Jurisprudentiol - Thursday's cases

By Vijay Kumar

Legal Corner Icon — the image was hosted by the publisher and was not captured.Service Tax

Services relating to transmission and distribution of electricity - retrospectively exempted by Notification No. 45/2010-Service Tax - Services provided to electricity distribution companies not taxable: CESTAT

THE singular defence urged by the appellant before the adjudicating authority was that these services were provided to instrumentalities of the State; no service tax was collected; as and when the service tax component is remitted by the service recipients, the appellant would remit the service tax. The Tribunal found this defence as fundamentally misconceived and rightly negated by the adjudicating authority.

It was however brought to the notice of the Tribunal that the Central Government by Notification No. 45/2010-ST dt. 20/07/2010, in exercise of powers conferred by Section 11 C of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994, granted immunity from the liability to remit service tax in respect of any taxable service provided in relation to transmission and distribution of electricity, during the period up to 26/02/2010.

Income Tax

Whether when assessee does not utilise borrowed funds for business purpose and spends the same to purchase equity shares as investments, interest paid on such loans is not allowable as per provisions of Sec 36(1)(iii) - YES: ITAT

THE assessee borrowed the sum of Rs. 22.50 crores from ‘U' as loan which was utilized for purchasing the equity shares of DNL as investments. AO applied provisions of section 36(1)(iii) observing that the borrowed money was not utilized for the purpose of business. The CIT (A) confirmed the findings of AO but set off the interest received from ‘C' on advance given against the interest paid. Revenue contended that the money borrowed from ‘U' was not for the purpose of business and, therefore, the entire disallowance of interest was to be sustained. There is no provision under the Income-tax Act for setting off the interest received against the interest paid on the money which was not borrowed for the purpose of business.

The issue before the Bench is - Whether when the assessee does not utilise the borrowed funds for business purpose and spends the same to purchase equity shares as investments, interest paid on such loans is not allowable as per provisions of Sec 36(1)(iii). And the answer goes against the assessee.

UP Trade Tax

Preoperative expenses in the form of interest, not Capital Investment; Transformer is fixed capital investment: Supreme Court

THE following two questions of law would arise for consideration and decision in this appeal:

i) Whether preoperative expenses in the form of payment of interest towards the advance loan taken from the financial institution would form part of additional fixed capital investment (FCI)?

ii) Whether the transformer/C.V.T. installed for regulating voltage for running of the machinery in the factory premises would fall within the meaning of the expression "fixed capital investment"?

See our Columns Tomorrow for the judgements