Some Important Judgements On Income Tax, GST; IBC Other Corporate Laws
FCS DEEPAK P. SINGH | Apr 16, 2022 |
Some Important Judgements On Income Tax, GST; IBC Other Corporate Laws
Case- 1
Applicant’s Name: Khera Trading Company
Citation: Advance Ruling No. HAR/HAAAR/2018-19/06
The Haryana Appellate Authority of Advance Ruling (AAAR) bench held that 18% Goods and Service Tax (GST) is payable on pizza topping as pizza topping is not pizza.
BRIEF FACTS:
THE AAAR, WHILE UPHOLDING THE AAR’S RULING, -observed that “pizza topping” is a product made out of mozzarella cheese, vegetable oil, and milk solids as main ingredients, with premixes of emulsifiers and stabilizers.” The mozzarella cheese is blended with other ingredients and heated to the required degree. After heating, the material is transferred to a mould with the requisite capacity for packing the product into pouches containing smaller quantities (1 kg and 200 g). These pouches are sealed and packed in an outer carton. The product cannot be termed “processed cheese.”
However, there is no doubt that, being an edible preparation for human consumption, it would merit classification under Chapter 21, i.e., “Miscellaneous Edible Preparations.” Once the chapter is decided, a careful examination of different entries under Chapter 21 reveals that the quest for appropriate classification rests finally at 2106 90 99, the residual entry, as the product itself does not find a specific place anywhere else in Chapter 21.
“We thus conclude that the impugned product, viz., “Pizza Topping,” would merit classification as “Food preparations not elsewhere specified or included’ under Chapter Heading 2106 of the schedule to the Customs Tariff Act, 1975,” the AAAR added and GST will be chargable @18%.
CONCLUSION: An applicant can apply for advance ruling even before taking up a transaction (proposed supply of goods or services) or in respect of a supply which is being undertaken. The only restriction is that the question being raised is already not pending or decided in any proceedings in the case of applicant. An advance ruling pronounced by AAR or AAAR shall be binding only on the applicant and on the concerned officer or the jurisdictional officer in respect of the applicant. This clearly means that an advance ruling is not applicable to similarly placed other taxable persons in the State.
M/s. Rayala Corporation Private Limited Vs.
Assistant Commissioner of Income-tax, Chennai and Another (High Court of Judicature at Madras) Tax Case No. 91, 99 & 212 Of 2012 & 230 & 231 Of 2007 | 04-10-2013.
SUB: Whether Income from Sub-leasing of properties will be considered as Income from Profits and Gain from Business or Profession (Section 28) or Income form House Property (Section 22).
Tax Case (Appeal) No.91 of 2012, at the instance of the assessee has been admitted on the following substantial questions of law:
(i) Whether the Income Tax Appellate Tribunal is justified in upholding the assessment of the income received by the appellant, by
(ii) Whether the income earned by the Appellant by commercial exploitation of sub leasing leased premises in terms of the Memorandum and Articles of Association of the Appellant Company and providing integrated services such as maintenance and air conditioning services and further investing the returns in real estate development is assessable as Income from Business under Section 28 or income from house property under Section 22?
The assessee herein a company mainly derived income from sub lease of rental properties, maintenance charges, interest income being interest on deposits, A.C. service charges and miscellaneous income. The assessee had shown the receipts from leasing out of property etc., as income from business by claiming expenses towards salaries, wages, bonus, administrative expenses etc., for the relevant assessment years.
The assessment for the assessment years 2003-04, 2006-07 and 2008-09 were taken up for scrutiny, the Assessing Officer held that the rental income by way of sub-lease of properties located at No.781-785, Anna Salai, Chennai, hereinafter referred to as “Annasalai property” and No.144/7, Old Mahabalipuram Road, Kottivakkam, Chennai – 41, hereinafter referred to as “Kottivakkam property” were assessable as “income from house property”.
Consequently, the Assessing Officer disallowed the expenses claimed and allowed deductions under Section 24 of the Income Tax Act (I.T. Act) as per permissible under law. Aggrieved by such order, the assessee preferred appeals before the Commissioner of Income Tax (Appeals) [CIT (A)].
The CIT (A) held that the income from sub-lease of the space allotted in the Anna Salai property and the lease rent in respect of factory premises rented out along with machinery and equipment at Kottivakkam are assessable as “income from house property”. As regards the rental income from Anna Salai property, the CIT(A) held that it had been taken on lease at a concessional rent from the developer of the building in the capacity of the owner of the land and the lease was for 33 years, renewable once in five years, the assessee was deemed to be the owner of the superstructure taken on lease from the developer and hence the income from property subleased to various tenants for office premises was assessable as “income from house property”.
Apart from the above reasons, the CIT (A) relied on the decision of the Division Bench of this Court in the case of Chennai Properties and Investments Ltd., (supra), assessed the income for the relevant assessment year under the head of “income from house property”. The additions claimed for the properties during the relevant assessment year were rejected. The CIT (A) followed the above decisions for the assessment year 2008-09 and dismissed the appeal by order dated 27.07.2011.
Challenging these orders, the assessee preferred appeal before the Tribunal. The Tribunal dismissed the appeals filed for the assessment year 2003-04, by order dated 22.09.2006 following the decision of the Division Bench of this Court in the case of Chennai Properties and Investments Ltd., (supra). Following the said order, the appeals in respect of the assessment years 2004-05, 2006-07 and 2008-09 were dismissed by the Tribunal, by orders dated 26.04.2007, 02.11.2011 and 06.02.2012.
Appeals before this Court by the assessee.
As regards the question on the assessment under proper head of income useful reference could be made to the recent decision of the Division Bench of this Court in Commissioner of Income-Tax vs. Ideal Garden Complex P. Ltd., (supra). The assessee in the said case, a company incorporated with an object of carrying on business in real estate, developing landed properties etc.
The assessee claimed the income derived from letting out the properties was “business income” and not to be taxed as “income from house property”. While passing the assessment order under Section 143(1)(a) of the I.T. Act, originally the Assessing Officer accepted the claim of the assessee, however proceedings under Section 147 of the I.T. Act was invoked on the basis of decision of this Court in the case of Commissioner of Income-tax v. Indian Metal and Metallurgical Corporation reported in [1995] 215 ITR 424. The assessees raised their objections, which were rejected by the Assessing Authority holding that the transaction being one of exploitation of the property as an owner and not by way of exploitation of business asset, the rental receipts have to be assessed under the head “income from house property”.
The appeal was allowed by CIT(A), and the Revenue preferred appeal before the ITAT. The Tribunal rejected the Revenues appeal and the Revenue filed the Tax Case before this Court.
The Division Bench after referring to the decisions on the point rejected the contentions raised by the assessee and held that whether a particular letting was business had to be decided in the circumstances of each case and each case has to be looked at from a businessmans point of view and before invoking Section 22 of the I.T. Act, for the purpose of assessing the rental income as an “income from house property”, the Revenue authorities must go into the question whether there was any exploitation of the property by its owner by giving it away for rent.
It was further held that the transactions being in the nature of exploitation of the property by the assessee and not by way of exploitation of business asset, the contention of the assessee could not be accepted. Further, mere fact of the assessee having business in letting out the property as stated in the memorandum by itself will not conclusively point out that the income is nothing, but business income.
Thus, by applying the decision of this Court in the case of CIT vs. Ideal Garden Complex (supra), to the facts as found by the Assessing Officer that the assessee company has stopped its business activities long back and is not carrying out any other business activity and the assessee has parted with the commercial assets and confined solely to receive some income by virtue of ownership thereof by lease or otherwise and the act of leasing was the outcome of the assessees decision to get out of the business, we accept the case of the Revenue that the income receipt from letting out of the property was rightly assessed by the Assessing Officer as “income from house property”. We make it clear that in so far as the Kottivakkam Property, it was submitted that the written down value of the machinery was only Rs.6,777/-, however, we have remitted the same to the Assessing Authority to verify the aspect whether the lease was together with machinery and equipments.
For all the above reasons, we hold that the proceedings initiated under Section 147 of the I.T. Act is valid. Accordingly, the appeal on this ground fails and the question is answered in favour of the Revenue and T.C.(A).No.230 of 2007, stands rejected.
In the result,
from above decision of Hon’ble High Court , it is clear that whether a particular letting was business had to be decided in the circumstances of each case and each case has to be looked at from a business man’s point of view and before invoking Section 22 of the I.T. Act, for the purpose of assessing the rental income as an “income from house property”, the Revenue authorities must go into the question whether there was any exploitation of the property by its owner by giving it away for rent. It was further held that the transactions being in the nature of exploitation of the property by the assessee and not by way of exploitation of business asset. Further, mere fact of the assessee having business in letting out the property as stated in the memorandum by itself will not conclusively point out that the income is nothing, but business income.
Mak Data P. Ltd. v. CIT (2013) 358 ITR 593 (SC).
Sub: Can an assessee who has surrendered his income in response to the specific information sought by the Assessing Officer in the course of survey, be absolved from the penal provisions under section 271(1)(c) for concealment of income?
The assessee-company filed its return of income for the A.Y. 2012-13 declaring an income of Rs. 16.17 lakh along with tax audit report. The assessee’s case was selected for scrutiny and notices were issued under section 143(2) and section 142(1). During the course of assessment proceedings, it was noticed by the Assessing Officer that certain documents, namely, share application forms, bank statements, memorandum of association of companies, affidavits, copies of income-tax returns and assessment orders and blank share transfer deeds duly signed, had been found in the course of survey proceedings under section 133A conducted on December 16, 2011, in the case of a sister concern of the assessee, and the same were impounded.
The Assessing Officer issued a show cause notice dated October 26, 2014 to the assessee seeking specific information regarding the documents pertaining to share applications found in the course of survey, particularly, blank transfer deeds signed by persons who had applied for the shares.
In its reply to the show cause notice, the assessee made an offer to surrender a sum of Rs. 40.74 Lakhs by way of voluntary disclosure without admitting any concealment or any intention to conceal and subject to non-initiation of penalty proceedings and prosecution. The Assessing Officer, however, completed the assessment bringing the sum of ` 40.74 lakhs to tax and levied penalty under section 271(1)(c) for concealment of income and not furnishing true particulars.
The Apex Court observed that the assessee had stated that the surrender of the additional sum was with a view to avoid litigation, to buy peace and to channelize the energy and resourcestowards productive work and to make amicable settlement with the Income tax Department.
The Court observed that these types of defences are, however, not recognized under the statute. It further observed that the survey was conducted and documents were impounded ten months before the assessee filed its return of income. The Court opined that had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year.
Consequently, it was clear that the assessee had no intention to declare its true income. It was the statutory duty of the assessee to record all the transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year.
There was no illegality in the IT Department initiating penalty proceedings. The Supreme Court affirmed the decision of the Delhi High Court in the case of CIT v. Mac Data Ltd. (2013) 352 ITR 1.
It was further held by the Supreme Court that the Assessing Officer has to satisfy himself whether or not penalty proceedings should be initiated during the course of assessment proceedings and the Assessing Officer is not required to record his satisfaction in a particular manner or to reduce it into writing.
The Apex Court was, therefore, of the view that surrender of income in this case is not voluntary, in the sense, that the offer of surrender was made in view of detection made by the Assessing Officer in the survey conducted in the sister concern of the assessee.
it is a statutory duty of every assessee to record all transactions of business in books of account and disclose his/her income from all sources and pay the applicable tax according to the provisions of taxation laws. An assessee on being caught in the survey by the department for concealing income or not declaring its true income, does not absolved from his liability to pay penalty by surrendering concealed income. The penalty u/s. 271(1) (c) of the Income Tax Act, 1961 will be applicable to him/her.
ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PRIVATE LIMITED VS. CIT (SUPREME COURT)
| COURT: | Supreme Court |
| CORAM: | B. R. Gavai J, Hemant Gupta J, Rohinton Fali Nariman J. |
| SECTION(S): | 9(1)(vi), Article 12 |
| GENRE: | Domestic Tax, International Tax |
| CATCH WORDS: | application software, royalty, software licensing |
| COUNSEL: | Ajay Vohra, Arvind Datar, P.J. Pardiwalla |
| DATE: | March 2, 2021 (Date of pronouncement) |
| DATE: | March 2, 2021 (Date of publication) |
| AY: | – |
| CITATION: | |
| Taxability of sums received for supply of software as “royalty”: Given the definition of royalties contained in Article 12 of the DTAAs, the amounts paid by resident Indian end-users/ distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements is not the payment of royalty for the use of copyright in the computer software and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income Tax Act were not liable to deduct any TDS under section 195 of the Income Tax Act. The provisions contained in the Income Tax Act (section 9(1)(vi), along with explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases | |
Section 9(1)(vi): Royalty – Sum paid by Indian Companies – Sale of Software – Not taxable in India – No TDS Liability [S. 195 of Income tax Act, 1961; Art 12 of DTAA, S. 14(a), S. 14(b), S. 30 of Copyright Act, 1957]
FACTS: Facts of the lead case are, the appellant, Engineering Analysis Centre of Excellence Pvt. Ltd. (EAC), is a resident Indian end-user of shrink-wrapped computer software, directly imported from the United States of America.
The Assessing Officer by an order dated 15.05.2002, after applying Article 12(3) of the Double Taxation Avoidance Agreement (DTAA), between India and USA, and upon applying section 9(1)(vi) of the Income Tax Act, 1961 (Act), found that what was in fact transferred in the transaction between the parties was copyright which attracted the payment of royalty and thus, it was required that tax be deducted at source by the Indian importer and end-user, EAC.
Since this was not done for both the assessment years, EAC was held liable to pay the amount of Rs. 1,03,54,784 that it had not deducted as TDS, along with interest under section 201(1A) of the Income Tax Act amounting to Rs. 15,76,567. The appeal before the Commissioner of Income Tax (CIT) was dismissed by an order dated 23.01.2004. However, the appeal before the Income Tax Appellate Tribunal (ITAT) succeeded vide an order dated 25.11.2005.
An appeal was made from the order of the ITAT to the High Court of Karnataka by the Revenue. The High Court held that since no application under section 195(2) of the Income Tax Act had been made, the resident Indian importers became liable to deduct tax at source, without more, under section 195(1) of the Income Tax Act.
The appeals are grouped into four categories:
The definition of royalties contained in Article 12 of the DTAAs that there is no obligation on the persons mentioned in section 195 of the Income-tax Act, 1961 to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright.
The provisions contained in the Income Tax Act (section 9(1)(vi), along with explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases.
The amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income Tax Act were not liable to deduct any TDS under section 195 of the Income Tax Act. The answer to this question will apply to all four categories.
taxability of computer software in the content of disputes in various cases. In old regime the authorities are on different footings to decide whether it is a good or service. Some state governments considered it as good and applied VAT on them. Now the question in this case was that the payment made by Indian Suppliers on purchase of computer software to the foreign manufacturers or suppliers be considered as royalty payment and same be taxable under provisions of Section 9(1)(vi) of the Income tax Act,1961 and TDS will be deducted under Section 195 of the Act or not. The Supreme Court clearly held that the payment made to foreign suppliers by Indian purchaser of software does not fall within the definition of payment of Royalty and hence no taxable event arises on such payment. Thus, TDS is not deductible under provisions of Section 195 of the Income Tax Act, 1961.
| COURT: | ITAT PATNA |
| CORAM: | SANJAY GARG (JM) |
| SECTION(S): | 271AAB |
| GENRE: | DOMESTIC TAX |
| CATCH WORDS: | CONCEALMENT PENALTY |
| COUNSEL: | CA NISHANT MAITIN, CIT-DR INDRJIT SINGH |
| DATE: | FEBRUARY 11, 2021 (DATE OF PRONOUNCEMENT) |
| DATE: | MARCH 20, 2021 (DATE OF PUBLICATION) |
| AY: | 2015-16 |
| CITATION: | |
| SECTION 271AAB: Penalty u/s 271AAB can only be levied on “undisclosed income”. The expression ‘undisclosed income’ is given a definite and specific meaning. It has not been described in an inclusive manner so as to enable the tax authorities to give a wider or elastic meaning. Species of income which is not specifically covered by the definition cannot be brought within its ambit. Such penal provisions are required to be interpreted in a strict, specific and restricted manner. Income declared by the assessee in the return of income or found or assessed by the AO in the assessment proceedings may be relevant for assessment of the income under section 68 /69 and other related provisions of the Act and also for the levy of penalty u/s 271(1)(c) of the Act. However, if it does not fall within the four corners of the definition of “undisclosed income”, penalty u/s 271AAB cannot be levied. | |
SECTION 271AAB : Penalty –Search -Undisclosed income –Levy of penalty not mandatory – Opportunity of hearing must be given – No assessment required for initiation of penalty– Since, the assessee has neither made any surrender of any undisclosed income during the search action nor the penalty has been initiated on the basis of undisclosed income found during such search action, the appeal of the assessee stands allowed– Levy of penalty deleted [ S. 132 ].
Penalty where search has been initiated.—(1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of July, 2012, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,—
(a) a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year, if such assessee—
(i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived;
(ii) substantiates the manner in which the undisclosed income was derived; and
(iii) on or before the specified date—
(A) pays the tax, together with interest, if any, in respect of the undisclosed income; and
(B) furnishes the return of income for the specified previous year declaring such undisclosed income therein;
(b) a sum computed at the rate of twenty per cent of the undisclosed income of the specified previous year, if such assessee—
(i) in the course of the search, in a statement under sub-section (4) of section 132, does not admit the undisclosed income; and
(ii) on or before the specified date—
(A) declares such income in the return of income furnished for the specified previous year; and
(B) pays the tax, together with interest, if any, in respect of the undisclosed income;
(c) a sum which shall not be less than thirty per cent but which shall not exceed ninety per cent of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b).
(2) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1).
(3) The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section.
Explanation.—For the purposes of this section,—
(a) “specified date” means the due date of furnishing of return of income under sub-section (1) of section 139 or the date on which the period specified in the notice issued under section 153A for furnishing of return of income expires, as the case may be;
(b) “specified previous year” means the previous year—
(i) which has ended before the date of search, but the date of furnishing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the date of search; or
(ii) in which search was conducted;
(c) “undisclosed income” means—
(i) any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has—
(A) not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or
(B) otherwise not been disclosed to the Chief Commissioner or Commissioner before the date of search; or
(ii) any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted.’
That a search action under section 132 of the Act was carried out at the premises of the assessee/appellant on August 07, 2014. During the search action jewellery in the shape of gold bars, coins was found from the locker of the assessee. The assessee could explain about the source of investment in respect of the part of the said bullion and jewellery. The assessee could not explain the source of assets worth Rs. 21,97,221/- with bills and vouchers. The assessee, however, explained that the said jewellery was accumulated out of gifts received by the assessee on the eve of marriage and other ceremonies/occasions from time to time. The assessee, thereafter, included the value of the above stated jewellery in the computation of income and offered the same for taxation.
The Assessing Officer in the assessment proceedings noted that the assessee in the return of income has disclosed income of Rs.21,79,222/- on account of undisclosed jewellery. He, therefore, initiated penalty proceedings under section 271AAB of the Act and levied the minimum penalty at 10 per cent of the said declared income of the assessee.
The ld. CIT(A), however, observed that the levy of penalty under the provisions of section 271AAB of the Act was mandatory and accordingly confirmed the penalty so levied by the AO.
The Tribunal relied on the decision of Co-ordinate Chandigarh Bench of the Tribunal in the case of M/s SEL Textiles Ltd. Vs DCIT ITA No. 695/Chd/2018 order dated April 18, 2019 wherein it was held that levy of penalty u/s 271AAB of the Act is not mandatory.
It has also been noted that the Legislature has consciously used the word ‘may’ in contradistinction to the word ‘shall’ in the opening words of Section 271AAB of the Act. That the choice of the expression ‘may’ and not ‘shall’ in the opening Section of 271AAB shows that the Legislature did not intend to make the levy of penalty statutory, automatic and binding on the Assessing Officer but the Assessing Officer has been given discretion in the matter of levy of penalty. It has also been held that the penalty u/s 271AAB will not be attracted if the surrendered income would not fall in the definition of ‘undisclosed income’ as defined under explanation to section 271AAB of the Act. Therefore, from plain reading of section 271AAB of the Act, it is evident that the penalty cannot be imposed unless the assessee is given a reasonable opportunity and assessee is being heard.
Further, the provisions of section 271AAB of the Act are self-contained and are not dependent upon commencement or finalization of the assessment proceedings.
Since, the assessee has neither made any surrender of any undisclosed income during the search action nor the penalty has been initiated on the basis of undisclosed income found during such search action, the appeal of the assessee stands allowed.
A perusal of the above reproduced relevant part of the assessment order reveals that the assessing officer has not mentioned about unearthing of any undisclosed income as defined u/s 271AAB of the Act during search action carried out at the premises of the assessee.
In my view, the income declared by the assessee in the return of income or found or ITA No.194/Pat/2019 A.Y.2015-16 Shiv Bhagwan Gupta Vs. ACIT, C.C.-1, PAT Page 10 assessed by the Assessing officer in the assessment proceedings may be relevant for assessment of the income under section 68 /69 and other related provisions of the Act and also for the levy of penalty under section 271(1)(c) of the Act in view of the relevant provisions of section 68/69 and 271(1)(c) of the Act.
However, for the levy of penalty u/s.271AAB, the case must fall within the four corners of the definition of expression “undisclosed income” as defined u/s 271AAB itself.
The assessee in this case is an individual and has earned income from partnership firm and interest income. The assessee has neither earned any business income nor earned any income exceeding Rs.50 lakhs so as to require mandatory filing of personal assets and liabilities or to maintain books of accounts; even the assessee is not required to otherwise disclose any such income to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of search; the alleged income is not any income represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course. Assessee has neither made any surrender of any undisclosed income during the search action nor the penalty has been initiated on the basis of undisclosed income found during such search action. In view of the above factual position, the impugned order of the AO imposing the penalty on the assessee under section 271AAB of the Act does not pass the mandate of the provisions of section 271AAB of the Act, therefore, the same being bad in law is hereby quashed.
When a loan taken for acquiring a depreciable capital asset or a part of the purchase price of such capital asset is waived in a year subsequent to the year of acquisition, an issue that arises with respect to waiver of loan or part of the purchase price is whether the depreciation claimed in the past on that portion of the cost of the asset which represents the waiver of the purchase price, or which had been met from the loan waived, can be added / disallowed u/s 41(1) / 43(6) in the year in which that amount of the loan / purchase price has been waived, and whether the written down value (WDV) of the block of the assets concerned needs to be reworked so as to reduce it by the amount of loan / purchase price waived.
The Hyderabad Bench of the Tribunal has held that while section 41(1) would not apply, the depreciation claimed in the past needs to be added as income and the WDV is also required to be reworked in such a case. As against this, the Bengaluru Bench of the Tribunal has held that waiver of loan taken to acquire a depreciable asset does not have any consequences in the year in which the loan has been waived off, insofar as claim of depreciation is concerned.
