared service under section 66E of the Act. </font></em></p>
<p align="justify"><em><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act </font></strong></em></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In terms of this entry the following activities if carried out by a person for another for consideration would be treated as provision of service. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">- Agreeing to the obligation to refrain from an act. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> - Agreeing to the obligation to tolerate an act or a situation. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> - Agreeing to the obligation to do an act . </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As mentioned earlier, all these complications are future endurance for us, but the CAG is far ahead of the Revenue Department and it has raised an objection that such non-performance is already taxable. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In its latest report on Service Tax, the CAG says, </font></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“M/s ACX, in Delhi service tax Commissionerate, had received payment aggregating to Rs 2.50 Crore from an individual for refraining from participating in various bids during the period 2005-06. By abstaining/refraining from bids on the request of an individual for a consideration, the assessee had indirectly promoted the business of that individual. As such, the service rendered by the assessee was classifiable under the head ‘business auxiliary service' but the assessee had not discharged his service tax liability on the same. Service tax and cess of Rs 25.50 lakh, besides interest of Rs 15.19 lakh and penalty were recoverable. </font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">When we pointed this out (June and November 2008), the Commissionerate stated (November 2010) that a show cause notice demanding service tax including cess aggregating to Rs 25.50 lakh along with interest and penalty had been issued to the assessee. </font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Ministry in its reply (December 2011) stated that the matter is under examination”.</font></em></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Many of us are under the wrong impression that non-performance would be taxable after the Finance Bill is enacted, but CAG has brought it under tax net from 2005. Based on this AG Report, Show Cause Notices will fly around all over the country. </font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Undisclosed
Income of over Rs 9200 Crores Detected by CBDT in 2011-12 </font></strong></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> CBDT in a Press Release says,</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>During the financial year (FY) 2011-12, the Investigation Directorates of the Central Board of Direct Taxes (CBDT) conducted searches on 330 groups involved in different businesses / activities. On the basis of assets, documents and other evidence unearthed during such searches, undisclosed income exceeding Rs. 9,200 Crore was detected. Number of search warrants executed in FY 2011-12 was 5,132 as against 4,852 warrants executed in FY 2010-11. Unaccounted assets of the value of Rs. 880 Crore (including cash amounting to Rs. 500 Crore) were seized in FY 2011-12 as against assets of the value of Rs. 775 Crore (including cash amounting to Rs. 440 Crore) seized in FY 2010-11. </em></font></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> In the last three financial years (FY 2009-10, 2010-11 and 2011-12), undisclosed income of Rs. 28,040 Crore has been detected by the Investigation Directorates of the Central Board of Direct Taxes (CBDT). Several searches were conducted on the basis of information received relating to assets held abroad by tax residents of India. Disclosure of details regarding assets held abroad is being made mandatory in the income tax returns. Non-furnishing of such information in the income tax returns, and its subsequent detection, will invariably lead to prosecution under the Income Tax Act. </font></em></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Delhi
High Court rejects Bail to Delhi CX Commissioner </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>AS</strong> you will remember, AK Srivastava, (former) Delhi Central Excise Commissioner and his Superintendent Lallan Ojha are in jail for the last three months in the 60 lakh bribe case. The accused officers were denied bail by the Delhi High Court on 11 April 2012. The charges as noticed by the High Court are: </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Hemant Gandhi was acting as a middleman for accused Dr. A.K. Srivastava and Lallan Ojha, who were respectively posted as Commissioner and Superintendent of Central Excise at the relevant time. The allegations are that they were involved in obtaining illegal gratification by corrupt and illegal means from the businessmen. Further, the allegations are that they had conspired to conduct an unauthorized raid at the business premises of Dalip Aggarwal and Anand Aggarwal. It was alleged that in furtherance of the conspiracy, accused Hemant Gandhi had shown the premises of Aggarwals to Lallan Ojha on the evening of 27.12.2011 and it was decided to conduct a raid on the morning of 28.12.2011. In the process a team of officials of Central Excise led by accused Lallan Ojha conducted surprise raid at the godown premises of Dalip Aggarwal and Anand Aggarwal on 28.12.2011 under the overall supervision and control of accused Srivastava. Then they negotiated with Aggarwals for an illegal gratification for not taking any action and made an initial demand of Rs. 2 crore which was ultimately finalized at Rs. 60 lac. A sum of Rs. 40 lac was received in cash and a cheque of Rs. 20 lac was issued by Aggarwals as security for the remaining amount of bribe. Out of the said amount, a sum of Rs. 3 lac was paid to Ojha as his share and the said amount was given on 2.1.2012 to his driver who kept the same in the dickey of the car parked at his office at ITO. Accused Lallan Ojha was apprehended and got recovered Rs. 2,96,500/- from the dickey of his car. His driver confirmed that this money was delivered to him by an unknown person at the instance of Ojha. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Delhi High Court observed, </font></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If the accusation of bribery was supported by direct evidence of acceptance of illegal gratification including trap cases, it is obvious that no other factor is relevant and the level and status of officer is irrelevant. It is for this reason that the cases of bribery including the trap cases are outside the scope and ambit of Section 6A (1). The petitioners A.K. Srivastava and Lallan Ojha are senior officers of the Central Excise Department. Most of the witnesses who have been cited by the prosecution are officials of their department and some of the officials cited as witnesses are their juniors and subordinates. The pleas that the petitioners are in custody for about three months now and the charge-sheet has been filed are also no ground to admit them on bail. </font></em></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
