TIOL-DDT 803 · the untouched capture
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<td><p><font size="2"><strong><font size="3" face="Verdana, Arial, Helvetica, sans-serif">TIOL-DDT 803 </font><font face="Verdana, Arial, Helvetica, sans-serif"><br>
13.02.2008 <br>
Wednesday </font></strong></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>CBEC Member not happy with 10% success in CESTAT </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CBEC has written to the Chief Commissioners that the Member has shown displeasure that in 2007, the Department succeeded only in 10% of the appeals before CESTAT. The Member says it could be because </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. we are filing appeals in weak cases, or </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. we are not drafting our appeal properly </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So the Board wants the Chief Commissioners to take necessary measures so that frivolous appeals or weak appeals are not filed and drafting of appeals can also be improved. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Board is right – to a certain extent, but appeals are lost not only because of frivolous cases and bad drafting, but the Member has forgotten the important part of advocacy. Nobody thinks about strengthening the institution of Departmental Representatives. Many officers in the Department believe that the tribunals and Courts are against Revenue and are easily influenced by the evil assessee and his more evil advocate. It is not so. The fact is that many of the judges are pro revenue and given a chance they would like to protect the interests of Revenue, but the problem is that most of the Revenue cases are pathetically bad that even the outright pro-revenue judges cannot help. The few cases the Revenue wins are because of the strong commitment the judges have for the Nation and certainly not because of the strength in Revenue arguments. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Revenue appeals in the highest judicial seats are big jokes. Tomorrow we are carrying two judgements of the Supreme Court where the Revenue took two diametrically opposite views on the same subject in the two different cases. Sometime back we had carried a case where the CE Department had appealed in the CESTAT against an order which was favourable to it. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Revenue appeals are on frivolous grounds, against issues already decided by the Supreme Court, badly drafted, more badly argued and never seriously pursued. The other day I was talking to an Assistant solicitor General of India and I told him he must be making quite a lot of money with all the silly appeals made by the Government. He told me that with the paltry fees they pay him, he cannot make both ends meet unless Revenue files more appeals. Recently the Revenue Boards have started a scheme of hiring retired senior officers to argue their cases before the Tribunals and High Courts. The Boards have not realised that arguing a case does not come naturally to a retired senior officer just because he is retired and he was senior. And not every retired senior officer is ready to take up Revenue's cases. A very senior retired officer told me that he felt insulted that the Private Secretary to the CC asked him if he would like to apply for the post of Government's Counsel. The CC concerned was an Assistant Commissioner when he was a Member! Another senior retired officer, who is frequently seen in the High Courts told me that the fee paid by the Department is an insult to any self respecting individual. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is indeed difficult for Revenue to win an appeal. Maybe the reforms should start at the Board level – try to make your laws clear and ensure that your clarifications are not contradictory; then ensure that frivolous appeals are not filed - at least on issues which are already decided by the Supreme Court. If at all you have to file an appeal, ensure that it is properly handled – AND PLEASE HAVE SOME RESPECT FOR THE JUDICIARY. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">You may also like to read <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=4174&PHPSESSID=%20f01782e282b28cdc8387c2d0a428d41b" target="_blank">Why and how does the Revenue lose cases?</a> </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=555" target="_blank">If a case is worth fighting, is not it worth fighting well? TIOL-DDT 32 </a></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=41&filename=notification/servicetax/2008/analysis_report.htm" target="_blank">Board's F. No. F.No . 390/Misc/66/05- JC Dated : January 11, 2008 </a></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>References received from Commissioners on Judgements passed by the High Courts – no reference to Board please </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CBEC is annoyed that some Commissioners are forwarding decisions of the High Courts, with observations that the same were found to be acceptable after examination at their end, but were being brought to the notice of the Board for maintaining consistency, in case a contrary decision had been taken elsewhere. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Board does not like this. </strong>In such cases, the Board feels that instead of seeking advice from the Chief Commissioner in matters of ambiguity, or making a specific reference, the decision making is being passed on to the Board. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If Commissioner cannot take a decision, what makes him think that the Board will or should? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board has informed the Commissioners that hence forth, such references would not be entertained by the Board and the same will be returned in original after taking adverse note thereof. Board wants Chief Commissioners to issue necessary instructions to Commissioners in this regard. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This is how the bureaucracy works – involve as many people as possible so that you alone will not be held responsible for any lapse. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">What is wrong if Commissioners inform the Board about a High Court order which has been accepted. In fact the Board can create a cell to monitor such cases and inform the other Commissioners also about the decision so that they do not continue with frivolous litigation. <strong>But Board does not want to be informed and will take a serious view if the Commissioners dare to inform them! </strong>President Kennedy used to have a sticker on his table, “The buck stops here”. Our Board would like the Inspector to have such a sticker on his table, if he has a table! </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=41&filename=notification/servicetax/2008/hc_reference.htm" target="_blank">CBEC F.No . 