Jurisprudentiol – Thursday's cases

By Vijay Kumar

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

Notional interest on interest free security deposit cannot be added to rent agreed upon between parties for purpose of levy of service tax on renting of immovable property - Appeals allowed: CESTAT

THE appellants are lessors of immovable property. They have leased out their premises on long-time lease ranging from 5 to 10 years. For the services rendered they are receiving lease rentals on a monthly basis. In addition to these rentals, they are also taking interest free security deposits from the lessees. These security deposits vary from six months' rent to one year's rent. The security deposits are taken to secure default in payment of rentals, default in payment of utility charges, if any, and damage caused to the property other than the usual wear and tear. These deposits are returned to the lessee at the end of the lease period. The lease agreements also provide for increase in the lease rental once in three years by 15% of the rent agreed upon.

The department was of the view that the taking of interest free security deposit has suppressed the lease rentals and, therefore, notional interest @ 18% of the deposit should be added to the rent received and service tax should be demanded on the notional interest on the security deposit

Income Tax

Whether when Assessee Company is mainly engaged in earning profits from purchase and sale of shares, dividend income is merely incidental to holding of such stocks and thus, is chargeable to tax as income from other sources - YES: HC

THE assessee concern is in the business of purchase and sale of shares and also derives income from dividend, commission and interest. For the AY 1992-93, assessee had filed a return showing nil income. It had showed income from dividend, commission and interest under the head "profits & gains from business or profession". AO had not accepted the submission of assessee and while passing an order u/s 143(3), it was held that the income disclosed by assessee from dividend, commission and interest was liable to be assessed under the head "Income from other sources" and not under the head "profit & gains from business or profession". On appeal, CIT(A), found that since the assessee had been purchasing shares and debentures and was also selling the same, the income derived in the form of interest, dividend, debentures and shares was liable to be assessed as business income and, therefore, such income was liable to be assessed under the head "profits & gains from business or profession". The CIT(A), accordingly, allowed the appeal and deleted the addition so made by AO.

The issue before the Bench is - Whether when the assessee company is mainly engaged in earning profits from purchase and sale of shares, dividend income is merely incidental to holding of such stocks and thus, is chargeable to tax as income from other sources u/s 56(2). And the verdict goes in favour of the assessee.

Central Excise

Respondents in adjudication proceedings prayed that if it is held that they are treated as two separate units and are denied benefit of notfn. 67/95-CE, in that case, if duty is paid by one unit same should be allowed as CENVAT Credit to another unit - Adjudicating authority allowing credit and this order was upheld by Commr(A) - no infirmity in order - Revenue Appeal dismissed: CESTAT

THE respondents are having two units and are manufacturers of White Zinc Oxide. Till August 1998, Respondent No.2 used to do certain processes and clear the same to the Respondent No.1 on payment of Central Excise duty. Respondent No. 1 took the credit of the duty paid and carried out further processes and cleared the same on payment of duty.

Vide letter dated 20.7.1998, the CCE, Pune-II pointed out to the respondents that two units cannot be treated as separate identities for the purpose of Central Excise Law as well as the Cost Accountant's reports and, therefore, the transaction between two units are to be considered as two wings of the same factory. On this basis the Respondent No.2 filed two classification declarations and claimed the benefit of Notification No. 67/95-CE for clearances between two units and cleared the goods without payment of duty.

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