The issue had earlier come up for consideration of the Hyderabad Bench of the Tribunal in the case of Binjrajka Steel Tubes Ltd. vs. ACIT 130 ITD 46.
it to be noted that provisions of Section 41(1) provides that there should have been allowance or deduction claimed by the Assessee in any Assessment Year as a loss, expenditure or trading liability incurred by the Assessee. Subsequently, if any remission or waiver is granted in respect of which such an allowance/deduction has been claimed, then the Assessee is liable to pay tax on the amount waived/ remitted under Section 41(1) of the Income Tax Act,1961. The waiver of loan taken or liability of the assessee will not be considered as deduction /allowance taken by the assessee in previous AYs and hence amount of loan or liability waived is not considered as income of the assessee. In case of depreciable assets , the depreciation which has been claimed on the amount of liability must be added back and considered as income u/s. 28 of the Income Tax Act,1961 and the balance amount of Rs. 2.00 Crores will be reduced from the WDV of the assets or block of asset.
Commissioner Of Income Tax vs Gita Duggal on 21 February, 2013
THE HIGH COURT OF DELHI AT NEW DELHI
Judgment delivered on: 21.02.2013- ITA 1237/2011
SUB: WHETHER SEVERAL INDEPENDENT UNITS CAN CONSTITUTE “A RESIDENTIAL HOUSE”
DECISION OF HON’BLE TRIBUNAL
” The context in which the expression „a residential house‟ is used in Section 54 makes it clear that, it was not the intention of the legislation to convey the meaning that: it refers to a single residential house, if, that was the intention, they would have used the word “one.” As in the earlier part, the words used are buildings or lands which are plural in number and that: is referred to as “a residential house”, the original asset. An asset newly acquired after the sale of the original asset also can be buildings or lands appurtenant thereto, which also should be “a residential house.” Therefore, the letter „a‟ in the context it is used should not be construed as meaning “singular.” But, being an indefinite article, the said expression should be read in consonance with the other words „buildings‟ and „lands‟ and, therefore, the singular „a residential house‟ also permits use of plural by virtue of Section 13(2) of the General Clauses Act. – CIT V. D. Ananda Bassappa (2009) 223 (kar) 186: (2009) 20 DTR (Kar) 266 followed.”
APPEAL BEFORE HON’BLE HIGH COURT
“A) Whether the Hon’ble ITAT has erred in deleting the addition of `98,20,772/- under section 54F of the Income Tax Act, 1961 as made by the Assessing Officer?
from above decision it is clarified that there is nothing in Section 54/54F which specify that the residential house should be constructed in a particular manner. Any person will construct his house according to his need and on the basis of future requirements. The house build may consist of one unit or it may consist of several separate units. The exemption under Section 54/54F should not be denied on the basis of that concerned residential premises consists of several independent units. The physical structure of a building cannot come in way of providing exemption under Section 54/54F. The only requirement is that it should be for the residential use and not for commercial use. If there is nothing in the section which requires that the residential house should be built in a particular manner, it seems that the income tax authorities cannot insist upon that requirement. A building consisting several independent units will not be allowed to be an impediment while claiming exemption under section 54/54F. it means that a building consisting several units will be considered as a single residential house for provisions of Section 54/54F of the Income Tax Act,1961.
Footnotes:
Under Section 54 – Any Long Term Capital Gain, arising to an Individual or HUF, from the Sale of a Residential Property (whether Self-Occupied or on Rented) shall be exempt to the extent such capital gains is invested in the
Provided that the new Residential House Property purchased or constructed is not transferred within a period of 3 years from the date of acquisition. If the new property is sold within a period of 3 years from the date of its acquisition, then, for the purpose of computing the capital gains on this transfer, the cost of acquisition of this house property shall be reduced by the amount of capital gain exempt under section 54 earlier. The capital gain arising from this transfer will always be a short-term capital gain.
Any Gain arising to an individual or HUF from the sale of any Long-Term Asset other than Residential Property shall be exempt in full, if the entire net sales consideration is invested in
CIT V. M. VENKATESWARA RAO (2015) 370 ITR 212
HOB’BLE APPELLATE TRIBUNAL, AP
Can capital contribution of the individual partners credited to their accounts in the books of the fir
m be taxed as cash credit in the hands of the firm, where the partners have admitted their capital contribution but failed to explain satisfactorily the source of receipt in their individual hands?
The assessee-firm was constituted in the year 1982 and its return for the assessment year 1993-94 was selected for scrutiny under section 143(3).
The controversy was in relation to the capital contribution of ten partners aggregating to Rs. 76.57 lakhs.
The assessee-firm’s explanation that the partners have paid various amounts towards contribution of their share in the capital was not accepted by the Assessing Officer, since the source of income for the partners was not explained.
PLEASE NOTE THAT: It is settled law that a partnership firm is an assessable entity distinct from the individual partner. The books of account of a partnership cannot be treated as those of the individual partner. And in the case of the firm, the books maintained by the firm should show a cash credit entry and the firm’s explanation should be found unsatisfactory, then only Section 68 will entitle the ITO to include the amount of the entry as the income of the assessee-firm. The above position of law is enunciated from the principle that a partnership firm is an assessable entity distinct from its individual partners constituting the firm.
IN CIT V. DAULAT RAM RAWATMULL, the Supreme Court held that the fact that the depositor had not been able to give a satisfactory explanation regarding the source of deposit would not be decisive even of the matters as to whether the depositor was or was not the owner of the amount, that a person could still be held to be the owner of a sum of money even though the explanation furnished by him regarding the source of that money was found to be incorrect, and that from the simple fact that the explanation regarding the source of the money had been found to be false, it would be a remote and farfetched conclusion to hold that the money belonged to the assessee.
IN CIT V. KISHORILAL SANTOSHILAL IT WAS HELD THAT:
In the case of cash credits in the accounts of a firm
(i) there is no distinction between the cash credit entry existing in the books of the firm whether it is of a partner or of a third party;
(ii) the burden to prove the identity, capacity and genuineness is on the firm;
(iii) if the cash credit is not satisfactorily explained, the Income-tax Officer is justified to treat it as income from undisclosed sources;
(iv) the firm has to establish that the amount was actually given by the lender;
(v) the genuineness and regularity in the maintenance of accounts has to be taken into consideration by the taxing authorities, and
(vi) if the explanation is not supported by any documentary or other evidence,
then the deeming fiction created by Section 68 of the Income-tax Act, 1961, can be invoked.
The absence of a satisfactory explanation by the assessee about the nature and source of the sum credited.
The issue before the High Court was whether the Assessing Officer was justified in treating the capital contribution of partners as income of the firm by invoking section 68?THE COMMISSIONER (APPEALS) observed that the amounts credited in the names of four partners were valid and that cash credits in the accounts of six other partners in the books of the firm were to be considered afresh by the Assessing Officer.
Section 68 directs that if an assessee fails to explain the nature and source of credit entered in the books of account of any previous year, the same can be treated as income. In this case, the amount sought to be treated as income of the firm is the contribution made by the partners to the capital. In a way, the amount so contributed constitutes the very substratum for the business of the firm and it is difficult to treat the pooling of such capital as credit.
It is only when the entries are made during the course of business, they can be subjected to scrutiny under section 68.
Where the firm explains that the partners have contributed capital, section 68 cannot be pressed into service. At the most, the Assessing Officer can make an enquiry against the individual partners and not the firm when the partners have also admitted their capital contribution in the firm.
The High Court made reference to decision in the case of CIT v. Anupam Udyog 142 ITR 130 (Patna) where it was held if there are cash credits in the books of the firm in the accounts of the individual partners and it is found as a fact that cash was received by the firm from its partner, then, in the absence of any material to indicate that they are the profits of the firm, the cash credits cannot be assessed in the hands of the firm, though they may be assessed in the hands of individual partners.
In Lakshmichand Baijnath v. The Commissioner of Income-tax, West Bengal it was held that if there is no source of income other that business for which the assessee has maintained books which disclose cash credits, the presumption is that the cash credits represent income from the same business. Thus, in Commissioner of Income-tax v. Margaret’s Hope Tea Co. Ltd. the cash credits appearing in the books of the assessee whose main activity was the cultivation, manufacture and sale of tea, was held to be treated as income of the assessee from its tea business.
As decided in Abhyudaya Pharmaceuticals v Commissioner of Income Tax12, wherein the earlier decision in the case of Jaiswal Motor Finance was followed on the point that if there are cash credit entries in the books of the assessee firm in which accounts of an individual partner exists, and it is found as a fact that the cash was received by the firm from its partners then in the absence of any material to indicate that the same were profits of the firm, it could not be assessed in the hands of the firm.
In the case of Kapur Brothers [1979] 118 ITR 741 (All) and Jaiswal Motor Finance [1983] 141 ITR 706 (All) is conflicting, but on a meaningful reading thereof, would show that they were rendered in different factual the ratio laid down in the case of Kapur Brothers [1979] 118 ITR 741 (All) will be applicable in a case where a partner brings capital amount at the formation of the firm itself, before the commencement of business by the firm. It would not be applicable in a case where the deposit is reflected in the account books of the firm during the currency of the business of the firm.
The underlying idea in the case of Kapur Brothers [1979] 118 ITR 741 (All) is that when the assessee firm has no business, it cannot possibly have any income. Therefore, in such a case the question of presumption of income of the assessee firm would not arise generally. But it is not appropriate when the assessee firm is earning income from its business and in that situation the assessee firm has to explain the cash credit standing in its account. If the above line of distinction is kept in mind, we find that both the decisions are standing on a different factual background.
The High Court, accordingly, held that the view taken by the Assessing Officer that the partnership firm has to explain the source of income of the partners as regards the amount contributed by them towards capital of the firm, in the absence of which the same would be treated as the income of the firm, was not tenable.
we are aware that provisions of Section 68 of the Income Tax Act, 1961 are applicable on entries made during the course of business of an entity. The court has also cleared that in case if there found cash credits in books of account of the firm in any partner’s account and there is nothing to prove that cash credits are profits of the company, in this case the cash credits will be assessed in the hands of respective partner and not in hands of firm. Please note that in case of cash credit found in the books of account of firm as Capital Contribution by the partners of the firm. Then provisions of Section 68 are not applicable. It will be applicable only those entries which arises during the course of business of firm.
Footnotes:
As per section 68, any sum found credited in the books of a taxpayer, for which he offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, may be charged to income-tax as the income of the taxpayer of that year.
In case of a taxpayer being a closely held company (i.e., not being a company in which the public are substantially interested), if the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such company shall be deemed to be not satisfactory, unless:
(a) the person, being a resident in whose name such credit is recorded in the books of such company, also offers an explanation about the nature and source of such sum so credited; and
(b) such explanation in the opinion of the Assessing Officer has been found to be satisfactory. The above discussed provisions of share application money, share capital, etc., shall not apply if the person, in whose name such sum is recorded, is a venture capital fund or a venture capital company as referred to in section 10(23FB).
From the reading of section 68, following conditions can be stated to attract the applicability of section 68:
As per Section 115BBE, income tax shall be calculated at 60% where the total income of assessee includes following income:
Such tax rate of 60% will be further increased by 25% surcharge, 6% penalty, i.e., the final tax rate comes out to be 83.25% (including cess). Provided that such 6% penalty shall not be levied when the income under Section 68, 69, etc., has been included in return of income and tax has been paid on or before the end of relevant previous year.
No deduction in respect of any expenditure or allowance [or set off of any loss] shall be allowed to the assessee in computing his income referred to in clause (a) of sub-section (1) of Section 115BBE.
Ashish Tandon v. ACIT (2019) 103 taxmann.com 315 / 199 TTJ 137 / 176 DTR 353 (Ahd.) (Trib.).
Sale of a technical concept, that the assessee developed on his own, with respect to website malware monitoring, assessable as business income.
A technical concept was conceptualized by assessee-employee to safeguard websites from getting infected with malware against consideration and thereafter, an agreement was entered into between assessee, employer-Indusface India, Indusface Canada, and Trend Micro USA, for sale of all rights in concept so developed/against consideration and claim of assessee was that amount received by assessee from Trend Micro was a capital gain in his hands, but as it had no cost of acquisition, this capital gain was not taxable in nature.