275/2/2008- CX.8A Dated : January 22, 2008 </a></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>TDS returns – PAN quoting at least 95% required </strong></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If you are deducting tax at source, be sure that you know your deductee's PAN – or your TDS return may not be accepted. We are told that a Customs Commissioner does not have a PAN! </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And what happens if you have to make payments to someone who does not have a PAN. Even we in TIOL faced this problem when one of our consultants did not have a PAN. We refused to pay him until he got a PAN! </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The CBDT in a Press Note has instructed that:- </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">All tax deductors / collectors are required to file the TDS / TCS returns in Form No.24Q (for salaries), Form No.26Q (for payments other than salaries) or Form No.27EQ (for TCS ). These forms require details of all tax deductions with name and permanent account number (PAN) of parties from whom tax was deducted. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It had earlier been decided that Form No.24Q with less than 90% of PAN data and Form No.26Q & Form No.27EQ with less than 70% of PAN data will not be accepted for the quarter ending on 30.09.2007 and thereafter. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The said decision has since been reviewed. It has now been decided to enhance the threshold limit for PAN quoting without which TDS / TCS returns will not be accepted. The limit has been enhanced to 95% from 90% in case of Form 24Q and to 85% from 70% in case of Forms 26Q and 27EQ . The enhanced limits will be applicable for and from the quarter ending 31.03.2008. These threshold limits will also apply to all those TDS / TCS returns, which are filed for any of the earlier quarters on or after 01/04/2008 . </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Tax deductors and tax collectors are, therefore, advised to obtain correct PAN of all deductees and quote the same in their TDS / TCS returns. Deductees are also advised to furnish their correct PAN with their deductors , failing which they will not only have difficulty in getting credit of TDS / TCS in their income tax assessments but will also face penal proceedings under the Income Tax Act. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=wnew/cbdtpress.htm" target="_blank">CBDT press release in No.402 /92/2006-MC (10 of 2008) dated the 12 th February 2008 </a></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Export under bond to Bhutan - Punatsangechhu -I Hydro Electric Project added </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Notification No. 45/2001-Central Excise ( N.T. ), dated the 26th June, 2001 prescribes the procedure for export under bond to Nepal and Bhutan . Para 1(5) of the notification deals with <strong>Export of all excisable goods without payment of duty to Kurichu Hydro Electric Project and Tata Hydro Electric Project in Bhutan . </strong>Now Punatsangechhu -I Hydro Electric Project is also added to list with Kurichu and Tata. </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=30&filename=notification/excise/2008/exnt08_08.htm" target="_blank">NOTIFICATION NO. 8/2008-Central Excise ( N.T. ), Dated: February 11, 2008 </a></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Jurispruden<font size="5"> tiol </font> – Tomorrow's cases <font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><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><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><strong><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></strong></b></font></b></font></b></font></b></font></b></font></b></font></strong></font></strong></font></strong></font></strong></font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Excise </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Classification sought by appellant in original proceedings cannot be rejected and alternative classification imposed which is not proposed in SCN – Tribunal grants Stay from recovery of duty of Rs 3.32 Crore </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>FRANKLY</strong> speaking, we do not exactly know what the excisable goods in question are. That's because the order does not make any reference to the same. Be that as it may, the adjudicating authority has come to the conclusion that the appellant's products are classifiable under Chapter heading 2108.99 attracting 16% <em>ad valorem </em>duty and hence confirmed the duty of Rs.3.32 crores and imposed equivalent amount of penalty and ordered for recovery of the interest. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The appellant is now before the Tribunal with a Stay application. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is their contention that the goods manufactured would not all fall under Chapter heading 2108.99 as held by the adjudicating authority in view of the Tribunal decision in the case of Helios Food Additives P. Ltd. vs. CCE , Pune wherein it is held that these products are not classifiable under 2108.99 that even assuming that the goods are classifiable as contended they may not be covered under Section 4A of the CEA '44 since they are for industrial consumption as held by the Supreme Court in the case of Jayanti Food Processing P. Ltd. <strong>[ </strong></font><font size="1" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=50&filename=legal/sc/2007/2007-TIOL-150-SC-CX.htm"><strong>2007-TIOL-150-SC- CX</strong></a></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <strong>] </strong> last but not the least, the demand is <strong><em>baked short </em></strong>viz. partly time barred. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Assessee obtains foreign currency loan and pays finance charges - Income Tax disallows as manufacturing failed to commence in FY - Since commitment charges were paid for borrowed funds for business purpose, it's allowable u/s 36(1)(iii) : Supreme Court </strong></font></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">THE</font></strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> two major questions before the Apex Court were, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1) Whether "commitment charges" can be allowed as deduction under Section 36(1 )( iii) of the Income-tax Act, 1961? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2) Whether "charges" paid to COFACE is similar to payment of interest under Section 36(1 )( iii) of the Income-tax Act, 1961 and, therefore, has to be allowed as deduction? </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The assessee had borrowed Rs 30 Crores from IDBI which in turn was refinanced by COFACE which foreign company had charged interest, commitment charges and insurance charges payable by the assessee. The said "commitment charges" was upfront payment. The Revenue disallowed the same but the Tribunal allowed the claim under Sec 37 of the I-T Act. The HC confirmed the Tribunal decision and thus the case came before the Apex Court . </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Having examined the contract between IDBI and the assessee and perused the decision of the Apex Court in the case of Addl. Commr . of Income-tax v. Akkamamba Textiles Ltd. (1997) 227 ITR 464, where it was held that commission paid by the assessee to the banker and the insurance company was admissible deduction under Section 37, the Bench simply allowed the first question in favour of the assessee and against the Revenue. The Bench also clarified that the earlier SC decision allowed deduction u/s 37 and not u/s 36(1 )( vii), and in this case the Tribunal had allowed the claim u/s 37 and not only u/s 36(1)(iii). </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Sales Tax </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>It is not open to revenue officers to say that the Board circular is not binding on them. This would lead to chaos and indiscipline in the administration of tax laws : Apex Court </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Tax administration is a complex subject. It consists of several aspects. The Government needs to strike a balance in the imposition of tax between collection of revenue on one hand and business-friendly approach on the other hand. Today, Governments have realized that in matters of tax collection, difficulties faced by the business have got to be taken into account. Exemption, undoubtedly, is a matter of policy. Interpretation of an Entry is undoubtedly a quasi-judicial function under the tax laws. Imposition of taxes consists of liability, quantification of liability and collection of taxes. Policy decisions have to be taken by the Government. However, the Government has to work through its senior officers in the matter of difficulties which the business may face, particularly in matters of tax administration. That is where the role of the Board of Revenue comes into play. The said Board takes administrative decisions, which include the authority to grant Administrative Reliefs. This is the underlying reason for empowering the Board to issue orders, instructions and directions to the officers under it. </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Kerala Sales Tax – AO bound by Departmental circular, but assessee is not : Supreme Court </strong></font></p>
<p align="justify"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">HERE</font></strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> is government contradiction at its best - in the matter of exigibility to tax, the Department took the stand that field latex and centrifuged latex were different commodities and when it came to the question of exemption/concession, the same Department contended that the two commodities were same. – And before the same Court! </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is no doubt true that, the AO is bound by the directions issued by the Commissioner even with regard to the terms used in the exemption Notification(s). However, as held in our earlier judgment in the case of Kurian Abraham Pvt. Ltd., circulars/orders issued by the Commissioner are not binding on the assessee. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See our columns tomorrow for the judgements </strong></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>We have another interesting case for you today: </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We are so flooded with case law that we can't even wait till tomorrow. So we bring you this important case today. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax : SC rules Sec 36(1)(iii) is a code by itself and does not contain concept of depreciation - interest paid on capital borrowed for business purpose is allowable expenditure; Sec 36 makes no distinction between fund borrowed to buy capital or revenue asset </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE </strong>much-disputed question of interest on borrowings has finally gone against the interest of revenue. <strong> The question before the Apex Court was whether such interest is allowable expenditure under Sec 36(1 )( iii) of the Income Tax Act? And, 'yes' is the answer. </strong>The rationale lucidly elaborated by the Bench is that the expression "for the purpose of business" occurring in Section 36(1)(iii) indicates that once the test of "for the purpose of business" is satisfied in respect of the capital borrowed, the assessee would be entitled to deduction under Section 36(1)(iii). <strong>This provision makes no distinction between money borrowed to acquire a capital asset or a revenue asset. </strong> All that the section requires is that the assessee must borrow capital and the purpose of the borrowing must be for business which is carried on by the assessee in the year of account. What sub- section (iii) emphasizes is <strong>the user of the capital and not the user of the asset </strong> which comes into existence as a result of the borrowed capital <strong>unlike Section 37 which expressly excludes an expense of a capital nature. </strong>The legislature has, therefore, made <strong>no distinction in Section 36(1 )( iii) between "capital borrowed for a revenue purpose" and "capital borrowed for a capital purpose". </strong>An assessee is entitled to claim interest paid on borrowed capital provided that capital is used for business purpose irrespective of what may be the result of using the capital which the assessee has borrowed. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Further, the words "actual cost" do not find place in Section 36(1 )( iii) of the 1961 Act which otherwise find place in Sections 32, 32A etc of the 1961 Act. The expression "actual cost" is defined in Section 43(1) which is essentially a definition section which is subject to the context to the contrary, added the Bench. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Until tomorrow with more DDT </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to <a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com </a></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"></font></p> </td>
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