Jurispruden tiol – Tomorrow's cases

By Vijay Kumar

Income Tax/AAR

Income Tax – NRO (Non Resident Ordinary) Deposits are FE assets: Interest to be taxed at 20%: TDS at 20% - AAR

The facts of this case lie in a narrow compass. Shri V. Ravi Narayanan (the applicant), left India on 23 April, 2007 and is living in the Kingdom of Saudi Arabia. As he has spent more than 182 days outside India , he has claimed the status of a non-resident individual for the financial year 2007-08, corresponding to the assessment year 2008-09. He proposes to open a Non-resident Ordinary deposit ( NRO account) with banks in India with the help of remittances from Saudi Arabia . He claims that the interest income arising from that account will be 'investment income ' under section 115C of the Income-tax Act, 1961. Accordingly, it will attract income-tax @ 20% under section 115(E) of the Act. However, banks in India do not regard this type of income as Investment income '. They treat it as other income and deduct tax @ 30%. The applicant had taken up the issue with the HDFC bank which finally took the stand that it will deduct tax @ 30%.

In the light of the above facts, the applicant sought advance ruling on the following questions:-

a) Can a Non Resident Ordinary ( NRO ) deposit acquired with convertible foreign exchange (remittances from overseas through Banking Channels) be treated as a "foreign exchange asset" or not under Sec 115 C of the Income Tax Act?

b) Should the interest on these NRO deposits created with overseas remittances be treated as investment income under Sec 115 C or treated as 'other income"?

c) Am I right in assuming that the interest income on such deposits is taxable at 20% as per Sec 115E of the IT Act?

d) Are Banks right in deducting TDS at 30% on such deposits treating the interest as "other income" (Part II-1-b-1-k of the First Schedule of the Finance Bill 2007) and not as "investment income" (as per Part ll -1-b-1-a of the First Schedule of the Finance Bill 2007)? This results in excess TDS by Banks.

e) Are Banks right in refusing to accept Form 15 G from Non Resident Indians?

Central Excise

Review by Committee - Single Commissioner wearing two caps – Revenue fails to succeed before Tribunal even in ROA application

A face-saving exercise has been conducted by the Board in review matters by proposing amendments to sections 35B & 35E of the CEA '44 inasmuch as in case of difference of opinion between the two Committee Members, the matter is to be referred to the jurisdictional Chief Commissioner & the Board respectively for a final say in the matter.

This was necessitated because of the Board Circular 825/2/2006- CX , dated 06.02.2006 that was mocked at by the Tribunal in the case of L.G.Balakrishnan & Bros. Ltd. [ 2007-TIOL-143-CESTAT-MAD ] & when it was held that the same was without any legal basis & could not be given effect to. Incidentally, the said Circular conveyed to the field formations that if there is a difference in opinion, the Committee Member who proposed a review should be allowed to carry his view forward & the other Member should merely sign on the dotted line. This situation would probably be history after the Finance Bill, 2008 is enacted.

But the problem of one Committee Member wearing two hats still remains. However, the Tribunal appears to have reached a lasting view on the subject.

Konkan Railway bridge need not be pulled down – No extended period in the second SCN , when the facts were known to the Department in the earlier SCN .- Supreme Court

In DDT 95 - 15 04 2005, we asked,

Can Commissioner pull down a bridge of the Konkan Railways?

The Commissioner confiscated girders used in the bridges for the Konkan Railways and imposed a redemption fine of Rs. 5 lakhs. What will happen if they do not redeem the girders? Will the Commissioner send his Inspectors to pull down the bridges? The CESTAT observed, “We do not know what would happen if the appellants do not redeem them. The Commissioner would be in no position to pull down the bridge to recover the blessed girders”

See our breaking news story Commissioner pulls down Konkan Railway bridge - well, almost!

That was while reporting 2005-TIOL-296- CESTAT-MUM.

The case had gone to Larger Bench of the Tribunal and is now in the Supreme Court.

Appellant manufactures PSC girders at site to be used in the construction of Railway Bridge for Konkan Railways. The period involved is June 1994 to February, 1995. These articles were cleared without payment of central excise duty under Central Excise Act, 1944 (in short the 'Act '). A show cause notice was issued on 8.5.1996 and the appellant was asked to show cause as to why duty amounting to Rs.53,91,498 /- should not be demanded from it, as the girders were cleared without payment of duty, why they should not be confiscated and why penalty should not be imposed on the person concerned.

The Commissioner adjudicated the case demanding duty and confiscating the girders which were by then removed to be placed on the bridge and imposed penalties.

Govt dues do not have priority of claim over that of secured creditors - Once Petitioner has purchased assets in an auction held under SARFAESI Act, they will hold assets free from any encumbrances – Liability of earlier company cannot be recovered from new buyer : Bombay HC

M/s UIL had been operating a Pig Iron factory at Redi and had run up huge debts to Banks and other Financial Institutions. IDBI issued notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (" SARFAESI Act") on July 24, 2002 for the sum of Rs. 594.52 crores . IDBI Bank entered into an agreement with the Stressed Assets Stabilisation Fund ( SASF ) by which the IDBI Bank assigned/transferred to SASF the financial assistance granted by them to the borrower together with all securities and all rights in respect thereof. SASF issued an advertisement in "The ET" calling for "Expression of Interest" from parties interested in purchase of assets of UIL at Redi and Satarda plants in Maharashtra. After doing all that was needed, an Expression of Interest for procuring the assets of the Redi plant offered for sale by SASF was received from the Petitioner. The Petitioners were informed by the Authorised Officer that their bid was adjudged as the highest bid and consequently the secured creditors decided to sell both the moveable and immovable assets of Redi unit to the Petitioners. After making the necessary payments, a sale certificate for the immovable properties of Redi Plant was issued in favour of the Petitioners along with possession certificate.

At this stage, a demand notice dated 25.1.2006 was issued to the Petitioners by the Superintendent of Central Excise, demanding the sum of Rs. 12.98 Crores plus further interest that was due from UIL . Incidentally, the Petitioners on 01.02.2006 had applied for registration in terms of Rule 9 of the Central Excise Rules, 2002.

While refusing registration, they were informed that in the said premises there is already an existing Central Excise registration in favour of UIL and that registration was not cancelled as yet because Government dues are pending against them.

After all the investment, when faced with this debacle, the petitioner found it prudent to approach the High Court by filing a Writ Petition.