Sale of technical concept claimed as capital receipt as no cost of acquisition was incurred.
Dismissing the appeal of the assessee the Tribunal has applied test of human probabilities to decide whether what is apparent is real. Since a perusal of Asset Purchase Agreement clearly shows that dominant intention of purchaser for making payment to assessee was to prevent him from engaging in any business which could have competed with business purchased by Trend Micro from sellers and hence amount received by assessee is revenue receipt in his hands and is taxable as business income under S. 28(va).
Further, in any case, cost of acquisition, in case of non-compete rights, under S. 55(2)(a) is to be taken as NIL, and, as a corollary thereto, entire receipts is to be taxed in hands of assessee.
Tax authorities are not required to put on blinkers while looking at documents. They are entitled to look into the surrounding circumstances to find out the reality.
Footnotes:
Section 28(va) of Income Tax Act,1961- any sum, whether received or receivable, in cash or kind, under an agreement for-
(a) not carrying out any activity in relation to any business or profession; or
(b) not sharing any know-how, patent, copyright, trade-mark, license, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services:
Provided that sub-clause (a) shall not apply to-
Explanation. -For the purposes of this clause, –
(i) “agreement” includes any arrangement or understanding or action in concert, –
(A) whether or not such arrangement, understanding or action is formal or in writing; or
(ii) “service” means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial nature such as accounting, banking, communication, conveying of news or information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging.
Section 55(2a) of Income Tax Act,1961- For the purposes of sections 48 and 49, “cost of acquisition”, —
EY Global Services Limited (W.P.No. 11957 of 2016) and EYGBS (India) Private Limited (W.P.No. 12003 of 2016) (Delhi HC)
Held That : Amount received for providing software-access to EY network firms not taxable as royalty
The Delhi HC followed the SC ruling in EAC and held that payment received by the taxpayer for providing access to computer software to its member firms in India does not amount to royalty under the domestic law as well as India-UK DTAA on the following grounds:
The Delhi High Court categorically observed that the scope of the Supreme Court judgement in EAC is not restricted to the four categories of facts discussed in the judgement and it goes beyond to cover cases where there is a ‘transfer of a right to use the copyright in software’ without there being a ‘transfer of copyright in the software’.
Bekaert Industries Private Limited (ITA No. 1003/PUN/2017) (Pune ITAT)
Fees for ‘using’ IT Infrastructure taxable as Royalty; Transaction not covered by EAC ruling
For relying on the decision of SC in case of EAC, it is pertinent to take note of factors like the agreement language, nature of service/ license provided, the language used in the DTAA and the nature of royalty in question.
Kanoria Chemicals & Industries Ltd (ITA No. 2184/Kol/2018) (Kolkata ITAT)
Educational cess held not deductible under Section 40(a)(ii)
The issue regarding deduction of education cess under Section 40(a)(ii) of the IT Act has been a subject matter of litigation over the years with various appellate authorities passing divergent rulings. The aforesaid decision of the ITAT has been contrary to the favourable decision in Sesa Goa Limited and Chambal Fertilizers & Chemicals Ltd (Supra). Further, it may be noted that a special leave petition has been filed before the Hon’ble SC in the case of Chambal Fertilizers & Chemicals Ltd (Supra) which is currently pending before the Hon’ble SC.
Mr. Chander Mohan Lall (ITA No. 1869/Del/2019)
Legal fees paid to foreign attorney not chargeable to tax as FTS( Financial & Technical Services)
Rajeev Suresh Ghai (ITA No. 6290/Mum/2019)
BRIEF FACTS:Difference between consideration and stamp duty value on invoking Section 50C of the IT Act, cannot be attributed to gift.
Commissioner of GST and C. Ex. v. M/s. Citibank N.A. [TS-542-SC-2021-ST]
FACTS OF THE CASE Taxability of intercharge fee by issuing bank in pre-GST regime.
| Issue | View of Hon’ble Justice Joseph | View of Hon’ble Justice Bhat |
| Unified/separate service | Interchange fee is consideration for an independent service of CCS provided by IB | Service provided by IB was a part of a single unified service of settling transactions provided by both AB and IB |
| Machinery provisions | IB is liable to discharge Service tax on intercharge fee and file return including the said fee | IB is not required to pay Service tax on intercharge fee as it is a part of single service provided by AB and IB |
Meritas Hotels Pvt. Ltd. Vs. State of Maharashtra [TS-675-HC(BOM)-2021-GST]
FACTS OF THE CASE Time limit for filing appeal to be reckoned from date of communication.
Whether the period of limitation for the purpose of filing an appeal under Section 107(1) of the said CGST Act would commence from the date when the impugned assessment order is uploaded on the GSTN portal or from the date of service upon the General Manager of the Petitioner Company vide email dated April 20, 2019.
Tarun Jain vs. Directorate General of GST Intelligence DGGI [TS-645-HC(DEL)-2021-GST]
FACTS OF THE CASEGST offences not grave enough to demand custodial interrogation.
Tata Steel Ltd. & Anr. Vs. State of West Bengal [TS – 539-HC-2021 (CAL)-VAT]
Purchasing dealers can claim refund of excess CST collected on inter-state purchase of HSD
Accordingly, the Hon’ble Court directed the State of West Bengal to refund the amount of excess CST so collected along with interest at rate of 10% per annum to the Petitioners after inter alia verification of “C” Forms submitted by IOCL
LGW Industries Ltd & Ors. vs. Union of India & Ors. [TS-728-HC(CAL)-2021-GST]
FACTS OF THE CASE Denial of input tax credit is not justifiable if supplier appeared to be fake after completion of purchase transaction.
(a) payments on purchases in question were actually paid to the suppliers with GST;
(b) the transactions and purchases were made before the cancellation of registration of the suppliers;
(c) assessee had complied with statutory obligation of verification of identity of the suppliers and
(d) all purchases are supported by valid documents.
Hindustan Petroleum Corporation Ltd. [ TS-577-HC-2021(BOM)-EXC
FACTS OF THE CASE Appeal involving limitation issue maintainable before High Court
Macquarie Global Services Pvt. Ltd. [ TS-529-CESTAT-2021-ST ]
FACTS OF THE CASEProvider of back-office services and IT & ITES services does not constitute “intermediary”.
Unik Traders [ TS-548-HC-2021(MAD)-CUST ]
FACTS OF THE CASEDRI officer is not “proper officer” for assessment of imported goods
ADVANCE RULING
Premier Sales Promotion Pvt. Ltd. [TS-714-AAAR(KAR)-2021-GST]
Vouchers constitute goods and not actionable claims.
Case Name : Dena Bank (now Bank of Baroda) Vs. C. Shivakumar Reddy and Anr. (Supreme Court of India)
Appeal Number : Civil Appeal No. 1650 of 2020
Date of Judgement/Order : 04/08/2021
Related Assessment Year :
Courts : Supreme Court of India
DECISION: No bar to amendment of petition u/s 7 of IBC ,2016 until final order; judgment and/or decree for money in favour of the financial creditor would give rise to a fresh cause of action
“Whether a petition under Section 7 of IBC,2016 would be barred by limitation, on the sole ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, even though the Corporate Debtor might subsequently have acknowledged its liability to the appellant Bank, within a period of three years prior to the date of filing of the Section 7 petition, by making a proposal for a one time settlement, or by acknowledging the debt in its statutory balance sheets and books of accounts.
An Apex Court bench of Justices Indira Banerjee and V Ramasubramanian on 4th August 2021said that an application under Section 7 of the IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, if there were an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years. Such acknowledgment can be by way of statement of accounts, balance sheets, financial statements and offer of one-time settlement.
The Apex Court clarified that this is only applicable if there was an acknowledgement of the debt by the corporate debtor before the expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years.
The bench also held that a judgment and/or decree for money in favour of the financial creditor, passed by DRT or any other tribunal or court, or the issuance of a certificate of recovery in favour of the financial creditor, would give rise to a fresh cause of action for the financial creditor. The financial creditor can, however, initiate proceedings under Section 7 of IBC for initiation of the Corporate Insolvency Resolution Process within three years from the date of the judgment if the dues of the corporate debtor to the financial debtor remained unpaid.
The Apex Court also observed that there is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with the application under Section 7 of the IBC in Form-1.
“In the absence of any express provision which either prohibits or sets a time limit for filing of additional documents, it cannot be said that the Adjudicating Authority committed any illegality or error in permitting the Appellant Bank to file additional documents.
The Apex Court further clarified that depending on the facts and circumstances of the case, when there is inordinate delay, the Adjudicating Authority might, at its discretion, decline the request of an applicant to file additional pleadings and/or documents, and proceed to pass a final order…”
CONCLUSION: from above decision of the Apex Court it was clarified a judgment and/or decree for money in favour of the financial creditor, passed by DRT or any other tribunal or court, or the issuance of a certificate of recovery in favour of the financial creditor, would give rise to a fresh cause of action for the financial creditor. The financial creditor can, however, initiate proceedings under Section 7 of IBC for initiation of the Corporate Insolvency Resolution Process within three years from the date of the judgment if the dues of the corporate debtor to the financial debtor remained unpaid.
Leo Edibles & Fats Limited Vs. Tax Recovery Officer (Central)- Hyderabad [2018] 99 taxmann.com 226/259 Taxmann 387 Andhra Pradesh & Telangana High Court.
FACTS OF THE CASE: the petitioner purchased an immovable property in the liquidation proceedings of VNR Infrastructures Limited. The Sub-Registrar refused to register the property in the name of the petitioner on behest of Income Tax Department. , which claimed a charged on immovable property pursuant to attachment proceedings against which this writ petition was filed. SUB: WHETHER INCOME TAX ATTACHMENT ORDER WILL BE CONSIDERED AS BAR ON SALE OF ASSETS OF A COMPANY IN LIQUIDATION UNDER IBC,2016.
The High Court noted that it entails construction and interpretation of the provisions of the Code ,2016 in juxtaposition to the Income Tax Act,1961.
It was observed that “It is clear that the Income Tax -Department does not enjoy the status of a secured creditor, on par with secured creditor covered by a mortgage or other security interest, who can avail the provisions of Section 52 of the Code. At best it can only claim a charge under the attachment order in terms of the provisions of Section 281 of the Act,1961.”
As regards the purpose of attachment, it referred to the judgement in Ananta Mills Ltd. (High Court Gujarat) and Prem Lal Dhar (Privy Council), where it has been held that attachment only prohibits private alienation of the property, but the attaching creditor does not acquire any interest in the property.
It noted that Section 178 of the Income Tax Act,1961 provide for a priority in appropriation of the amounts set aside by the liquidator for clearance of tax dues. However, liquidation of a company will be held under different provisions of different act.
PLEASE NOTE THAT: In liquidation of a company under IBC,2016, provisions of Section 178 of the Income Tax Act, 1961 stands excluded by virtue of amendment in Section 178(6) of the Act, 1961 with effect from 1st November ,2016, in accordance of the provisions of Section 247 read with Third Schedule of the Code,2016. Therefore, from above amendment it was cleared that Income Tax Department can no longer claim a priority in respect of clearance of tax due of the said company, in case said company is undergoing liquidation under provisions of Code,2016.
THE HIGH COURT -held that the tax dues, being an input to the Consolidated Fund of India and of the States, clearly come within ambit of Section 53(1) (e) of the Code. It further held that the Income Tax Department cannot claim any priority merely because the order of attachment dated 27th October,2016 was long prior to the initiation of liquidation proceedings under the Code,2016 against VNR Infrastructure Limited. Further Section 36(3)(b) of the Code indicate in no uncertain terms that the liquidation estate assets may or may not be in possession of the Corporate Debtor, including but not limited to encumbered assets. Therefore ,even if the order of attachment constitutes an encumbrance on the property , it still does not have effect of taking it out of preview of Section 36(3)(b) of the Code ,2016.
