IMPORTANT JUDGMENT

 

Sec. 234E which levies fee for late filing of TDS/TCS returns is constitutionally valid, rules HC

Sec. 234E which levies fee for late filing of TDS/TCS returns is constitutionally valid, rules HC

August 11, 2015[2015] 60 taxmann.com 144 (Karnataka)

IT : Section 234E does not suffer from any vices for being declared to be ultra vires of the Constitution. Section i.e., 234E is intra vires of the Constitution

• In the instant petition the petitioners challenged the constitutional validity of Section 234E contending that it is ultra virus of Constitution of India .

• According to petitioners levy or imposition of 'fee' is regarded as a written or consideration for services rendered and in the instant case the Government is not providing any service to the deductors and as such levy of fee under Section 234E is invalid.

• The petitioner submitted that for levy of `fee' services should be rendered by the State and it is quidpro- quo. In the absence of any services being rendered by the State to demand `fee' or levy of such fee would be without authority of law. There being no rational or nexus to `levy' of fee under the impugned provision for `service' being rendered by the State (which is none), such imposition is bad-in-law, unconstitutional and ultra vires of the Constitution.

The High court held as under :

• There cannot be any dispute to the fact that assessee is required to file e-returns to Central Processing Centre – CPC for processing of statements of tax deducted at source vide Section 200A, which provision is in para materia with Section 143(1). While processing the return of income under Section 143(1)(a) no personal hearing is provided to an assessee and as such the same is also not provided under Section 200A. Thus, the doctrine of principles of natural justice is given a go by under impugned provision or its violation thereof would not be a ground available to the petitioners to challenge the impugned provision on this ground. Hence, contention raised in this regard is without merit and stands rejected.

• A person responsible for deduction of tax namely deductor is required to furnish periodical statements containing the details of deduction of tax within the prescribed due date. Any delay in furnishing TDS statements would result in perennial problems being faced by the department while processing the return of income filed by the assessees. When a return of income is filed by an assessee a statutory obligation is cast on the department to process the said return of income within the specified period from the date of filing. If for want of details such return of income not being processed or assessment order not being framed or would be stalled or in other words the return of income filed by an assessee on whose behalf the tax has already been deducted by the deductor is not furnished within the prescribed time by such deductor, it would consequently have cascading effect namely, it would stall the processing of the return of income filed by thedeductee. In a given case, there might be instances of where the assessee would be entitled to refund and on account of delay occurring due to non delivery of TDS statements by the deductors , it would result in delay in extending the credit of TDS to the person on whose behalf tax is deducted and consequently it would result in delayed issuance of refunds to the deductee or raising of consequential demands against the deductee which otherwise would not have been raised. In this lengthy and unwarranted process it may erode the confidence reposed by the tax payer on the department. Last but not the least, it would result in financial burden to the Government namely on account of late payment of refund interest is to be paid on such refunds and it would also result in cash flow crunch, especially for business entities.

• This Court in exercise power vested under Article 226 of the Constitution can declare a statute or a provision in the statute as unconstitutional and there cannot be any dispute with regard to this proposition. However, such power would be exercised where it is clear that impugned Act or provision is beyond its legislative competence or violates the provisions of the Constitution of India. Where two views are possible, one making the statute constitutional and the other making it unconstitutional the former would prevail or would be preferred.

• Thus, viewed from any angle it cannot be held that Section 234E of the Income Tax Act, 1961 suffers from any vices for being declared to be ultra vires of the Constitution. In other words it has to be held that the impugned Section i.e., 234E of the Income Tax Act, 1961 is intra vires of the Constitution.

Payment for lease line charges isn't 'FTS'; not liable to withholding tax u/s 194J

August 11, 2015[2015] 59 taxmann.com 451 (Mumbai - Trib.)/[2015] 39 ITR(T) 23 (Mumbai - Trib.)

