“Higher wisdom has to prevail over better wisdom” is the mantra judges mumble when they are forced to follow a precedent that they don’t quite agree with. However, judges do find ways of getting out of having to follow a judgement of a higher court. The latest salvo on this front is the Third Member judgement in Kanel Oil which shows that a High Court judgement, though superior in status to the Tribunal, may have to yield to the latter. In this case, the Bench was faced with a piquant situation. It had to decide whether an assessee liable to pay Minimum Alternate Tax (“MAT”) under section 115JA of the Act was also liable to pay advance tax under sections 234B and 234C for default in paying advance tax. The issue as such was covered against the assessee by the decision of the Special Bench in Ashima Syntex 117 ITD 1 but the assessee must have been very smug during the hearing because there was a subsequent judgement of the Bombay High Court in Snowcem India 313 ITR 170 which held, following the judgement of the Supreme Court in Kwality Biscuits 284 ITR 434, that assessees paying tax on book profits u/s 115JA were not liable to pay advance tax. The Judicial Member did oblige and decided in favour of the assessee by following the judgement of the Bombay High Court. However, the Accountant Member wrote a detailed dissenting judgement and followed the judgement of the Special Bench. This is how the matter landed up before the Third Member.
Read the rest of this entry »
The twin losses in quick succession on the depreciation front have put depreciation – aficionados in a sense of gloom. First, in Techno Shares & Stocks, they were told in no uncertain terms that their esoteric arguments on the intangible assets front was far fetched. Second, in Plastiblends, they were told that their gambit to extract maximum deduction u/s 80-IA while postponing the claim for depreciation for later years when the s. 80-IA relief would run out was not going to work.
To be fair to the aficionados, on the first part, the Legislature did lead them up the garden path by promising depreciation on virtually everything under the sun. The draftsman, probably having a moment of “goodwill” towards the taxpayers, drafted the term “intangible assets” to include not only all the known intangible assets like “knowhow, patents, copyrights, trademarks, licences and franchises” but also “any other business or commercial rights of similar nature”. Enthused by the seemingly unlimited scope of the definition, the aficionados set off a flurry of claims – on goodwill, non-compete fees, stock exchange card – there was no stopping them – if it looked intangible, it was depreciable!
The aficionados also displayed a remarkable sense of alacrity. When their argument that a stock exchange card is not a capital asset for purposes of wealth-tax and capital gains was successively thrown out by the Special Bench in Jagan Nath Sanyal 72 ITD 1 (Del) (SB) and R. M. Valliappan 103 ITD 63 (Che) (SB), they quickly recovered their wits and used the same arguments that had been used to decide against them to urge that they were entitled to depreciation. After all, if a stock exchange card is an “asset” liable to wealth-tax and is also a “capital asset” liable for capital gains, then surely it is also an “intangible asset” for purposes of depreciation, they argued.
Read the rest of this entry »
Circular No. 23 dated 23rd July 1969 held the fort valiantly for 40 years but in the end met an unceremonious death.
The Circular, issued in an era where fair play was still respected, was a masterful analysis of section 9 which provided a tax liability on non-residents from income accruing or arising through or from business connection in India.
The Circular was essentially a series of illustrative instances and guidelines designed to guide befuddled taxpayers from the labyrinth of tax laws. Written in a simple and easy-to-understand style, it told you in clear terms whether your transaction was taxable or not and the reasons for the same.
The Circular had its share of admirers. Picked up for scrutiny … minutely examined … dissected … on a number of occasions …. by the finest legal brains … it still held up and came up on top! There is a long list of judgements which endorsed the correctness of the interpretation of section 9 made in the Circular … Morgan Stanley 292 ITR 416 (SC), SET Satellite (Singapore) 11 DTR 313 (Bom) / 173 TM 475, Gulf Oil (Great Britain) Ltd. 108 ITR 874 (Bom.) and Amadeus Global 113 TTJ 767 (Del.) … the list goes on.
Read the rest of this entry »
The decision of the President of the ITAT to stay hearing of appeals involving Daga Capital 119 TTJ 289 (Mum) (SB) has provided temporary reprieve to beleaguered assesses reeling under the twin losses of Daga Capital and Cheminvest. In Daga Capital, it was held that Rule 8D though inserted vide notification No. 45/2008 dated 24th March 2008 would apply to pending matters as well. Though the Special Bench was not concerned with the mechanics of Rule 8D, its ruling cast a gloom because Rule 8D, if literally applied, can result in the quantum of disallowance exceeding the quantum of exempt income! Of course, the correct interpretation, according to some experts, is that Rule 8D is meant as a measure of last resort only; i.e., when it is not possible to work out the disallowance correctly having regard to the accounts.
Daga Capital came close to being referred to a 5 Member Bench for reconsideration. In GE Capital, the Bench fairly acknowledged that at the time of hearing, its initial impression was to write a reference to the President for constituting a larger Bench though it stopped itself because an appeal had already been filed in the Bombay and Delhi High Courts against Daga Capital and as per the decision of the President in Star India a reference to a larger Bench cannot be made when the High Court is seized of the issue. It, however, was considerate enough to direct that the appeals be blocked for 6 months or till the disposal of appeal by the Bombay High Court in Daga Capital whichever was earlier.
Cheminvest added to the pall of gloom by holding that the disallowance under section 14A has to be made even if assessee has no tax-free income in the year.
Read the rest of this entry »