The said order of attachment, therefore cannot be taken as bar for completion of sale under a liquidation proceeding under the Code,2016. The Income Tax Department necessarily submit its claim to the liquidator for consideration as and when the distribution of assets, in terms of Section 53(1) of the IBC,2016 is taken up.
CONCLUSION: the above judgement clarified that Income Tax Department cannot be same as a Secured Creditor in case of tax dues of a company liquidation under provisions of IBC,2016. An Attachment order of Income Department on any asset of Corporate Debtor not conferred any interest in favour of department ,therefore attachment order only acts as a prohibition on private alienation of concerned property and it does not affect consideration of property by the liquidator for the purpose of liquidation. The provisions of IBC,2016 will overriders provisions of Income Tax Act,1961 in this respect. The Income Tax Department has to submit its claim for tax dues with the liquidator same as other creditors in the process of liquidation according to the provisions of Section 53(1) of IBC,2016.
Footnotes;
SECTION 36 OF IBC,2016 DEALS WITH: LIQUIDATION ESTATE.
(1) For the purposes of liquidation, the liquidator shall form an estate of the assets mentioned in sub-section (3), which will be called the liquidation estate in relation to the corporate debtor.
(2) The liquidator shall hold the liquidation estate as a fiduciary for the benefit of all the creditors.
(3) Subject to sub-section (4), the liquidation estate shall comprise all liquidation estate assets which shall include the following: —
(a) any assets over which the corporate debtor has ownership rights, including all rights and interests therein as evidenced in the balance sheet of the corporate debtor or an information utility or records in the registry or any depository recording securities of the corporate debtor or by any other means as may be specified by the Board, including shares held in any subsidiary of the corporate debtor;
(b) assets that may or may not be in possession of the corporate debtor including but not limited to encumbered assets;
(c) tangible assets, whether movable or immovable;
(d) intangible assets including but not limited to intellectual property, securities (including shares held in a subsidiary of the corporate debtor) and financial instruments, insurance policies, contractual rights;
(e) assets subject to the determination of ownership by the court or authority;
(f) any assets or their value recovered through proceedings for avoidance of transactions in accordance with this Chapter;
(g) any asset of the corporate debtor in respect of which a secured creditor has relinquished security interest;
(h) any other property belonging to or vested in the corporate debtor at the insolvency commencement date; and
(i) all proceeds of liquidation as and when they are realised.
(4) The following shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation: —
(a) assets owned by a third party which are in possession of the corporate debtor, including—
(i) assets held in trust for any third party;
(ii) bailment contracts;
(iii) all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund;
(iv) other contractual arrangements which do not stipulate transfer of title but only use of the assets; and
(v) such other assets as may be notified by the Central Government in consultation with any financial sector regulator;
(b) assets in security collateral held by financial services providers and are subject to netting and set-off in multi-lateral trading or clearing transactions;
(c) personal assets of any shareholder or partner of a corporate debtor as the case may be provided such assets are not held on account of avoidance transactions that may be avoided under this Chapter;
(d) assets of any Indian or foreign subsidiary of the corporate debtor; or
(e) any other assets as may be specified by the Board, including assets which could be subject to set-off on account of mutual dealings between the corporate debtor and any creditor.
SECTION 52: SECURED CREDITOR IN LIQUIDATION PROCEEDINGS.
52. (1) A secured creditor in the liquidation proceedings may—
(a) relinquish its security interest to the liquidation estate and receive proceeds from the sale of assets by the liquidator in the manner specified in section 53; or
(b) realise its security interest in the manner specified in this section.
(2) Where the secured creditor realises security interest under clause (b) of sub-section (1), he shall inform the liquidator of such security interest and identify the asset subject to such security interest to be realised.
(3) Before any security interest is realised by the secured creditor under this section, the liquidator shall verify such security interest and permit the secured creditor to realise only such security interest, the existence of which may be proved either—
(a) by the records of such security interest maintained by an information utility; or
(b) by such other means as may be specified by the Board.
(4) A secured creditor may enforce, realise, settle, compromise or deal with the secured assets in accordance with such law as applicable to the security interest being realised and to the secured creditor and apply the proceeds to recover the debts due to it.
(5) If in the course of realising a secured asset, any secured creditor faces resistance from the corporate debtor or any person connected therewith in taking possession of, selling or otherwise disposing off the security, the secured creditor may make an application to the Adjudicating Authority to facilitate the secured creditor to realise such security interest in accordance with law for the time being in force.
(6) The Adjudicating Authority, on the receipt of an application from a secured creditor under sub-section (5) may pass such order as may be necessary to permit a secured creditor to realise security interest in accordance with law for the time being in force.
(7) Where the enforcement of the security interest under sub-section (4) yields an amount by way of proceeds which is in excess of the debts due to the secured creditor, the secured creditor shall—
(a) account to the liquidator for such surplus; and
(b) tender to the liquidator any surplus funds received from the enforcement of such secured assets.
(8) The amount of insolvency resolution process costs, due from secured creditors who realise their security interests in the manner provided in this section, shall be deducted from the proceeds of any realisation by such secured creditors, and they shall transfer such amounts to the liquidator to be included in the liquidation estate.
(9) Where the proceeds of the realisation of the secured assets are not adequate to repay debts owed to the secured creditor, the unpaid debts of such secured creditor shall be paid by the liquidator in the manner specified in clause (e) of sub-section (1) of section 53.
SECTION 53 OF IBC,2016. (1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified, namely:
e) the following dues shall rank equally between and among the following: —
(i) any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date;
(ii) debts owed to a secured creditor for any amount unpaid following the enforcement of security interest.
SECTION 178 OF INCOME TAX ACT “COMPANY IN LIQUIDATION”
178. (1) Every person-
(a) who is the liquidator of any company which is being wound up, whether under the orders of a court or otherwise; or
(b) who has been appointed the receiver of any assets of a company,
(hereinafter referred to as the liquidator) shall, within thirty days after he has become such liquidator, give notice of his appointment as such to the Assessing Officer who is entitled to assess the income of the company.
(2) The Assessing Officer shall, after making such inquiries or calling for such information as he may deem fit, notify to the liquidator within three months from the date on which he receives notice of the appointment of the liquidator the amount which, in the opinion of the Assessing Officer, would be sufficient to provide for any tax which is then, or is likely thereafter to become, payable by the company.
3) The liquidator-
(a) shall not, without the leave of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, part with any of the assets of the company or the properties in his hands until he has been notified by the Assessing Officer under sub-section (2) ; and
(b) on being so notified, shall set aside an amount, equal to the amount notified and, until he so sets aside such amount, shall not part with any of the assets of the company or the properties in his hands :
Provided that nothing contained in this sub-section shall debar the liquidator from parting with such assets or properties for the purpose of the payment of the tax payable by the company or for making any payment to secured creditors whose debts are entitled under law to priority of payment over debts due to Government on the date of liquidation or for meeting such costs and expenses of the winding up of the company as are in the opinion of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner reasonable.
(4) If the liquidator fails to give the notice in accordance with sub-section (1) or fails to set aside the amount as required by sub-section (3) or parts with any of the assets of the company or the properties in his hands in contravention of the provisions of that sub-section, he shall be personally liable for the payment of the tax which the company would be liable to pay :
Provided that if the amount of any tax payable by the company is notified under sub-section (2), the personal liability of the liquidator under this sub-section shall be to the extent of such amount.
(5) Where there are more liquidators than one, the obligations and liabilities attached to the liquidator under this section shall attach to all the liquidators jointly and severally.
(6) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force except the provisions of the Insolvency and Bankruptcy Code, 2016.
BANK OF MAHARASHTRA AND ORS. v. VIDEOCON INDUSTRIES LTD AND ORS.
Decision dated: 5 February 2022
Citation: 2022 SCC online NCLAT 6
HELD THAT : The business decisions taken by the CoC in exercise of its commercial wisdom are non-justiciable by the NCLT or the NCLAT. Thus, the CoC is vested with a duty of trust and care, and that its decision on commercial matters is nonjusticiable.
“176. Given that the terms used in Section 60(5)(c) are of wide import, as recognised in a consistent line of authority, we hold that NCLT was empowered to restrain the appellant from terminating PPA. However, our decision is premised upon a recognition of the centrality of PPA in the present case to the success of CIRP, in the factual matrix of this case, since it is the sole contract for the sale of electricity which was entered into by the corporate debtor. In doing so, we reiterate that NCLT would have been empowered to set aside the termination of PPA in this case because the termination took place solely on the ground of insolvency. The jurisdiction of NCLT under Section 60(5)(c) of IBC cannot be invoked in matters where a termination may take place on grounds unrelated to the insolvency of the corporate debtor. Even more crucially, it cannot even be invoked in the event of a legitimate termination of a contract based on an ipso facto clause like Article 9.2.1(e) herein, if such termination will not have the effect of making certain the death of the corporate debtor. As such, in all future cases, NCLT would have to be wary of setting aside valid contractual terminations which would merely dilute the value of the corporate debtor, and not push it to its corporate death by virtue of it being the corporate debtor’s sole contract (as was the case in this matter’s unique factual matrix).
M/S. VISISTH SERVICES LIMITED v. S. V. RAMANI
Decision dated: 11 January 2022
Citation: 2022 SCC Online NCLAT 24
HELD THAT : A ‘going concern sale’ on an ‘as is where basis’ does not dissolve the corporate debtor, rather, it forms a part of the liquidation estate wherein the entire business, including assets and liabilities, including all contracts, licences, concessions, agreements, benefits, privileges, rights, or interests, is transferred to the purchaser. Therefore, it was concluded that the sale of a company as a ‘going concern’ means sale of both its assets and liabilities if it is stated on ‘as is where is basis’.
“i). The Liquidator shall issue fresh invitation to the bidder to provide balance sale consideration within such time as per clause (12) of Schedule I of Regulation 33.
ii). In case of payment of the full amount the liquidator shall execute certificate of sale or sale deed to transfer the assets in the manner specified in the terms of sale as per bidding document following clause (13) of the Schedule I of Regulation 33; iii). In case of failure to pay the balance sale consideration he is at the liberty to cancel the sale in favour of the bidder by forfeiting the EMD and the amount paid towards the price of biding document and to proceed with sale as per Regulation 32-A; (Emphasis Supplied)
(1) Notwithstanding anything to the contrary contained under the Companies Act 2013, any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal.
(2) Every appeal under sub-section (1) shall be filed within thirty days before the National Company Law Appellate Tribunal:
Provided that the National Company Law Appellate Tribunal may allow an appeal to be filed after the expiry of the said period of thirty days if it is satisfied that there was sufficient cause for not filing the appeal, but such period shall not exceed fifteen days.
(3) An appeal against an order approving a resolution plan under section 31 may be filed on the following grounds, namely:—
(i) the approved resolution plan is in contravention of the provisions of any law for the time being in force.
(ii) there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period.
(iii) the debts owed to operational creditors of the corporate debtor have not been provided for in the resolution plan in the manner specified by the Board.
(iv) the insolvency resolution process costs have not been provided for repayment in priority to all other debts; or
(v) the resolution plan does not comply with any other criteria specified by the Board.
(4) An appeal against a liquidation order passed under section 33, or sub-section (4) of section 54L, or sub-section (4) of section 54N, may be filed on grounds of material irregularity or fraud committed in relation to such a liquidation order.
(5) An appeal against an order for initiation of corporate insolvency resolution process passed under sub-section (2) of section 54-O may be filed on grounds of material irregularity or fraud committed in relation to such an order.
