TIOL-DDT 518 · the untouched capture
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<p align="justify"><b><font color="#663399" size="3" face="Verdana, Arial, Helvetica, sans-serif">TIOL-DDT
518</font></b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><br>
22.12.2006<br>
Friday</b></font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>What
is common to Rajnikant, NT Rama Rao, Chiranjeevi, Jayalaitha?</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">They were/are all super
stars no doubt, and as coincidence would have it, they all had the same problem
with wealth tax. It is apparently a practice in the film industry to collect
remuneration in different forms. An annuity policy seems to be one such mode.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In
a case we are reporting today, <b><font color="#663399">Rajnikant </font></b><font color="#663399"><strong>vs</strong>
<b>ASST. COMMISSIONER OF WEALTH TAX</b></font><b>, </b><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=51&filename=legal/hc/2006/2006-TIOL-396-HC-MAD-WT.htm"><font size="1">2006-TIOL-396-HC-MAD-WT</font>
</a>Super star Rajnikant is in appeal before the High Court. He had claimed
exemption of the annuity policies held by him which was disallowed by the Assessing
Officer, who brought the annuity policies to tax. Aggrieved Rajnikant succeeded
with the Commissioner (Appeals). But a persistent Revenue took the matter to
the ITAT, which reversed the order of the Commissioner and upheld the assessing
officer’s order. The star is in the High Court. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The High Court had on earlier
occasion on the same star’s case on the identical issue had passed an order
in favour of Revenue. And second time too the star lost in the High Court.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399">NT
Rama Rao</font></b> faced the same problem – interestingly after his death .<font color="#663399"><b>COMMISSIONER
OF WEALTH-TAX v. N. T. RAMA RAO (DECD.). (THROUGH LEGAL REPRESENTATIVES)</b></font><b>
- </b><font size="1"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=51&filename=legal/hc/2003/2003-TIOL-155-HC-AP-WT.htm">2003-TIOL-155-HC-AP-WT</a></font></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
Wealth-tax Officer accepted NTR’s plea and did not include the assessee's interest
in the annuities in his net wealth. The Commissioner reviewed the order and
held that that the Wealth-tax Officer failed in including the value of the annuities
in the net wealth and accordingly committed error in determining the assessee's
wealth. This was in 1988, around the time the NTR glamour was slipping down.
Taxmen and calamities generally come together. NTR challenged the Commissioner’s
order in the ITAT. The Tribunal set aside the order of the Commissioner and
upheld the WTO’s order. Incidentally the Tribunal noticed that an identical
order of the WTO, in the case of another Super Star and living legend <b><font color="#663399">AkkineniNageswara
Rao</font></b> was accepted by the department and no appeal was filed. But in
NTR’s case, the Government was determined and so took the case to the High Court.
Incidentally NTR had lost the elections and was out of power at that time. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>The High Court observed,</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The view taken by the Commissioner
that after the insertion of clause in section 2(e)(2)(ii) of the Act and insertion
of the proviso under clause (vi) of section 5(1) with effect from April 1, 1975,
the exemption in respect of annuities will be available only to the extent explained
in the proviso to section 5(1)(vi) of the Act irrespective of the date on which
the policies are taken or annuity contracts are entered into, is correct. The
decision of the Commissioner that the proviso to section 5(1)(vi) of the Act
would come into play and at the best the assessee would be entitled to only
one tenth of the total value of the policies but not to the full extent of the
policies for the reason that the annuity policies were for less than ten years,
in our considered opinion, is absolutely correct. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
current super star of Telugu, <b><font color="#663399">Chiranjeevi</font></b>
faced the same issue in Chennai. In <b><font color="#663399">COMMISSIONER OF
WEALTH TAX CENTRAL-I, <st1:City><st1:place>MADRAS</st1:place></st1:City> Vs
K CHIRANJEEVI</font> - </b><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=51&filename=legal/hc/2006/2006-TIOL-395-HC-MAD-WT.htm"><font size="1">2006-TIOL-395-HC-MAD-WT</font></a></u><b><u>,</u></b> the
WTO disallowed the Rs. 17,25,000/- annuity paid by film producers for Chiranjeevi.
On appeal by Chiranjeevi, the Commissioner (Appeals) allowed the appeal.
The Revenue appeal failed before the Tribunal and they took the matter to
the High Court. The High Court relied on the NTR case and allowed the Revenue
appeal.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Is this annuity business
confined to South Indian stars? No, long before the NTR case reached the AP
High Court, the Bombay High Court in COMMISSIONER OF WEALTH TAX vs. AJIT, the
Hindi star, held that annuity is includible in the net wealth of the assessee.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Strangely
among all these failures, <b><font color="#663399">Jayalalitha</font></b> was
a super success when she won an annuity case in <b><font color="#663399">COMMISSIONER
OF INCOME-TAX Vs JAYALALITHA </font>- </b><u><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=51&filename=legal/hc/2003/2003-TIOL-154-HC-MAD-WT.htm"><font size="1">2003-TIOL-154-HC-MAD-WT</font></a></u><b><u>.
</u></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">An annuity policy was taken
out by a film producer Vijaya International, which produced the film "Nam
Naadu" in which the assessee Jayalalitha had acted. The policy was taken
out on an agreement between the firm "Natyakalaniketan" of which Jaya
and her mother were partners and the film producer. The policy provided for
annual payments from April 1, 1974, to April 1, 1980. The payments were to be
made to the firm and not to the assessee. However, well before 1974, the firm
came to be dissolved on the death of the assessee's mother in the year 1971.