IT: There is no requirement to deduct tax at source from payments made to NSE/BSE towards VSAT charges and lease line charges under section 194J

IT: Market to market loss on derivatives could not be treated as contingent liability and hence, same was to be allowed as deduction under section 37(1)

HC comes down heavily on CBDT for constituting ITAT's Special Bench through private meeting

August 11, 2015[2015] 60 taxmann.com 145 (Bombay)

IT : High Court quashes Constitution of Special Bench of ITAT through "private meeting" between CBDT's counsel and Vice-President of ITAT

• Constitution of Special Bench of ITAT set aside since it was constituted following private meeting of Revenue's Special Counsel with the Vice-President of ITAT without notice to the appellant-assessee. The course adopted by CBDT for getting Special Bench constituted is contrary to the rule of law and gives credence to serious grievance of Petitioner(assessee-appellant) that entire attempt by CBDT to get Special Bench constituted was part of political vendetta targeted at him

Apex Court denied to interfere with order of High Court due to meagreness of amount involved

August 12, 2015[2015] 60 taxmann.com 23 (SC)/[2015] 373 ITR 670 (SC)(MAG.)

IT : Where High Court held that report of DVO could not have been taken into account for assessment, in view of meagreness of amount involved, impugned judgment could not be interfered with

High Court sets aside order of CLB as it failed to serve notice to appellant before passing the order

August 12, 2015[2015] 60 taxmann.com 19 (Karnataka)

CL : Where CLB passed order against appellant but no notice was served upon appellant, order of CLB was to be set aside

CUP method to be applied instead of TNMM as assessee was doing job work for its foreign AE

August 12, 2015[2015] 59 taxmann.com 473 (Delhi - Trib.)

IT/ILT: Where assessee had followed CUP method for determining ALP, which was a standard method, it could not be discarded in preference over transactional profit methods unless revenue authorities were able to demonstrate fallacies in application of such method

No rejection of books just because bills of sub-contractor didn't contain address if TDS was deducted on payments

August 12, 2015[2015] 59 taxmann.com 368 (Pune - Trib.)

IT : Where assessee, a civil contractor, made payments to transporters and sub-contractors in course of its business, in view of fact that assessee gave complete addresses and PANs of payees and, moreover, said payments had been made after deducting tax at source, impugned order rejecting assessee's books of account was to be set aside

Delay in passing review order may be condoned by Tribunal

August 12, 2015[2015] 60 taxmann.com 5 (SC)

Excise & Customs : Power of Tribunal to condone delay in filing appeals preferred by revenue on review extends to delay caused in passing review order; hence, delay in passing review order may be condoned by Tribunal

ITAT sounds note of caution for frivolous appeal by revenue; it damages public faith

August 12, 2015[2015] 60 taxmann.com 160 (Delhi - Trib.)

IT : Filing of appeal with complete knowledge of its fate by the Revenue only reflects the mischievous adamancy to attempt to mislead the Tribunal and waste the time of the Court and the officers concerned.

• Filing of an appeal by an Assessing Officer ('AO') is a right which is vested by the statue. However, same should be exercised by applying proper due diligence in order to avoid any inappropriate litigations.

• In the instant case, revenue made an attempt to justify the filing of the appeals by referring to the fact that the relief was granted on the basis of the remand report dated 06.06.2012 thereby consciously ignoring making reference to the second remand report dated 22.06.2012. In the second remand report, the AO accepted that he had verified the loan taken by assessee.

• Since the claim has been given up in the second remand report by the AO himself, he cannot claim to be aggrieved by the findings arrived at relying upon his own remand report. The CIT(A) has accepted the assessee's claim based on the strength of the second remand report. Reference to this material document, i.e., second remand report in the grounds raised is curiously missing. This omission appears to be deliberated and leads us to conclude that the revenue has consciously indulged in engaging in meritless litigation.

• Once the AO in second remand report had already communicated that the enquiries made after issuing notices under Section 133(6) to the parties/persons who had confirmed the assessee's version and the AO concluded that the loans taken stood verified. No further legitimate grievance can then be said to remain for examination by the AO.