For the primary issue, while relying upon Regulation 32A of the IBBI (Liquidation Process) Regulations, 2016 and the IBBI Discussion Paper dated 27.04.2019 on the corporate liquidation process, the NCLAT held that as per Regulation 32(e) of the IBBI (Liquidation Process) Regulations, 2016, a ‘going concern sale’ on an ‘as is where basis’ does not dissolve the corporate debtor, rather, it forms a part of the liquidation estate wherein the entire business, including assets and liabilities, including all contracts, licences, concessions, agreements, benefits, privileges, rights or interests, is transferred to the purchaser.
Sale of Assets, etc.
The liquidator may sell-
(a) an asset on a standalone basis.
(b) the assets in a slump sale.
(c) a set of assets collectively.
(d) the assets in parcels.
(e) the corporate debtor as a going concern; or
(f) the business(s) of the corporate debtor as a going concern:
Provided that where an asset is subject to security interest, it shall not be sold under any of the clauses (a) to (f) unless the security interest therein has been relinquished to the liquidation estate.
Sale as a going concern.
(1) Where the committee of creditors has recommended sale under clause (e) or (f) of regulation 32 or where the liquidator is of the opinion that sale under clause (e) or (f) of regulation 32 shall maximise the value of the corporate debtor, he shall endeavour to first sell under the said clauses.
(2) For the purpose of sale under sub-regulation (1), the group of assets and liabilities of the corporate debtor, as identified by the committee of creditors under sub-regulation (2) of regulation 39C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 shall be sold as a going concern.
(3) Where the committee of creditors has not identified the assets and liabilities under sub-regulation (2) of regulation 39C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the liquidator shall identify and group the assets and liabilities to be sold as a going concern, in consultation with the consultation committee.
(4) If the liquidator is unable to sell the corporate debtor or its business under clause (e) or (f) of regulation 32 within ninety days from the liquidation commencement date, he shall proceed to sell the assets of the corporate debtor under clauses (a) to (d) of regulation 32.
Therefore, it was concluded that the sale of a company as a ‘going concern’ means sale of both its assets and liabilities if it is stated on ‘as is where is basis’.
As for the second issue, the NCLAT held that the appellant accepted all the conditions, and that it was a case of concluded contract where no refund of EMD amount is possible. The NCLAT particularly noted the terms and conditions and observed that after paying the EMD amount and accepting the bid, the appellant cannot now say that it was not a concluded contract. If the appellant had had any apprehensions and conditions about the liabilities, the appellant could have exercised their choice of not participating in the bid.
Having participated, the appellant cannot propose certain conditions after their participation and putting in their bid. In essence, the appellant/ bidder cannot wriggle out of the contractual obligations arising out of acceptance of his bid, and thereby, the appellant cannot be entitled to the EMD amount, or the amount paid towards the bid purchase document, if he does not comply with the terms of the contract.
Thus, the appeal failed and was dismissed.
1. The Hon’ble Supreme Court of India in ‘Pawan Kumar Agarwal Vs. Association of Management Studies and Anr.; Meerut Development Authority 2009(6) SCC 171 has observed in Paragraph 26 as follows:
“26. A tender is an offer. It is something which invites and is communicated to notify acceptance. Broadly stated it must be unconditional; must be in the proper form, the person by whom tender is made must be able to and willing to perform his obligations. The terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract. However, a limited judicial review may be available in cases where it is established that the terms of the invitation to tender were so tailor made to suit the convenience of any particular person with a view to eliminate all others from participating in the bidding process.
2. The Hon’ble Apex Court in ‘Punjab Urban Planning and Development Authority and Ors. Vs. Raghu Nath Gupta and Ors’ (2012) 8 SCC 197 has referred to another Judgement of the Hon’ble Supreme Court in ‘UT Chandigarh Admn. Vs. Amarjeet Singh’, (2012) 8 SCC 202 and observed as follows:
“The Apex Court after having referred to the Judgement of this Court in Shantikunj Investment Case, this Court held as follows:
“19. ….In a public auction of sites, the position is completely different. A person interested can inspect the sites offered and choose the site which he wants to acquire and participate in the auction only in regard to such site. Before bidding in the auction, he knows or is in a position to ascertain, the condition and situation of the site. He knows about the existence or lack of amenities. The auction is on `as-is-where-is-basis’. With such knowledge, he participates in the auction and offers a particular bid. There is no compulsion that he should offer a particular price…..
Where there is a public auction without assuring any specific or amenities, and the prospective purchaser/lessee participates in the auction after having an opportunity of examining the site, the bid in the auction is made keeping in view the existing situation, position, and condition of the site. If all amenities are available, he would offer a higher amount. If there are no amenities, or if the site suffers from any disadvantages, he will offer a lesser amount, or may not participate in the auction. Once with open eyes, a person participates in an auction, he cannot thereafter be heard to say that he would not pay the balance of the price/premium or the stipulated interest on the delayed payment, or the ground rent, on the ground that the site suffers from certain disadvantages or on the ground that amenities are not provided.”
17. We are of the view that the judgment in Amarjeet Singh is a complete answer to the various contentions raised by the respondents. We may reiterate that after having accepted the offer of the commercial plots in a public auction with a superimposed condition i.e. on “asis-where-is” basis and after having accepted the terms and conditions of the allotment letter, including instalment facility for payment, the respondents cannot say that they are not bound by the terms and conditions of the auction notice, as well as that of the allotment letter. On facts, we have found that there was no inordinate delay on the part of PUDA in providing those facilities.
18. We are of the view that the High Court was not justified in holding that the respondents are not liable to pay the interest, penal interest and penalty for the period commencing from 1-6-2001 to 31-12-2002 for the belated payment of instalments. Consequently, the judgments of the High Court are set aside, and the writ petitions would stand dismissed and the appeals would stand allowed as above. There will be no order as to costs.” (Emphasis Supplied)
CONCLUSION: from above discussion and decision of Apex Court it is clear that a Bidder cannot wriggle out of the contractual obligations arising out of acceptance of his Bid and not entitled to refund of EMD amount and the amount paid towards Bid-purchase documents if does not comply with the terms and conditions of the Bid. The court further approve the decision of NCLAT that in case of sale of a company as a ‘going concern’ means sale of both its assets and liabilities if it is stated on ‘as is where is basis’.
M/S CONSOLIDATED CONSTRUCTION CONSORTIUM LIMITED Vs. M/S HITRO ENERGY SOLUTIONS PRIVATE LIMITED
Citation: 2022 SCC Online 142
In a recent judgment, the Supreme Court of India, while keeping up the efforts of plugging various loopholes in Insolvency & Bankruptcy Code, 2016 (“Code”), decided an interesting legal issue relating to the scope of Section 5(20) of the Code, which provides the definition of “operational creditor”.
The Apex Court, in the case of Consolidated Construction Consortium Limited vs. Hitro Energy Solutions Private Limited, was seized of the following legal questions:
The above judgment is another step forward towards filling in the loopholes in the Insolvency Laws by the Supreme Court of India. The Court settled another controversy relating to the operation debt and operational creditors by clarifying that the persons who receive any goods or services, are also operational creditors and not only the suppliers or service providers. It was also reiterated that in order to attract the provisions of the Code, the debt should not only be due, but should also be payable.
SURINDER SINGH DESWAL @ COL S S & ORS VS VIRENDER GANDHI (2020)
Criminal Appeal No. 1936-1963 of 2019
The Supreme Court of India
As you are aware that Negotiable Instruments Act,1881 is an Act to define and amend the law relating to Promissory Notes, Bills of Exchange and Cheques.
“PROMISSORY NOTE.”—A “Promissory note” is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.
“CHEQUE”. —A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.
It means a negotiable instrument is a piece of paper that entitles a person to pay a sum of money that is transferable from one person to another by endorsement and delivery. The main objective before introducing the Negotiable Instrument Act, 1881 is to legalize the system under which these instruments can deliver from one person to another the same as that of ordinary goods.
These instruments help in avoiding the carriage of hefty amounts and reduce the risk of theft or robbery. The Negotiable Instrument Act was amended and introduced two new provisions, Section 143A and Section 148 to deal with the delay tactics of drawers of dishonored cheque due to easy filing of the appeal and obtaining stay on the proceedings which leads to the enforcement of Section 138 of the Act.
The amendment came into force on 1st September 2018.
Section 143A and Section 148 are discussed in detail.
The Negotiable Instrument Act, 1881 came into existence to define and amend the laws related to the promissory notes, bills of exchange, and cheques. In India, there is always a problem of pending cases in the court and almost 20% of cases are related to the cheque dishonor dispute under Section 138 of the Negotiable Instrument Act, 1881.
The Central government through the Negotiable Instrument (Amendment) Act of 2018 has inserted several new provisions. The amendment of the Act helps in addressing the issues of undue delay, efficacy, and efficiency in the case related to the dishonor of cheques.
From Section 143A and 148 of the Act, the court has the power to direct the drawer to provide interim compensation during the pendency of criminal complaints and civil appeals. The recovery of fine shall be the same as under Section 421 of the Code of Criminal Procedure, 1973, and in case of acquittal court is empowered to direct the complainant to repay the amount as per the interest rate prescribed by the Reserve Bank of India (RBI) .
SECTION 143A OF NIA,1881 – Power to direct interim compensation-
(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), the Court trying an offence under Section 138 may order the drawer of the cheque to pay interim compensation to the complainant-
(a) in a summary trial or summon case, where the drawer pleads not guilty to the accusation made in the complaint; and
(b) in any other case, upon framing charges.
(2) The interim compensation under sub-section (1) shall not exceed twenty per cent of the amount of the cheque.
(3) The interim compensation shall be pad within sixty days from the date of the order under sub-section (1), or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the drawer of the cheque.
(4) If the drawer of the cheque is acquitted, the Court shall direct the complainant to repay to the drawer the amount of interim compensation, with interest at the bank rate as published by the Reserve Bank of India, prevalent at the beginning of the relevant financial years, within sixty days from the date of the order, or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the complainant.
(5) The interim compensation payable under this section may be recovered as if it were a find under section 421 of the Code of Criminal Procedure, 1973 (2 of 1974). (6) The amount of fine imposed under section 138 or the amount of compensation awarded under section 357 of the Code of Criminal Procedure, 1973 (2 of 1974).
This Section talks about the interim compensation at the appellant stage. As per Section 148, the appellate court may direct the drawer in an appeal against conviction under Section 138 to deposit before the appellate court a part of fine or compensation as an award by the trial court which shall be a minimum of 20% of the fine or compensation within 60 days from the date of order passed by the appellant court or further within the period of not exceeding 30 days directed by the appellant on showing sufficient cause by the drawer. It provides the deposit of sum which shall be a minimum of 20% of fine or compensation awarded by the trial court has retrospective effect.
The first case to discuss this issue is Ginni Garments & another v. Sethi Garments (2019), the Punjab and Haryana High Court held that Section 143A of the Negotiable Instrument Act has prospective effect whereas Section 148 has retrospective effect and will apply to the pending appeals on the date of enforcement of the provision.
That’s why this Section should be prospective as it aware the accused of such consequences in advance and it cannot be applied to the cases where the trial is going on when this provision is not existing.
The Hon’ble Supreme Court in G. J. Raja Vs. Tejraj Surana, has examined the amended Section 143A of the Act, 1881 and held that it is prospective effect and not retrospective effect. The relevant para of the judgment is reproduced below: –
“19. It must be stated that prior to the insertion of Section 143-A in the Act there was no provision on the statute book whereunder even before the pronouncement of the guilt of an accused, or even before his conviction for the offence in question, he could be made to pay or deposit interim compensation. The imposition and consequential recovery of fine or compensation either through the modality of Section 421 of the Code or Section 357 of the code could also arise only after the person was found guilty of an offence.
