Dear Patrons,

The year 2022 will be remembered forever in the tax jurisprudence primarily for Supreme Court judgments on - Reassessment & Charitable Institutions. There were several other Supreme Court judgments that left a lasting impression viz., Apex Labs, Wipro, Checkmate, etc. It was indeed an extraordinary year as the Apex Court gave quietus to long-pending issues affecting the industries at large. Taxsutra Database presents 27 rulings by the Supreme Court to sum up the distance we have traversed on myriad legal issues as we look forward to finality on numerous other questions pending before the Supreme Court. With devoted tax benches, it cannot be gainsaid that the day of harmony in tax law will come sooner than later. 

Flashback 2022 - An Eventful Year 'for the Revenue'

 

1) SC: Substantive right to opt out under Sec.10B(8) warrants strict & timely compliance -SC allows Revenue’s appeal against Wipro Ltd., holds that to opt out of exemption under Section 10B, the twin conditions under Section 10B(8) are required to be satisfied mandaotrily: (i) furnishing a declaration before the Assessing Officer and (ii) declaration to be filed before the due date of filing the return of income under Section 139(1); Thus, sets aside the Karnataka HC ruling that took a contrary view; As regards Assessee’s contention of stare decisis on the basis that since the SLP preferred against the Delhi HC ruling in Moser Baer was dismissed, Revenue cannot be permitted to take a contrary view, SC observes that the SLP is dismissed owing to low tax effect, whereas the question of law was kept open; Thus, holds that withdrawal of the SLP cannot be held against the Revenue; SC observes that the wordings of Section 10B are clear and unambiguous and opines that “in our view, both the conditions to be satisfied are mandatory. It cannot be said that one of the conditions would be mandatory and the other would be directory, where the words used for furnishing the declaration to the assessing officer and to be furnished before the due date of filing the original return of income under sub-section…….Click here to read and download SC Judgment.

 

2) SC: Employees' foreign travel 'elephant in the room'; Rejects SBI's bona fide mistake plea - SC dismisses SBI's appeal against Delhi HC rulingby rejecting the plea of bona fide mistake of not deducting tax at source on LTC for traveling to an Indian destination involving a foreign journey; Holds that SBI as an employer was fully in a position to calculate the ‘estimated income’ of its employees since the required information was available on record; SC observes that the legal provisions contained in Rule 2B and Section 10(5) prescribe that “the air fare between the two points, within India will be given and the LTC which will be given will be of the shortest route between these two places, which have to be within India. A conjoint reading of the provisions discussed herein with the facts of this case cannot sustain the argument of the appellant that the travel of its employees was within India and no payments were made for any foreign leg involved.”; SC quips, “We do not want to get into the role of the travel agencies and the present dynamics of air fare, but it is difficult for us to accept that a person will avail foreign tour without paying any price for it. We leave it at that.”; SC takes note of the fact that..………Click here to read and download SC Judgment.

 

3) SC: Lays down law on charitable trusts' exemption; Interprets 'General Public Utility', discards 'predominant object' test - Tracing the history of tax exemptions allowed to charitable trusts over the years, a three judges bench of the Supreme Court, in a comprehensive 149 pages judgment, deals with the concept of “advancement of any other object of general public utility” under Section 2(15) of Income tax Act; Referring to a catena of decisions and placing special emphasis on the Constitution Bench judgment in Surat Art Silk which propounded 'predominant object' principle; SC observes, "The decision in Surat Art Silk needs careful scrutiny."; By analysing the amendments made by Finance Acts 2008, 2009, 2012 & 2015 to the provisions dealing with charitable trusts, SC quips that in the absence of any light being thrown by Statements or Objects and Reasons or Notes or Clauses, the Court would have to look at the speeches in Parliament, to discern the rationale of the amendments; In this context, Apex Court observes…….....Click here to read and download SC Judgment.

