Jurisprudentiol-Wednesday's cases

By Vijay Kumar

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Transfer of SFIS duty credit scrips among group companies – Interpretation of 'Group Company ' under para 9.28 of the FTP - Director General of Foreign Trade cannot introduce something which is not envisaged in FTP and impose an additional restriction: High Court

THE petitioner is 100% subsidiary of GMR Hyderabad International Airport Limited (GHIAL). Petitioner is one of the group companies of GHIAL. In recognition of exports carried out by the petitioner, competent authority issued Duty Credit scrips which can be encashed while importing goods specified in the Served From India Scheme. These scrips are transferable within the group company. Therefore, petitioner requested the Director General of Foreign Trade to permit utilisation of scrips by GHIAL. Petitioner submitted a representation dated 20.12.2013 requesting to grant such permission. In response, by letter dated 12.2.2014, the petitioner was asked to furnish documentary evidence as per para 9.28 of the Foreign Trade Policy for the years 2009-2014 duly attested by Registrar of Companies to process the case further. On application, the Registrar of Companies, informed that no such certificate can be issued. Therefore, a certificate from M/s. Brahmayya & Company, Chartered Accountant of GHIAL was obtained and submitted in lieu of requirement of certificate of attestation from the Registrar of Companies. By proceedings dated 22.7.2014, petitioner was informed that request for transferability of Duty Credit scrips under the Served From India Scheme to GHIAL was rejected on the ground that petitioner is not holding more than 26 % of the shares in GHIAL, which is a mandatory requirement as per policy.

Income Tax

Whether inter-corporate deposits can be considered as part of loans and advances and same attracts provisions of Sec 2(22)(e) - NO: ITAT

THE assessee had taken inter corporate deposits from its subsidiary company Ernst & Young Merchant Banking Services Pvt. Ltd. (EYMBSPL). The AO treated these deposits as loans and advances and held them as deemed dividend u/s 2(22)(e) in the hands of the assessee received from its subsidiary. While the assessee contested that no income on account of deemed dividend was attracted in the instant case since there is a clear distinction between the inter-corporate deposits vis- à -vis loan/advance, however, the AO made the addition. On appeal, the CIT(A) deleted the addition. The Revenue filed this appeal.The counsel of the assessee argued that there is a clear distinction between deposits vis- à -vis loans or advances. He further submitted that the provisions of section 2(22)(e) of the Act is a deeming fiction, and such a deeming fiction should not be given a wider meaning than what it purports to do. The Counsel relied on the case law of Special Bench of this Tribunal in the case of Gujarat Gas Financial Services Ltd. Vs. ACIT wherein it was held that interest on inter corporate deposit and interest on loans or advances are different.

The issues before the Bench are - Whether inter-corporate deposits can be considered as a part of loans and advances and Whether section 2(22)(e) can be invoked when an assessee involved in financing business has taken such deposits from its subsidiary company. And the verdict goes against the Revenue.

Service Tax

Services to members of club/co-operative housing society is not a service by one to another and, therefore, is not chargeable to service tax – appeals allowed: CESTAT

M/s Matunga Gymkhana runs a club for their members. The activities carried out by them relate to Sports, Yoga etc. According to them, their objective is charitable as per the constitution of the Gymkhana. They are a Public Charitable Trust registered under the Mumbai Public Trust Act. Their objective is for promotion of physical well-being and most of the sports facilities are utilized by the members and their children. According to them, Section 65 (25a) of the Finance Act, 1994 states that club or association means any body or body of persons providing services facilities for a subscription but does not include any body engaged in activities having objectives which are in the nature of public service and are of charitable, religious or political nature.

Revenue was of the view that the activities are not charitable in nature as they are chargeable and neither are they in the nature of public service. According to Revenue, the appellant does not come within the purview of the exclusion clause under Section 65(25a) ibid. Therefore, the demand of service tax against the appellant was confirmed, appropriate interest ordered and penalties imposed under Sections 76, 77 & 78 of the Act.

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