Commissioner will spend some more time in the company of his Superintendent
- in jail.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(See
full text of the Judgement - </font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=51&filename=legal/hc/2012/2012-TIOL-261-HC-DEL-MISC.htm" target="_blank">2012-TIOL-261-HC-DEL-MISC</a></strong></font>)</p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">No Recovery During Pendency of Stay Petition </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN</strong> a recent judgement in <em>UTI Mutual Fund vs Income Tax Officer</em> <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=38&filename=legal/hc/2012/2012-TIOL-206-HC-MUM-IT.htm" target="_blank"><font size="1">(2012-TIOL-206-HC-MUM-IT)</font></a></strong>, the Bombay High Court quoted the Kerala High Court; “<em>In exercising his power, the Income-tax Officer should not act as a mere tax gatherer but as a quasi judicial authority vested with the power of mitigating hardships to the assessee.”</em></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And directed that </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">No recovery of tax should be made pending </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(a) Expiry of the time limit for filing an appeal; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(b) Disposal of a stay application, if any, moved by the assesse and for a reasonable period thereafter to enable the assessee to move a higher forum, if so advised. Coercive steps may, however, be adopted where the authority has reason to believe that the assessee may defeat the demand, in which case brief reasons may be indicated. </font></p>
</blockquote>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">TDS - Section 40(a)(ia) - ITAT Special Bench Decision </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> assessee incurred brokerage expenses of Rs. 38.75 lakhs and commission of Rs. 2.43 lakhs without deducting TDS. Of this only Rs. 1.78 lakhs was payable and the rest was paid. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The question before the Special Bench was “<em>whether Sec 40(a)(ia) of the Income Tax Act can be invoked only to disallow expenditure of the nature referred to therein which shown as ‘payable' as on the date of the balance sheet or it can bed invoked also to disallow such expenditure which become payable at any time during the relevant previous year and was actually paid within the previous year?</em>” </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Special Bench by majority held, </font></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">"The provisions of section 40(a)(ia) of the Act are applicable only to the amounts of expenditure which are payable as on the date 31st March of every year and it cannot be invoked to disallow which had been actually paid during the previous year, without deduction of TDS". </font></em></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please <strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=39&filename=legal/itat/2012/2012-TIOL-184-ITAT-VIZAG-SB.htm" target="_blank">Click Here</a></strong> for the ITAT Special Bench Order.</font></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"> – Monday's cases</font></strong></font></strong></font></p>
<p><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">If you don't pay, no duty at all, but if you pay, you have to pay interest also! Assessee paid duty voluntarily even before Show Cause Notice- Commissioner holds no intent to evade duty and so drops penalty, but demands interest - Duty itself not payable; no interest payable: HC</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ACCEPTING</strong> the stand of the Department that even in such a case once the payment of duty is made, interest liability would follow would bring about an incongruent situation. The recovery of the unpaid or short paid duty would become time barred. If the manufacturer does not pay it voluntarily, it would not be possible for the Department to recover the same. But if he does it voluntarily despite completion of period of limitation, he would, further be saddled with the liability to pay statutory interest. Surely, this was not the intention of the Legislature while sub-Section (2B) was introduced in Section 11A of the Act. </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">Whether expression 'core activities' of tonnage tax company appearing in section 115VI includes profit accrued as a result of sale of old ships - NO, rules ITAT </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>ASSESSEE</strong> is a shipping Company - filed its ROI declaring positive income including tonnage income - During the course of assessment proceedings the AO observed that the assessee included the profits from the sale of ships in the tonnage income and hence could not offer the same for MAT purposes - The AO was of the view that the income from the sale of ship was not attributable to the shipping activities and hence the same was not available for tonnage benefit and the same was includable in book profits - CIT(A) affirmed the view of the AO - In appeal before the ITAT where the AR of the assessee argued that sale of old ships was an activity covered by the expression shipping operations. </font></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">Input Service Distributor - No bar exists in rule 7 of CCR, 2004 from taking CENVAT Credit in respect of invoices prior to date of registration - Prima facie strong case in favour - Pre-deposit waived - CESTAT </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE </strong> issue involved in the case is that applicant had distributed CENVAT credit in respect of input services prior to registration as “Input Service Distributor”. On being pointed out, the assessee reversed the credit availed by them and thereafter “Input Service Distributor” registration was granted to them on 02.01.2007. After the registration was given, head office of the applicant passed on an amount of Rs. 1,94,501/- to their manufacturing unit at Nashik. </font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns Monday for the judgements</font></strong></p>
<p align="center"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Happy Vishu, Rongali Bihu, Nutan Varsha, Vaiskhadi, Bahag Bihu, Puthandu Pirappu, Naba Barsha and Vaisakhi. </font></strong></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Monday with more <strong>DDT</strong></font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong> </strong></font><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a Nice Weekend</font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif"></font><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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