TIOL-DDT 719 · the untouched capture
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<P align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><B><font color="#663399">TIOL-DDT
719</font><BR>
15.10.2007<BR>
Monday</B></font></P>
<P align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><B>Income
Tax - harvesting and transportation expenses in the cases of Co-operative sugar
mills<I> </I></B></font></P>
<P align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
CBDT has come to know that some Assessing Officers are not allowing the claim
of harvesting and transportation expenses incurred by the Co-operative sugar
mills for procuring sugarcane from farmers, who are members of such Co-operative
Sugar Mills and who are bound under an agreement to supply the sugarcane exclusively
to the <B>concerned</B> sugar Mill.</font></P>
<P align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">What
is a <B>concerned</B> sugar mill? A sugar mill that is worried?</font></P>
<P align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Anyway,
Board now clarifies that</font></P>
<P align="justify"
><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1.
These expenses are incurred by the Sugar Mills for ensuring an adequate and
sustained supply of freshly cut sugarcane that is an essential input for the
continuous running of such Mills. </font></P>
<P align="justify"
><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2.
These expenses are, therefore, incurred for a commercial expediency and are
prima facie wholly and exclusively for the purpose of business. </font></P>
<P align="justify"
><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3.
Such expenses are, therefore, allowable in the computation of the income of
the Co-operative Sugar Mills.</font></P>
<P align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Strange!
The AOs never knew these elementary things! Thank God and Board - at least now,
it is clarified by the <B>concerned</B> Board.</font></P>
<P align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We
should congratulate the Board for taking the super fast action. We in<strong>
TIOL</strong> are especially happy that the Board indeed reacts. It was only
on 5<SUP>th</SUP> October that we sent the Board a copy of the judgement of
the Bombay High Court in THE COMMISSIONER OF INCOME TAX, AURANGABAD Vs SAMARTH SAHAKARI SAKHAR KARKHANA LTD - <B><U><a href="2007-TIOL-554-HC-MUM-IT">2007-TIOL-554-HC-MUM-IT. </a></U></B></font></P>
<P align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
High Court had ruled that that the advances paid to the harvesting transport
contractors was in the nature of business interest of the respondent and not
a diversion of borrowed funds for non business purposes. </font></P>
<P align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Suo
moto, acting on the High Court decision, the CBDT has issued the above circular.
These positive actions of the government are really our reward. All the midnight
oil burnt, all the hassles and all the hard work pale into insignificance with
one such order, useful to the assessee or the government.</font></P>
<P align="justify"><font color="#0000FF" size="2" face="Verdana, Arial, Helvetica, sans-serif"><U><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=36&filename=notification/cbdt/2007/it07cir06.htm">CBDT
CIRCULAR NO. 6/2007, Dated: October 11, 2007</a></U> </font></P>
<P align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><B>Call
Book - Board wants to recall</B></font></P>
<P align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">You
know what a "call book" is? It is the Central Excise Department's dumping yard.
When they cannot decide an issue, it is thrown into the call book, almost never
to be recalled. There are several Show cause Notices which are not decided and
thrown into the call book. The CAG and the PAC have
been concerned with the bulging call books.</font></P>
<P align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In,
Circular No. 162/73/95-CX.3, dated 14.12.95, the CBEC specified the following
categories of cases which can be transferred to call book:- </font></P>
<P align="justify"
><font color="#993399" size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Cases in
which the Department has gone in appeal to the appropriate authority. </font></P>
<P align="justify"
><font color="#993399" size="2" face="Verdana, Arial, Helvetica, sans-serif">2. Cases where
injunction has been issued by Supreme Court/ High Court/ CEGAT etc., </font></P>
<P align="justify"
><font color="#993399" size="2" face="Verdana, Arial, Helvetica, sans-serif">3. Cases where
audit objections are contested. </font></P>
<P align="justify"
><font color="#993399" size="2" face="Verdana, Arial, Helvetica, sans-serif">4. Cases where
the Board has specifically ordered the same to be kept pending and to be entered
into the call book.</font></P>
<P align="justify" ><font color="#993399" size="2" face="Verdana, Arial, Helvetica, sans-serif">The
Board has also informed the field that the PAC has desired that a special review
of all the cases of Provisional assessment, transferred to the call book should
be immediately undertaken and follow-up action taken, in order to ensure that
the prevalent instructions have been complied with and proper revenue is collected.</font><font color="#993399" size="2" face="Verdana, Arial, Helvetica, sans-serif"></font></P>
<P align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In
CIRCULAR NO. 719/35/2003-CX, Dated : May 28, 2003, the CBEC again informed,</font></P>
<P align="justify"
><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The matter
has again been examined with reference to PAC's recommendation on Paras 2.5
and 2.6 of the C & AG Report for the year 1998-99 relating to inordinate
delay for recovery of confirmed demands and non-adjudication of demands respectively
contained in 39th Report. In this regard it is found that the existing instructions
of the Board on the issue are not being scrupulously followed by the field formations.