That was the status of law which was sought to be changed by the introduction of Section 143A in the Act. It now imposes a liability that even before the pronouncement of his guilt or order of conviction, the accused may, with the aid of State machinery for recovery of the money as arrears of land revenue, be forced to pay interim compensation. The person would, therefore, be subjected to a new disability or obligation. The situation is thus completely different from the one which arose for consideration in ESI Corpn. v. Dwarka Nath Bhargwa, (1997) 7 SCC 131.
23. In the ultimate analysis, we hold Section 143A to be prospective in operation and that the provisions of said Section 143A can be applied or invoked only in cases where the offence under Section 138 of the Act was committed after the introduction of said Section 143A in the statute book. Consequently, the orders passed by the Trial Court as well as the High Court are required to be set aside. The money deposited by the Appellant, pursuant to the interim direction passed by this Court, shall be returned to the Appellant along with interest accrued thereon within two weeks from the date of this order.”
Therefore, the word “may” be treated as “shall” and is not discretionary, but of directory in nature, therefore, the learned Judicial Magistrate First Class has rightly passed the interim compensation in favour of the complainant.
PLEASE NOTE THAT: The Hon’ble High Court in (Rajesh Soni Vs Mukesh Verma (Chhattisgarh High Court) present facts of the case after interpreting the word ‘may’ have held that granting of 20% compensation under Section 143A of the Negotiable Instruments Act, 1881 is totally valid as the said provision is not discretionary in nature.
1. As held by Hon’ble Madras High Court in G.R. Enterprises & another Vs. P. Anbazhagan, and drew attention of this Court towards para 18 of the judgment, which reads as under: –
“18. A careful reading of the order passed by the Court below shows that the Court below has focused more on the issue of the prospective / retrospective operation of the amendment. The Court has not given any reason as to why it is directing the accused persons to pay an interim compensation of 20% to the complainant. As held by this Court, the discretionary power that is vested with the trial Court in ordering for interim compensation must be supported by reasons and unfortunately in this case, it is not supported by reasons. The attempt made by the learned counsel for the respondent to read certain reasons into the order, cannot be done by this Court, since this Court is testing the application of mind of the Court below while passing the impugned order by exercising its discretion and this Court cannot attempt to supplement it with the reasons argued by the learned counsel for the respondent.”
2. The Hon’ble Supreme Court, while examining ‘may’ used (in Section 143A) ‘shall’ and have effect of directory in nature in case of Bachahan Devi & another Vs. Nagar Nigam, Gorakhpur & another, which reads as under: –
“18. It is well-settled that the use of word “may” in a statutory provision would not by itself show that the provision is directory in nature. In some cases, the legislature may use the word ‘may’ as a matter of pure conventional courtesy and yet intend a mandatory force. In order, therefore, to interpret the legal import of the word “may”, the court has to consider various factors, namely, the object and the scheme of the Act, the context and the background against which the words have been used, the purpose and the advantages sought to be achieved by the use of this word, and the like. It is equally well-settled that where the word ‘may’ involve a discretion coupled with an obligation or where it confers a positive benefit to a general class of subjects in a utility Act, or where the court advances a remedy and suppresses the mischief, or where giving the words directory significance would defeat the very object of the Act, the word ‘may’ should be interpreted to convey a mandatory force. As a general rule, the word “may” be permissive and operative to confer discretion and especially so, where it is used in juxtaposition to the word “shall”, which ordinarily is imperative as it imposes a duty. Cases however, are not wanting where the words “may” “shall”, and “must” are used interchangeably. In order to find out whether these words are being used in a directory or in a mandatory sense, the intent of the legislature should be looked into along with the pertinent circumstances.
19. The distinction of mandatory compliance or directory effect of the language depends upon the language couched in the statute under consideration and its object, purpose and effect. The distinction reflected in the use of the word `shall’ or ‘may’ depends on conferment of power. Depending upon the context, ‘may’ does not always mean may. ‘May’ is a must for enabling compliance of provision but there are cases in which, for various reasons, as soon as a person who is within the statute is entrusted with the power, it becomes [his] duty to exercise [that power]. Where the language of statute creates a duty, the special remedy is prescribed for non-performance of the duty.”
20. If it appears to be the settled intention of the legislature to convey the sense of compulsion, as where an obligation is created, the use of the word “may” will not prevent the court from giving it the effect of Compulsion or obligation. Where the statute was passed purely in public interest and that rights of private citizens have been considerably modified and curtailed in the interests of the general development of an area or in the interests or removal of slums and unsanitary areas. Though the power is conferred upon the statutory body by the use of the word “may” that power must be construed as a statutory duty. Conversely, the use of the term ‘shall’ may indicate the use in optional or permissive sense. Although in general sense ‘may’ is enabling or discretional and “shall is obligatory, the connotation is not inelastic and inviolate.” Where to interpret the word “may” as directory would render the very object of the Act as nugatory, the word “may must mean ‘shall’.
21. The ultimate rule in construing auxiliary verbs like “may and “shall” is to discover the legislative intent; and the use of words `may’ and ‘shall’ is not decisive of its discretion or mandates. The use of the words “may” and `shall’ may help the courts in ascertaining the legislative intent without giving to either a controlling or a determinating effect. The courts have further to consider the subject matter, the purpose of the provisions, the object intended to be secured by the statute which is of prime importance, as also the actual words employed.”
CONCLUSION: from above discussion and judgements of various High Courts it is clear that the provisions of Section 143A of the NIA,1881 will be applicable prospectively and provisions of Section 148 are applicable retrospectively. It is important to note that the power given to the court to award Interim Compensation to the applicant is Directory and not Discretionary. Since NIA,1881 had been implemented to create a culture of trust and honesty in business transactions while using negotiable instruments by the parties. Any act which falls under provisions of Section 138 of NIA ,1881 is a criminal offence and culprit may be punishable with an imprisonment of two years or double the amount of cheque involved or with both.
PROHIBITION OF BENAMI PROPERTY TRANSACTIONS ACT, 1988.
V. Vasanthakumar v. Union of India
Madras High Court
W.P.No.13429 of 2018 – Dated: 1 April, 2022
(1) A person shall not be qualified for appointment as the Chairperson or a Member of the Adjudicating Authority unless he, –
(a) has been a member of the Indian Revenue Service and has held the
post of Commissioner of Income-tax or equivalent post in that Service; or
(b) has been a member of the Indian Legal Service and has held the post
of Joint Secretary or equivalent post in that Service.
(2) The Chairperson and other Members of the Adjudicating Authority shall be appointed by the Central Government in such manner as may be prescribed.
(3) The Central Government shall appoint the senior most Member to be the Chairperson of the Adjudicating Authority.
(1) A person shall not be qualified for appointment as Chairperson of the Appellate Tribunal unless he is a sitting or retired Judge of a High Court, who has completed not less than five years’ of service.
(2) A person shall not be qualified for appointment as a Member unless he –
(a) in the case of a Judicial Member, has been a Member of the Indian Legal Service and has held the post of Additional Secretary or equivalent post in that Service;
(b) in the case of an Administrative Member, has been a Member of the Indian Revenue Service and has held the post of Chief Commissioner of Income tax or equivalent post in that Service
(3) No sitting Judge of a High Court shall be appointed under this section except after consultation with the Chief Justice of the High Court.
(4) The Chairperson or a Member holding a post as such in any other Tribunal, established under any law for the time being in force, in addition to his being the Chairperson or a Member of that Tribunal, may be appointed as the Chairperson or a Member, as the case may be, of the Appellate Tribunal under this Act.
Equality before law The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India Prohibition of discrimination on grounds of religion, race, caste, sex or place of birth.
226. Power of High Courts to issue certain writs
(1) Notwithstanding anything in Article 32 every High Court shall have powers, throughout the territories in relation to which it exercise jurisdiction, to issue to any person or authority, including in appropriate cases, any Government, within those territories directions, orders or writs, including writs in the nature of habeas corpus, mandamus, prohibitions, quo warranto and certiorari, or any of them, for the enforcement of any of the rights conferred by Part III and for any other purpose.
(2) The power conferred by clause ( 1 ) to issue directions, orders or writs to any Government, authority or person may also be exercised by any High Court exercising jurisdiction in relation to the territories within which the cause of action, wholly or in part, arises for the exercise of such power, notwithstanding that the seat of such Government or authority or the residence of such person is not within those territories
(3) Where any party against whom an interim order, whether by way of injunction or stay or in any other manner, is made on, or in any proceedings relating to, a petition under clause ( 1 ), without;
(a) furnishing to such party copies of such petition and all documents in support of the plea for such interim order; and
(b) giving such party an opportunity of being heard, makes an application to the High Court for the vacation of such order and furnishes a copy of such application to the party in whose favour such order has been made or the counsel of such party, the High Court shall dispose of the application within a period of two weeks from the date on which it is received or from the date on which the copy of such application is so furnished, whichever is later, or where the High Court is closed on the last day of that period, before the expiry of the next day afterwards on which the High Court is open; and if the application is not so disposed of, the interim order shall, on the expiry of that period, or, as the case may be, the expiry of the aid next day, stand vacated.
(4) The power conferred on a High Court by this article shall not be in derogation of the power conferred on the Supreme court by clause ( 2 ) of Article 32.
Petition filed under Article 226 of the Constitution of India praying for a Writ of Declaration to declare Section 9 of the Prohibition of Benami Property Transactions Act, 1988 (Act 45 of 1988, as amended by the Benami Transactions (Prohibition) Amendment Act, 2016) pertaining to qualification of appointment of Judicial Member and Section 32(2)(a) of the Prohibition of Benami Property Transactions Act, 1988 (Act 45 of 1988 as amended by the Benami Transactions (Prohibition) Amendment Act, 2016) as unconstitutional as it runs counter to the doctrine of Separation of Powers, which is the basic structure and in violation of Article 14 of the Constitution of India.
“120. We may tabulate the corrections required to set right the defects in Parts I-B and I-C of the Act:
(vii) Only clauses (c), (d), (e), (g), (h), and the latter part of clause (f) in sub-section (3) of Section 10-FD and officers of civil services of the rank of the Secretary or Additional Secretary in the Indian Company Law Service and the Indian Legal Service can be considered for purposes of appointment as technical members of the Tribunal.
(viii) Instead of a five-member Selection Committee with the Chief Justice of India (or his nominee) as Chairperson and two Secretaries from the Ministry of Finance and Company Affairs and the 5 Secretary in the Ministry of Labour and the Secretary in the Ministry of Law and Justice as members mentioned in Section 10- FX, the Selection Committee should broadly be on the following lines:
(a) Chief Justice of India or his nominee— Chairperson (with a casting vote);
(b) A Senior Judge of the Supreme Court or Chief Justice of High Court—Member; (c) Secretary in the Ministry of Finance and Company Affairs—Member; and (d) Secretary in the Ministry of Law and Justice —Member. ….
(xii) The administrative support for all Tribunals should be from the Ministry of Law and Justice. Neither the Tribunals nor their members shall seek or be provided with facilities from the respective sponsoring or parent Ministries or Department concerned….” [emphasis supplied]
“9.14. The concern expressed by the petitioner is only to Section 85(3)(a), which deals with appointment of judicial member. We find considerable force in the submission made. Both in S.P. Sampath Kumar v. Union of India ((1987) 1 SCC 124) and Union of India v. R.Gandhi, President, Madras Bar Association, ((2011) 10 SCC 1) this issue has been addressed. In fact, a specific direction has also been issued in R. Gandhi’s case in this regard. However high one may be in holding an Executive post, the role of a judicial member, being different, such a person 6 cannot be asked to exercise the function particularly as a Judicial Member without any experience. The matter can be looked at a very different angle as well. Even an experienced lawyer with specialised knowledge and expertise is treated only as a technical member under Section 85(4)(b). If that is the case, merely because someone holds the post in a Government Department, he cannot be bestowed with the eligibility of being appointed as a Judicial Member sans experience. Also such a person cannot be treated on par with a Judicial Officer. We do not understand as to how an Officer working with the Executive would satisfy the requirement of legal training and experience. In other words, when such an Officer cannot become a judge, he cannot also act in the said capacity. We only reiterate the reasoning assigned by the Supreme Court in this regard. Therefore, we have no hesitation in holding that Section 85(3)(a) is unconstitutional, particularly, in the light of the directions (i) and (ii) rendered in Union of India v. R. Gandhi, President, Madras Bar Association, ((2011) 10 SCC 1). Insofar as Section 85(3)(b) is concerned, there is neither any challenge nor do we find any unconstitutionality in it.” [emphasis supplied]
Osians Connoisseurs of Art Pvt. Ltd. v/s SEBI & Another-Civil Appeal No. 19936 of 2017, 77 of 2018- Decided On, 12 February 2020
Hon’ble Supreme Court of India
Sub: “ Collective Investment Scheme” floated by a private trust is illegal.
