Jurisprudentiol - Thursday's cases

By Vijay Kumar

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Forfeiture under Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 is not violative of Article 20: SC

IT all started forty years ago in 1974 when the appellant was detained under the provisions of the Maintenance of Internal Security Act, 1971 (since repealed) and later under the provisions of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 ("COFEPOSA") on the ground that he in collaboration with his brother, who was living in London at that point of time, was indulging in activities which are prejudicial to the conservation of foreign exchange. The appellant unsuccessfully challenged the detention order. He was eventually released in 1977.

Expression "illegally acquired property" is defined in elaborate terms under the Act. Broadly speaking the definition covers two types of properties:

1) acquired by the income or earnings; and

2) assets derived or obtained from or attributable to any activity which is prohibited by or under a law in force. Such law must be a law with respect to which parliament has the power to make law.

Income Tax

Whether interest income arising out of deposits with banks and EEFC account is eligible for deduction u/s 10A - YES: HC

THE assessee is a 100% EoU, engaged in exports of computer software. It earned interest income from deposits lying in the EEFC account and advancing of inter-corporate loans out of its own fund. The assessee had outstanding borrowings by way of External Commercial Borrowings (ECBs) obtained in earlier years. The assessee had to repay this borrowing only in accordance with the repayment schedule. It was stated that RBI had imposed restriction on prepayment of instalments. The borrowings were for the business of STP undertaking. Under the Exchange Control Regulation, the assessee was prohibited from any pre-payment of ECBs. For any pre-payment of the loan, the assessee had to seek prior permission of the Central Government. In the year 1999, the Government had formulated a policy on pre-payment and the policy stated that approval of pre-payment would be granted only to the extent of 10% of the outstanding loan. Hence, even after going through the regulation, the assessee would have to repay a small portion of its outstanding loans, though it had the liquidity to do so.

THE issue before the Bench is - Whether interest income arising out of deposits with banks and EEFC account is eligible for deduction u/s 10A. And the answer goes in favour of the assessee.

Haryana General Sales Tax

Haryana General Sales Tax Rules, 1975: Clubbing of units not permissible for availing exemption: Supreme Court

THE respondent assesse was allowed sales tax exemption under Rule 28A of the Rules for the period 13.12.1991 to 12.12.1998 for an amount of Rs.498.80 lakhs. This benefit was granted subject to the conditions laid down in the sub-rule 11 of Rule 28A of the Rules. The conditions postulated in sub-rule 11 (a) are that the industrial unit after availing of the benefit shall continue its production at least for the next five years not below the level of average production for the preceding five years. There is also stipulation in the sub-rule 11 that if the unit violates any of the conditions laid down in clause (a) of sub-rule 11, it shall be liable to make, in addition to the full amount of tax benefit availed of by it during the period of exemption, payment of interest chargeable under the Act as if no tax exemption was ever available to it.

The Supreme Court held: The grant of exemption unit wise can be best understood by way of example. An entrepreneur can get an exemption of a unit and thereafter establish number of units and try to club together the production of all of them to get the benefit for all. It would be well nigh unacceptable, for what is required is that each unit must meet the condition to avail the benefit.

See our Columns Tomorrow for the judgements