The pendency of call book cases continues to be very high. Therefore, the Board
while reiterating its earlier instructions, has decided that the respective
Chief Commissioner should monitor progress of disposal of call book cases specifically
to see whether -</font></P>
<div align="justify">
<blockquote>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Call Book
cases have been reviewed by the CCEs.</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. Any appreciable
progress is noticed.</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. Any avoidable
delays are there.</font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> It is further
directed that a one-time comprehensive review of all the pending call book
cases will be done by respective CCEs. The Chief Commissioner may monitor
such review periodically in their respective zones. The progress report
of the call book cases should continue to mention in the MTR as well as
in the monthly statements of the progress achieved in "Key Result Areas".</font></p>
</blockquote>
</div>
<P align="justify"
><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now
the Board informs that as per the records of the Board, Board has issued such
directions only for these issues namely </font></P>
<P align="justify" class=MsoListParagraphCxSpFirst
><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i)
excise classification of soaps (Bathing bars) vide F. No. 94/5/97-CX-3 Dated
16.11.1999. </font></P>
<P align="justify"
><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii)
excise duty leviable on lacquered/laminated/metalized plastic films vide F.No.
93/01/2005-CX-3 dated 23.1.2006; and </font></P>
<P align="justify"
><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii)
rebate on goods manufactured in area based exemptions and subsequently exported
under rule 18 of the Central Excise Rules, 2002 vide F.No. 209/11/2005-CX-6
dated 14.8.2007.</font></P>
<P align="justify"
><font size="2" face="Verdana, Arial, Helvetica, sans-serif">However,
it has come to the notice of the Board that apart from these issues, there are
some other issues which are being shown as reasons for cases pending in Call
Book. Therefore, Board wants the field to submit the information of cases pending
in Call Book on account of instructions issued by the Board:</font></P>
<P align="justify"
><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We
wish the Board all success in tallying their accounts. We hope they would be
successful in tallying the figures of cases stashed away in the call books as
usually, no two reports would tally in the Department.</font></P>
<P align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><B><U><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=31&filename=notification/excise/2007/file208.htm">CBEC
F.No. 208/31/07-CX-6 Dated : September 10, 2007</a></U></B></font></P>
<P align=center><b><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">India's
SEZ - the OECD Report </font></b></P>
<P align="justify"
><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
OECD economic survey comments on our SEZs. </font></P>
<P align="justify"
><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
success of software parks in stimulating the development of the information
technology service industry has led the government to progressively introduce
legislation to enable the development of Special Economic Zones (SEZs), oriented
to the manufacturing sector. </font></P>
<P align="justify"
><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
development of SEZs has, until recently, been slow. Even though India
created the first such zone in Asia in 1965, only eight
existed by 2004 and they provided only 5% of goods' exports, though the shares
for jewellery was 55%.</font></P>
<P align="justify"
><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
slow development of existing SEZs led the government to introduce a new policy
at the beginning of 2006. The previous policy, while giving considerable tax
advantages, had not overcome the administrative barriers to business that typifies
India nor did it overcome infrastructure
barriers, notably for road and electricity. </font></P>
<P align="justify"
><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
new policy relies on private developers to create the zone and provide all infrastructure,
with the objective of generating additional economic activity and creating employment.