• This deliberate, mischievous and selective reference to facts by such responsible persons grievously damages the public faith and belief in the honest fair play of the tax administration.

• Filing of appeal with complete knowledge of its fate by the Revenue only reflects the mischievous adamancy to attempt to mislead the Tribunal and waste the time of the Court and the officers concerned.

• Departmental officers had willfully and deliberately failed to exercise their powers mindfully as required of them as per law and abused government machinery to initiate a litigation which entails financial costs and tarnishes the image of the Department and also strains the government resources.

• Appeal was a prime example of meritless litigation for reasons best known to the few departmental officers having powers of directing authorization for filing appeals.

• ITAT desist from awarding costs considering the statement of CIT that due care shall be taken in future. ITAT hoped that having invited the attention of the chairman, CBDT to this grave assault on the trust and reputation of fair play enjoyed by the tax administration the malaise is immediately addressed.

Repayment of loans without any identity of creditors proved that loan receipts were unexplained incomes

August 12, 2015[2015] 60 taxmann.com 22 (Madras)/[2015] 372 ITR 398 (Madras)(MAG.)

IT : Where assessee's books of account depicted repayment of loan with no identity of creditors and assessee had not produced any material to show that to report loan further loans were availed same was to be treated as undisclosed income of assessee

Tribunal shall be made a party where it is required to defend its own order

August 13, 2015[2015] 60 taxmann.com 18 (SC)

Constitution : When a Tribunal or authority is required to defend its own order, it is to be made a party failing which proceeding before High Court would be regarded as not maintainable

No evasion penalty when legal position before and after amendment wasn't clear

August 13, 2015[2015] 60 taxmann.com 4 (SC)

Excise & Customs : Where, during relevant period, legal position and interpretation of unamended law and position after amendment, was in a fluid state, it would not be appropriate to levy penalty

Remittance advice by foreign bank and bank statement of donor proved genuineness of foreign gift

August 13, 2015[2015] 59 taxmann.com 453 (Mumbai - Trib.)/[2015] 39 ITR(T) 57 (Mumbai - Trib.)

IT: Where entire details of gift transaction were fully explained through bank statement of assessee, remittance advice, bank statement of donor and foreign remittance advice issued by bank, addition made under section 68 was to be deleted

HC directs Centre and UP Govt. to ensure early establishment of CESTAT bench at Allahabad

August 13, 2015[2015] 59 taxmann.com 462 (Allahabad)

Excise & Customs : High Court expressed its displeasure over non-establishment of CESTAT Bench at Allahabad despite Notification dated 1-11-2013 and issued directions to make arrangements for setting up same

Doing survey and preparing design for canal amounted to 'consulting engineer's service' prior to 16-6-2005

August 13, 2015[2015] 59 taxmann.com 307 (Mumbai - CESTAT)

Service Tax : Survey, design, preparation of plan and estimate of canal and its distribution network under a composite work order by qualified consultant/consulting firms would be 'consulting engineer's service' prior to 16-6-2005 and 'survey and mapmaking services' thereafter

AO couldn't ignore interest on FDR while computing remuneration of partners if it was held as business income

August 13, 2015[2015] 60 taxmann.com 34 (Ahmedabad - Trib.)

IT : Where Assessing Officer disallowed a part of remuneration payable by assessee-firm to its partners under section 40(b)(v) on ground that interest on FDRs was to be excluded for purpose of calculation of remuneration payable to partners, since no such adjustment had been made by him while computing income from business, impugned disallowance was to be deleted

Grant of minority status to educational institution doesn't lead to denial of trust's registration

August 13, 2015[2015] 60 taxmann.com 188 (Patna-Trib)

IT : Merely because minority status is accorded to educational institutions run by a society, it cannot be regarded as being established for benefit of a particular religious community; registration cannot be denied on this ground

• Sections 11 and 12 could be taken into consideration for purpose of grant or otherwise of registration under section 12AA inasmuch as it impinges on its public character. Notwithstanding registration granted under section 12AA, no benefit under sections 11 and 12 can be allowed in view of an abiding feature of a society's constitution or its inherent nature