“29. In view of the foregoing, I, in exercise of the powers conferred upon me under section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11 and 11B thereof and Regulation 65 of the SEBI (Collective Investment Scheme) Regulation, 1999, hereby issue the following directions.
a. Yatra Art fund shall abstain from collecting any money from the investors or launch or carry out any Collective Investment Schemes including the scheme which have been identified as a Collective Investment Scheme in this Order.
b. Yatra Art Fund is directed to refund the entire monies collected by it under its scheme to all the investors along with the returns at the rate of 10% per annum, within a period of three months from the date of this Order and thereafter, within a period of fifteen days, submit a winding up and repayment report to SEBI in accordance with the SEBI (Collective Investment Schemes) Regulations, 1999, including the trail of funds claimed to be refunded, bank account statements indicating refund to the investors and receipt from the investors acknowledging such refunds.
c. Yatra Art Fund is restrained from accessing the securities market and are prohibited from buying, selling or otherwise dealing in securities market for a period of four (4) years.
d. Yatra Art Fund is also directed to immediately submit the complete and detailed inventory of the assets owned by Yatra Art Fund.
e. In the event of failure by Yatra Art Fund to comply with the above directions, the following actions shall follow:
For the reasons stated in our order in Appeal No. 62 of 2013 decided on October 13, 2015 the present appeals are disposed of in terms set out therein”
Having heard Shri K.V. Vishwanathan, learned senior counsel appearing for the appellants and Shri C. U. Singh, learned senior counsel appearing for the respondent-SEBI, for some time, it would not be possible to state that the Schemes in the present case would not be Collective Investment Schemes. It is difficult, therefore, to interfere with the concurrent findings made in this behalf by both SEBI and the Appellate Tribunal.
“11 (2) Without prejudice to the generality of the foregoing provisions, the measures referred to therein may provide for-
(c) registering and regulating the working of venture capital funds and collective investment schemes, including mutual funds;”
“11AA. Collective investment scheme.- (1) Any scheme or arrangement which satisfies the conditions referred to in sub-section (2) or sub-section (2A) shall be a collective investment scheme:
Provided that any pooling of funds under any scheme or arrangement, which is not registered with the Board or is not covered under sub-section (3), involving a corpus amount of one hundred crore rupees or more shall be deemed to be a collective investment scheme.
(2) Any scheme or arrangement made or offered by any company under which,-
(i) the contributions, or payment made by the investors, by whatever name called, are pooled and utilized for the purposes of the scheme or arrangement;
(ii) the contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable, from such scheme or arrangement;
(iii) the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors;
(iv) the investors do not have day-to-day control over the management and operation of the scheme or arrangement.
(2A) Any scheme or arrangement made or offered by any person satisfying the conditions as may be specified in accordance with the regulations made under this Act.
(3) Notwithstanding anything contained in sub-section (2) or sub-section (2A), any scheme or arrangement-
(i) made or offered by a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912) or a society being a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State;
(ii) under which deposits are accepted by non-banking financial companies as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934;
(iii) being a contract of insurance to which the Insurance Act, 1938, applies;
(iv) providing for any Scheme, Pension Scheme or the Insurance Scheme framed under the Employees Provident Fund and Miscellaneous Provisions Act, 1952;
(v) under which deposits are accepted under section 58A of the Companies Act, 1956;
(vi) under which deposits are accepted by a company declared as a Nidhi or a mutual benefit society under section 620A of the Companies Act, 1956;
(vii) falling within the meaning of Chit business as defined in clause (e) of section 2 of the Chit Fund Act, 1982;
(viii) under which contributions made are in the nature of subscription to a mutual fund;
(ix) such other scheme or arrangement which the Central Government may, in consultation with the Board, notify, shall not be a collective investment scheme.”
“(h) “Collective Investment Management Company” means a company incorporated under the Companies Act, 1956 and registered with the Board under these regulations, whose object is to organise, operate and manage a collective investment scheme;”
“3. No person other than a Collective Investment Management Company which has obtained a certificate under these regulations shall carry on or sponsor or launch a collective investment scheme.”
Section 11AA of the SEBI Act– It was said that in the year 1995 Section 12(1B) was introduced in the SEBI Act which made it clear that ‘no person can sponsor or cause to be sponsored or carry on or cause to be carried on any collective investment scheme unless a certificate of registration is obtained by him from the Board in accordance with the regulations,’ what is important to be noticed is that this section uses the word “person” whereas in Section 11AA which was introduced by an amendment in the year 1999 and talks about the collective investment scheme it is said that .-
(1) Any scheme or arrangement which satisfies the conditions referred to in sub-section (2) or sub-section (2A) shall be a collective investment scheme.
The court in regard to the contention put by the appellants said that such argument flies in the face of Section 12(1B) and the CIS Regulations particularly Regulation 2(h), which defines a Collective Investment Management Company as “a company formed under the Companies Act of 1956 and registered with the Board under these regulations with the purpose of organizing, operating, and managing a collective investment scheme” and the Regulation 3 of the CIS Regulations states that collective investment scheme can only be carried out, sponsored, or launched by a Collective Investment Management Company that has received a certificate under these regulations.
Therefore it can be said that according to the statutory scheme a collective investment scheme can only be floated by a person in the form of a collective investment management company and not in any other form and this is why, under sub-section 2 of Section 11AA, the term “company” is used instead of “person.” The same is not used in section 12(1B) since it was introduced in the year 1995 whereas the CIS Regulation came in force in 1999. Section 11AA was enacted in 2000.
The court then said that as the statutory scheme has become clear it is also clear that the collective investment scheme of appellants which was carried out through a private Trust, would be in violation of the said Statute and the CIS Regulations making it illegal. Thereby in its opinion the SEBIs order cannot be overturned by the court except the part that has been already overturned by the Appellate Tribunal.
CONSUMER PROTECTION ACT,2019
M/s. Samrudhi Co-operative Housing Society Ltd. vs Mumbai Mahalaxmi Constructions Pvt. Ltd. -(Civil Appeal No. 4000 of 2019)
The Hon’ble Supreme Court of India
An appeal was filed by Samruddhi Co-operative Housing Society Ltd. (‘Appellant’) against Mumbai Mahalaxmi Construction Pvt. Ltd. (‘Respondent’) before the Hon’ble Supreme Court of India arising out of an impugned judgement passed by the Hon’ble National Consumer Dispute Redressal Commission (‘NCDRC’).
The Appellant contention before the Apex Court was that the NCDRC has erred in disposing of the complaint by holding that the complaint is not maintainable as it is not a consumer dispute and is grossly barred by limitation.
The Apex Court allowed the appeal vide its recent judgment dated January 11, 2022 and made various far impacting observations in the appeal.
The Appellant is a co-operative housing society, whereas the Respondent is a real estate construction company. The Appellant entrusted the Respondent to construct ‘A’ and ‘B’ wings in a residential apartment/society owned and managed by the Appellants. The members of the Appellant booked the flats in 1993 and were granted possession in 1997. Before handing over the possession of wings ‘A’ and ‘B’, the Respondent failed to obtain the occupation certificate from the municipal authorities for the flats occupied by the members of the Appellant. Because of this failure on part of the Respondent, individual flat owners/members were not eligible for water and electricity connections and consequently, the members of the Appellant have been subjected to increased rates and charges, i.e., property tax at a rate 25% higher than the normal rate and water charges 50% higher than the normal rate.
The Supreme Court of India discussed two major issues arising out of the appeal filed by the Appellant against the NCDRC’s impugned order:
Issue 1- Whether the complaint filed by the Appellant before the NCDRC was barred by limitation?
Issue 2- Whether the complaint filed by the Appellant is valid and maintainable on account of the Appellant being termed as a ‘consumer’ and Respondent as a ‘service provider’?
To address issue No. 1, the Hon’ble Supreme Court discussed that a continuing wrong occurs when a party continuously breaches an obligation imposed by law or agreement. In terms of the Consumer Protection Act 1986 (“Consumer Act”), a complaint to a consumer forum needs to be filed within two years of the date on which the cause of action has arisen. Further, in terms of Limitation Act 1963, a fresh period of limitation begins to run every moment of time during which the breach continues.
The Apex Court considered section 3 and section 6 of the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management, and Transfer) Act, 1963 (‘MOFA’).
SECTION 3 OF MOFA, imposes certain general obligations on the promoter like making disclosures on the nature of the title to the land, encumbrances, fixture, fittings, etc., and to not grant possession of a flat until an occupancy certification is given by the authorities.
SECTION 6 OF THE MOFA holds the promoter responsible for payments of outgoings till the property is transferred.
The Hon’ble Supreme Court held that both the sections indicate that the promoter has an obligation to provide the OC ( Occupancy Certificate )to the flat owners and pay the relevant charges till such OC has been provided.
Owing to the failure of the Respondent to obtain the OC, the members of the Appellant have been constrained to pay higher charges and taxes to the municipal authorities. The Supreme Court held that the continuous failure on part of the Respondent to obtain the OC is a breach of the obligations prescribed in sections 3 and 6 of MOFA amounting to a continuing wrong.
Hence, the Respondent is liable for its continuing wrongs and the Appellant is entitled to damages arising out of continuing wrong and the complaint is not barred by limitation.
The Hon’ble Supreme Court discussed the nuances of ‘service’ and stated that the Consumer Act “defines a ‘consumer’ as a person that avails of any service for a consideration.
A ‘deficiency’ is defined as the shortcoming or inadequacy in the quality of service that is required to be maintained by law.’
The Court also referred to a few precedents, viz [Wing Commander Arifur Rahman Khan & Others vs. DLF Southern Homes Private Limited and Others and Pioneer Urban Land Infrastructure Limited vs. Govindan Raghavan], where the Supreme Court has ‘held that the failure to obtain an occupancy certificate or abide by contractual obligations amounts to a deficiency in service.’
The Supreme Court held that the Respondent was responsible for transferring the title of the flats to the society along with the OC to the Appellant, and the failure to do so amounts to deficiency in service. Thus, the members of the Appellant are well within their rights as ‘consumers’ to pray for compensation as a recompense for the continuing wrong caused to the Appellant by the Respondent. The appeal was allowed against the impugned judgement of NCDRC and held that the complaint is maintainable.
CONCLUSION: the decision of Apex Court has brough big relief for members of societies to which Occupancy Certificate has not been provided by the builders/ developers. These societies are required to pay high Property as well as water charges from the Municipal Corporation. In many societies builders have transferred the flats to the members of the societies. The decision of Apex Court is clear that non-providing Occupancy Certificate by builder /developer would be considered as deficiency in service and members of such societies will be considered as “ Consumers” under the Consumer Protection Act, 1986.
The information provided in above article does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this article are for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information. The views expressed in above article are personal views of the author and same will not be considered as professional advice. In case of necessity do consult with tax consultants for more understanding and clarity on subject matter.
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