The new policy focuses on changes to the laws and regulations that govern SEZs
and allows:</font></P>
<ul>
<li>
<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">Single
window clearance for development in the zone; simplified administrative procedures
and exemptions from many restrictive policies; exemption from selected central
laws.<br>
</font></div>
</li>
<li>
<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">Application
of all municipal and many state laws by the SEZ Authority.<br>
</font></div>
</li>
<li>
<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">Separate
court system with internal security provided by the SEZ Authority.<br>
</font></div>
</li>
<li>
<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">Labour
laws have also been modified at the state level, with 14 states abolishing
previous constraints, freely allowing contract labour, and a significant number
deeming all enterprises in a SEZ to be public utilities and hence making wildcat
strikes (<I>i.e. </I>those without due notice) illegal. Significant tax concessions
have also been granted:<br>
</font></div>
</li>
<li>
<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">Total
corporate tax exemption for five years, 50% for a further five years and a
further exemption for reinvested earnings derived from exports, with developers
allowed a tenyear window of tax exemption. Zone developers are exempt from
the minimum alternate corporate tax and the dividend distribution tax.<br>
</font></div>
</li>
<li>
<div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif" align="justify">Imports
into the SEZ are tax and tariff free, but sales to the domestic market are
regarded as imports into India.</font></div>
</li>
</ul>
<P align="justify"
><font size="2" face="Verdana, Arial, Helvetica, sans-serif">By
February 2007, while 234 SEZ projects had been approved, 162 projects have been
given "in-principle" approvals. Of the 234 approvals, 91 have full legal approval.
The fully approved projects cover 67 square kilometres. The total area for proposed
SEZs is 1750 square kilometres, at most 0.11% of total agricultural land. Two
major projects of a much larger size (greater than 100 square kilometres) had
been approved under previous legislation in Maharashtra
and Haryana. These zones will be on par with the size of two (Zhuhai and Xiamen)
of the three largest SEZs in China, though only one-third the size of
the Shenzen development.</font></P>
<P align="justify"
><font size="2" face="Verdana, Arial, Helvetica, sans-serif">At
end-January 2007, the government had announced a temporary freeze on granting
permission for new SEZs, but this freeze has been lifted in April 2007 with
the condition that there would be no compulsory land acquisition by the state
governments. This policy change followed demonstrations against a proposed car
plant in West Bengal despite favourable land acquisition terms. Once a
new policy on compensation for land acquired from farmers has been announced,
state governments may be allowed to purchase land.</font></P>
<P align="justify"
><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As
a general rule, state intervention may be necessary to ensure that the totality
of land in an SEZ is owned by the developer, so avoiding a few land owners blocking
the development, as the SEZ area must be completely contiguous. The economic
benefits of SEZ depend on the opportunity cost of the resources that are deployed
in these areas. Where the capital comes mainly from abroad and if there is significant
surplus labour in the economy, then SEZs have produced significant welfare gains
to the domestic economy, notably in Asian economies at early stages of development.
As the level of development increases the gains become less, mainly because
of the much lower wage differentials in the zones. If, however, capital is drawn
from the domestic economy, as has mainly been the case in existing SEZs, then
tax concessions may negate other benefits.</font></P>
<P align="justify"
><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In
the case of India, the SEZs are designed to overcome
many of the barriers to growth identified in this <I>Survey </I>(poor infrastructure,
restrictive labour laws and excessive regulation). While an optimal policy might
be to remove these restrictions countrywide, the current SEZ policy, if successful,
could act as a catalyst for change in the whole economy. By the end of 2007,
the government expects that foreign companies will have invested up to USD 6
billion in SEZs and created half a million jobs.</font></P>
<P align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><B>From
our Legal Corner - tomorrow's cases</B></font></P>
<P align=center><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><b><b><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_31.gif" alt="Legal Corner Icon" width="191" height="160" hspace="5" border="0" align="left"></b></b></b></font></b></font></strong></font></b></font></strong></font></b></font></strong></font></b></font></strong></font></P>
<P align="justify" ><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><B>Income
Tax </B></font></P>
<P align="justify" ><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><B>Interest
earned on surplus funds deposited in banks cannot be business income; against
an income of Rs 2.28 lakh, assessee claims expenditure of Rs 2.7 Cr - Business
expenditure allowable : ITAT</B></font></P>
<P align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><STRONG>THE
</STRONG>assessee company was incorporated with the main object of acquiring
a holding of equity and preference shares of companies engaged in the business
of cement, ready mix and aggregate and to provide financial management. It was
the first return of the assessee company. The Assessing Officer noted that the
total capital was at Rs.209.33 crores which was raised during this year, out
of which a sum of Rs.207.78 crores was invested in the shares of Lafarge India
Ltd. The assessee company also earned interest on fixed deposits of Rs.2,28,000/-
against which, it had claimed administrative and other expenses to the tune
of Rs.2,69,85,000/-. The Assessing Officer, while following the judgement of
the High Court in the case of CIT Vs. K.K.Doshi & Co, held that interest earned on fixed
deposits was required to be taxed under the head "income from other sources".