Under the will left by her mother, the assessee became entitled to the interest
of her mother in the firm, and the annuity payments which were otherwise payable
to the firm became payable to her. For these assessment years, the amount of
annuity received by the assessee was treated as part of her wealth for the purpose
of assessment under the Wealth-tax Act by the WTO. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Tribunal held that the
right of annuity became the assessee's property only by succession and was not
purchased by any other person in pursuance of a contract with the assessee and,
therefore, not an 'asset' within the meaning of section 2(e)(1)(iv) of the Wealth-tax
Act, 1957, and not includible in the net wealth of the assessee.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The matter reached the High
Court which agreed with the ITAT. The High Court observed,</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
If the Act at the very threshold chooses to exclude certain types of property
from the category of assets, there is no rule of construction which would
require that the width of the exclusion should be decreased by stretching
the words defined in the definition provision beyond their plain literal meaning.
</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
What was intended to be taxed are the assets and what was excluded from the
category of assets is not within the purview of the Act. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
An annuity purchased by a person who had not entered into a contract with
the assessee is not an asset for the purpose of the Act, if the other condition,
namely, that the terms and conditions of the annuity preclude the commutation
of any portion thereof into a lump sum grant is satisfied.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
The fact that all the partners have an interest in the partnership property
does not necessarily lead to the conclusion that for the purpose of the Wealth-tax
Act, even in the absence of appropriate language therein, the contract to
which the firm is a party, should be treated as a contract with each partner
individually.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The High Court not only
decided the case in her favour but also awarded costs of Rs. 2000/-</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Jayalaitha is unique; she
must be the only star who got money from the Income Tax department!</font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>duty free
entitlement credit certificate and duty free service entitlement credit certificate
– exemption from all additional duties. </b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">At present the exemption
is restricted to the Additional duty relating to the excise duty (CVD) under
Section 3(1) of the Customs Tariff Act. Sadly there are other SAD – Special
Additional Duties imposed under Section 3(3) and 3(5) of the Customs Tariff
Act. Now notification Nos 53 and 54/2003 are amended to provided for exemption
from all additional duties under Section 3 and not limiting to Section 3(1).</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=23&filename=notification/custom/2006/ctariff06_117.htm">NOTIFICATION
NO. 117/2006-Cus., Dated: December 19, 2006</a></font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Anti dumping
duty on POY extended</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Anti dumping duty on Partially
Oriented Yarn (POY), originating in, or exported from Republic ofKorea and Turkey,
was imposed vide notification No. 97/2002-Customs, dated the 12th September
2002. It was originally imposed provisionally by notification No. 131/2001-Customs,
dated the 27th December, 2001 and might have lapsed on 26.12.2006. This time
around the government was well on time and it is now extended up to 26.12.2007,
if not revoked earlier.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=23&filename=notification/custom/2006/ctariff06_117.htm">NOTIFICATION
NO. 118/2006-Cus., Dated: December 20, 2006</a></font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>First Ever
Pre-Budget Joint Interaction of Exporters and Commerce Minister with Finance
Minister</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The first ever pre-Budget
and pre-Foreign Trade Policy joint interactive meeting of exporters convened
by the Commerce and Industry Minister KamalNath with the Union Finance Minister,
was held yesterday morning. The exporters urged the government to continue Duty
Entitlement Passbook Scheme (DEPB) and the Textile Upgradation Fund Scheme (TUFS)
and to remove or rationalise levies that erode the global competitiveness of
Indian exports.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Other suggestions made included</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. zero duty on imports
for export production under the Export Promotion Capital Goods Scheme (EPCG)
to provide a level playing field and promote expansion and modernisation;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. widening of the Focus
Market and Focus Market Scheme.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. a firm date for EDI (electronic
data interchange) connectivity by Customs as it would greatly reduce transaction
cost of exporters.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. exemption from service
tax and the Fringe Benefit Tax, which put a heavy burden on exporters for activities
which were essential for export promotion.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. removal of the sunset
clause under Section 10 b which provides income tax exemption on EOU exports
only till 2009.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. issue of guidelines by
Revenue so that SEZ Rules could be implemented by their field formations.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">7. relaxation and extension
of export obligation under the EPCG Scheme for fishing and marine industry affected
by natural calamities such as Tsunami, besides factoring in of fuel costs in
DEPB as with other export promotion schemes.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">8. Direct import of bullion
in a phased manner by the Gem and Jewellery Export Promotion Council as the
present system of allowing imports only by nominated agencies for supply to
exporters added to transaction costs and procedural hassles.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">9. exemption from excise
and additional customs duty on machinery, spare parts etc used in leather and
leather products, including footwear</font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Manmohanjeekaise
ho; this is Bush calling</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
Prime Minister, Dr. Manmohan Singh received a telephone call from President
George Bush last evening. The Prime Minister conveyed seasons’ greetings to
President and Mrs. Bush.</font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/xmas.jpg" width="111" height="67" border="1"></font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until
Tuesday with more DDT </font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have
a nice week end and a</font></p>
<p align="justify"><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">vijaywrite@taxindiaonline.com</a></font></p>
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