TIOL-DDT 948 · the untouched capture
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 948</font><br>
10.09.2008<br>
Wednesday</strong></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Heads or tails – who wins?</font></strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>In Law, which is more legal, the marginal heading of a section or the contents of the Section.</strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>What survives when the Heading is in conflict with the contents of the Section?</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Kindly forgive the huge <strong>heading </strong> for this story. But it's all about headings</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Let us take a real example – the marginal heading of Section 179 of the Income Tax Act reads as <strong>Liability of directors of private company in liquidation</strong>.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now the Section reads as, “Where any tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a private company cannot be recovered, then, every person who was a director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company.”</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please notice that there is absolutely no reference to <strong>liquidation </strong> in the Section which is mentioned in the heading. It was there some 33 years ago.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Interestingly the Section earlier read as “when any private company <strong>is wound up </strong> after the commencement of this Act, and any tax assessed on the company, whether before or in the course of or after its <strong>liquidation </strong>, in respect of any income of any previous year.”</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And it was amended in 1975 by the <strong>Taxation Laws (Amendment) Act, 1975 </strong> specifically to fix the liability on the Directors even when there is no liquidation. But the heading of the Section merrily reads, <strong>Liability of directors of private company in liquidation </strong>for the past 33 years and will merrily continue.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Amendment had enlarged the scope of this provision so as to impose personal liability on the directors of a private company in respect of any tax payable by the company even in cases where the company has <strong>not gone into liquidation.</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But they forgot to amend the heading. Now will the heading prevail or will the contents of the Section prevail?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Let us look at the converse. Look at Rule 23 of the Central Excise Rules, 2002, which reads as,</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Power to stop and search</strong>.- Any Central Excise Officer, may <strong>search </strong> any conveyance carrying excisable goods in respect of which he has reason to believe that the goods are being carried with the intention of evading duty.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please notice, the heading provides for <strong>stopping </strong> and searching a conveyance, but the contents of the Rule does not mention anything about <strong>stopping </strong> – it empowers only <strong>searching</strong>.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Does it mean that a Central Excise Officer can search only a stopped vehicle or if he wants to search a running vehicle, like a Bollywood hero, he has to jump into that running vehicle and then search it?</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So now will the head wag the tail or the tail wag the head?</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Fortunately, our Courts are very kind to Law Drafter's blunders – contrary to popular belief among tax officials.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Supreme Court had clarified this issue nearly forty years ago when it held in CHANDROJI RAO v COMMISSIONER OF INCOME-TAX, M.P. NAGPUR- </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/2002/2002-TIOL-640-SC-IT.htm"><strong>2002-TIOL-640-SC-IT</strong></a></font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong> - “The marginal heading cannot control the interpretation of the words of the section particularly when the language of the section is clear and unambiguous.”</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This judgement was delivered in 1970 and so the law makers can merrily ignore the Headings.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">That still does not make the Central Excise officer's position any better as he is given the power to stop only by the Heading and not the Rule! The Rule is very unambiguous that he can search, but is not very sure about “stopping”.</font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">CBI to examine sitting High Court Judges – CJI grants permission</font></strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>The rot has set in and is openly acknowledged</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Be you never so high, yet the law is above you</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Chief Justice of India has permitted the CBI to examine the two judges of the Punjab and Haryana High Court involved in the cash scam.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This is what <strong>DDT</strong> reported on this case,</font></p>
<blockquote>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">On 13 th August, Additional Advocate General Sandeep Bansal , through his <em><strong>munshi</strong> </em>Prakash Chand delivered a packet containing Rs 15 lakhs in cash to the residence of Justice Nirmaljit Kaur , a Punjab and Haryana High Court judge. She called the police. Bansal was arrested by the police. He resigned from the position of AG immediately and apparently told the police that the money was wrongly delivered to Justice Kaur's residence and that it was actually meant for Justice Nirmal Yadav. He claimed that he had sent his <em><strong>munshi </strong></em> with the currency notes because the money was needed for a land deal made by the judge in Solan in Himachal Pradesh.</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">It seems another sum of Rs. 15 lakhs was delivered at Justice Yadav's home the next day by Bansal's friend and property dealer Rajiv Gupta.Justice Nirmal Yadav was a Judicial Member of the ITAT and was posted in Mumbai for about 2 years before her elevation on 05.11.2004.</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Delivering slush cash to the wrong person can have serious consequences.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Another scam involving more than 30 judges are waiting to explode. The fraudulent withdrawal of Rs 23 crore from the PF deposits of class IV employees of the courts in Ghaziabad by the central nazir or the treasury officer, Ashutosh Asthana . The treasury officer took out the money by forging applications of employees which were approved by the district judges concerned many of whom have since been elevated to High Courts and the Supreme Court.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">According to reports, all the costly items (split ACs , refrigerators and mobile phones) which are mentioned in the bills, were given to then district judges, additional district judges etc, who have been elevated presently as judges in the Supreme Court and various HCs.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As stated by a Bench, “it is time to stem the rot that seems to have crept into the judicial system. The time has come because people have started categorising some judges as very honest despite it being the foremost qualification of any judge. It is the system. We have to find the mechanism to stem the rot”</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Judges, after all, are not above the LAW! A very senior editor who had been running a crusade against some judges and their questionable judgements was accused of tarnishing the image of the Court. He retorted, “Is it the exclusive prerogative of the judges to tarnish the image of the Court?”</strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Beware SEZs - Export Duty may be hiked</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Steel minister Ram Vilas Paswan wants a hike in export duty on iron ore to be hiked to 20% and if the hike is implemented for other steel products, the SEZs in India will be made to pay up most of the duty.</font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Jurispruden</font><font color="#FF6633" size="5">tiol</font><font color="#006600">– Tomorrow's cases</font></strong></font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><strong><strong><strong><strong><strong><strong><b><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" align="left"></b></strong></strong></strong></strong></strong></strong></strong></font>Income Tax</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633">Transfer
of business division to another company - Capital gains tax cannot be
levied on sale of business as a going concern - ITAT</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Sale of a business division as a going concern - </strong>Provisions concerning computation of capital gains in S.48 contain three basic elements viz., cost of acquisition, cost of improvement and date of acquisition for working out the capital gains - In the case of sale of a going concern, these essential ingredients are not ascertainable and, therefore computation provisions under s. 48 of the Act would be incapable of computing the capital gains. Capital gains tax cannot be levied on sale of a going concern in such instances.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">Central Excise</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633">Manufacture involves production, but production may not result in manufacture - Activity of applying anti-corrosion coating on steel bars would amount to providing Business Auxiliary Service: CESTAT</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE </strong>expressions 'production' and 'manufacture' are not synonymous with each other and cannot be held to be interchangeable in the context of the present statute, though broadly speaking and from a prudent ordinary man's point of view, they may mean same. As it is settled law that when an expression is defined in the statute, the same has to be understood and interpreted in the light of the language used in the definition.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">Service Tax</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633">Business Auxiliary Service – the argument that since the main service is not a taxable service, the auxiliary service is also not taxable does not hold water – CESTAT orders Chennai Port Trust to pre-deposit.</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WE</strong> are not impressed with the argument that any service incidental or auxiliary to a service or activity which is not taxable in the hands of the railways cannot be said to be taxable in the category of BAS.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399">See our columns Tomorrow for the judgements</font></strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more <strong>DDT</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice Day.</font></p>
<p align="justify"><font color="#FF6633" 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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