As regards the assessee's claim for deduction of expenses, the Assessing Officer
observed that it had invested Rs.207 crores in M/s.Lafarge India Ltd., a company
engaged in manufacturing of cement. The Assessing Officer further held that
the assessee had made shares investments, income from which being dividend qualifies
for exemption under section 10(33) and natural consequence of that was that
no deduction of expenditure was permissible. Accordingly, total income was determined
at Rs.2,28,000/- by disallowing the business loss as claimed by the assessee
and charged it to tax under the head income from other sources'. In the first
appeal, the CIT(A) categorized such interest income
under the head 'business income'. He further held that since no dividend income
was earned hence provisions of Section 14A could not be attracted, resultantly
deduction for expenses claimed by the assessee was allowed.</font></P>
<P align="justify" ><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><B>Warrant
of authorisation issued by Addl Director without proper authority - entire search
and assessment consequent to such invalid search is bad in law and annulled
: ITAT</B></font></P>
<P align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><B>REVENUE
</B>sometimes loses cases, because elementary principles are ignored. The Income
Tax department just lost a case because they did not know who should issue the
search warrant.</font></P>
<P align="justify"
><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The
assessee is an individual and is a medical practitioner. A search and seizure
operation was conducted on 22.6.1998 under section 132(1) of the Income-tax
Act, in the business premises of VLS Finance Ltd. & residential premises
of the husband of the assessee. The assessee is wife of the Vice Chairman of
VLS Finance Ltd. There was no authorization in the name of the assessee. During
the search proceedings, some documents, loose papers etc. were seized from the
residential premises C-561, Defence Colony, New Delhi, Cash of Rs. 8 lacs was
also seized, which belonged to VLS Finance Ltd. The authorized officers recorded
a statement of the assessee during the search operation on 22/6/1998. During
the search operation, the authorized officer had noted the details about bank
lockers in the name of the assessee. These bank lockers were put under restraint
by the orders passed under section 132(3) of the Act. The assessing officer
issued notice under section 158-BC of the Act and the block return, in pursuance
of that notice was filed by the assessee on 29.8.2000, disclosing NIL undisclosed
income.</font></P>
<P align="justify" ><font color="#FF0000" size="2" face="Verdana, Arial, Helvetica, sans-serif"><B>Customs</B>
<B></B></font></P>
<P align="justify" ><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><B>Re-packing
of film rolls - Duty demanded is less than Cenvat Credit that would have been
available - Demand set aside; What about manufacture?</B></font></P>
<P align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><STRONG>THE
</STRONG>appellant imported film in plastic canisters and cleared on payment
of applicable duties of Customs including countervailing duty. These canisters
containing the rolls were put in pre-printed cartons bearing particulars such
as MRP, such cartons were repacked into larger cartons, (1 x 10) x 100, and
such larger cartons were issued to the market. The department found a "manufacturing"
activity in this exercise in terms of Section 2 (f) (iii) of the Central Excise
Act. And that resulted in a duty demand of over Rs.20 Crores.</font></P>
<P align="justify" ><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><U><font color="#000000">See
our columns tomorrow for the judgements</font></U></font></b></P>
<P align="justify" ><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until
tomorrow with more DDT</font></P>
<P align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have
a nice day.</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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