HELD

• To be identified as an educational institution of the minorities, there should be a nexus between the institution and the particular minority to which it claims to be belonging. How could, otherwise, one may ask, it claim to be established for the benefit of the minority community, entitled to the protection guaranteed under article 30(1) of the Constitution, seeking to enshrine the right to serve and promote minority interest? A prescription of a standard or uniform percentage governing admissions may not, however, necessarily serve the purpose, which is to seek non-minority representation to a reasonable extent, while at the same time ensuring that the minority character of the institution is not annihilated, and the right engrafted under article 29(2) not subverted. What is, therefore, required is a balance between the two objectives – the preservation of the rights of the minority to admit the students of their community and that of admissions of 'outsiders' without disturbing the minority character. This balance, however, may not be specified in terms of a fixed percentage, which has to take into account the population as well as the educational needs of the area in which the educational institution is located, variables which are also subject to change with time(refer pgs. 8, 9 of the impugned order). The situation, as it appears, thus, is in a state of flux, though the position in law is clear, with the state governments empowered to prescribe the percentage, and which could be revised or changed from time to time.

• Clearly, thus, a right to regulate admission thereto is an important right of a minority institution. However, we do not find the same expressed in the charter of the assessee-society; there being no reference to any percentage or any restriction or mandate in respect thereof in its 'Aims and Objects'. Whatever implication this may have for its status as a minority institution, we can hardly countenance or subscribe to a proposition which, despite there being nothing either in its memorandum of association (object clause) or its conduct, sanctions a presumption that it is established for the benefit of the minority (Muslim) community, solely on the basis of it being granted the status of minority educational institution – the only restriction in its charter being toward its membership extending only to the members of the said community. If the institution has, by admitting 90 per cent non-minority (non-muslim) students, violated any specific provision or guideline in the matter and, accordingly, stands to lose its minority status, of which we have no clue, so be it. And which again does not help the revenue's case in any manner; rather, only goes against it. Though, therefore, appearing anomalous in-as-much as the minority status implies an inherent right to serve the minority interest, a finding to it being set up or established for the benefit of a particular (Muslim) community cannot be a matter of presumption and rendered de hors any material on record. The answer, as we understand, lies in the complete freedom allowed in the matter of admissions to unaided MEIs up to the undergraduate level as per the decisions by the Apex Court. Why, NCMEI, on similar facts, i.e., a low percentage of minority/s students in an educational institution established by the minorities, granted minority status to a school, holding that the criterion of fixation of a percentage governing admission of a minority community in a MEI cannot be included in the indicia for determining the minority status of such an Institution (Buckley Primary School vs. The Principal Secretary, Government of Orissa in Case No. 1320 of 2009 dated 06.07.2010/APB-I pgs. 103-129). Further, even where reserving such a right, the same may not necessarily translate into a high ratio of minority (muslim) students, for which other practical considerations may be responsible. That no such right stands reserved in the present case only fortifies the assessee's case. Why, yet, it stands granted a minority status, we wonder, which may or may not be the Revenue's concern. There is no claim by it of such status having been granted on account of any mis-representation, or as to the assessee having derived any benefit through misrepresentation. The same may be relevant inasmuch as the genuineness of the activities is a parameter which is to be examined by the competent authority while deciding on registration, even as the allegation cannot be lightly made, and would require being substantiated for it to be taken cognizance of. Notwithstanding, therefore, even if a minority status is accorded to educational institutions run by a society, it cannot be regarded as being established for benefit of a particular religious community. Even though the relevant provision (sec. 13(1)(b)) provides for exclusion of ss. 11 and 12 of the Act, the same could well be taken into consideration for the purpose of grant or otherwise of registration under section 12AA inasmuch as it impinges on its public character. What, we are unable to comprehend, effect or purpose the registration would have where, notwithstanding the same, no benefit under sections 11 and 12 can be allowed in view of an abiding feature of a society's constitution or its' inherent nature.