 

4) SC: Construes ‘solely’ under Sec.10(23C) strictly & prospectively for educational institutions; Overrules Queens Education Society - SC, in the batch of appeals pertaining to educational institutions, overrules Division Bench rulings in Queens Education Societyand American Hotels on the interpretation of the word ‘solely’ occurring in Section 10(23C) where 'predominant object' test laid down by the Constitution Bench ruling in Surat Art Silk was followed; SC holds that the education institutions shall 'solely’ engage in education or educational activities, and not engage in any activity of profit, means that such institutions ‘cannot’ have objects which are unrelated to education; SC dismisses Assessees’ appeals against denial of registration under Section 10(23C) by Andhra Pradesh HC and holds that their claim for approval or registration will have to be considered in the light of subsequent events, if any, disclosed in fresh applications made in that regard; SC opines that since the present judgment has departed from the previous rulings regarding the meaning of the term ‘solely’, in order to avoid disruption, and to give time to make appropriate changes and adjustments, it would be in the larger interests of society that the present judgment operates prospectively; SC lays down the following principles for the purpose of educational institution's registration under Section 10(23C) ……………Click here to read and download SC Judgment.

 

5) SC: Asset-revaluation credited to Partners' Capital, taxable in 'otherwise' category of Sec.45(4) - SC allows Revenue’s appeal, holds that credit of revalued assets to partner’s capital account shall be construed as ‘transfer’, covered within in the ambit of ‘otherwise’ under Section 45(4); Sets aside Bombay HC orderand restores the assessment of short-term capital gains; Distinguishes coordinate bench ruling in Hind Construction relied upon by the Assessee, explains that the decision was passed prior to insertion of the word ‘otherwise’ in Section 45(4) and thus the coordinate bench had no occasion to consider Section 45(4); SC completely affirms Bombay HC ruling in N. Naik Associates wherein after detailed analysis of the word “otherwise”, it was held that the word “otherwise” used in Section 45(4) takes into its sweep not only the cases of dissolution but also cases of subsisting partners of a partnership, transferring the assets in favour of a retiring partner; Pursuant to reconstitution of the Assessee-Firm, engaged in business of dyeing, printing, manufacturing and trading of clothing, during AY 1993-94, the assets of the firm were revalued and an amount of …………. Click here to read and download SC Judgment.

 

6) SC: Allows Revenue's appeal against education cess allowability as per Sec.40(a)(ii) retrospective amendment - SC allows Revenue’s appeal against Rajasthan HC ruling in Chambal Fertiliserswherein education cess was held to be an allowable expenditure in absence of a bar in Section 40(a)(ii); SC notes Assessee's statement that in view of the amendment by the Finance Act, 2022 with retrospective effect from Apr 1, 2005 to Section 40(a)(ii), the present appeal has to be allowed; SC, in view of Assessee's statement, directs that “the Education cess paid by the respondent-assessee would not be allowed as an expenditure under Section 37 read with 40 (a) (ii) of the Income Tax Act, 1961.”; Assessee also states that it has also paid the tax applicable on the disallowance…………….Click here to read and download SC Judgment.

 

7) SC dismisses Assessees' appeals, holds that deposit of employees' PF and ESI contribution specified under Section 36(1)(va) on or before the due date stipulated in the respective statutes to be an essential condition for claiming deduction; For the years under consideration, Revenue observed that the Assessees made delayed deposit of their employees’ contribution towards the EPF and ESI, considering the due dates under the relevant statutes and regulations; Revenue held that by virtue of Section 36(1)(va) read with Section 2(24)(x), such sums received by the Assessee constituted “income” and as such when paid beyond due date as prescribed under the respective acts, the right to claim such sums as allowable deduction while computing the income was lost forever; Lead Assessee's appeal was dismissed by the ITAT and also by Gujarat HC; SC opines that the leeway granted to Assessees to allow deductions on deposits made beyond the due date, but before the date of filing the return, “cannot apply in the case of amounts which are held in trust, as it is in the case of employees’ contributions- which are deducted from their income. They are not part of the assessee employer’s income, nor are they heads of deduction per se in the form of statutory pay out……………….Click here to read and download SC Judgment.

 

8) SC: Remands Infosys case on ‘royalty’ characterisation, permits Engineering Analysis reliance; Ratio inapplicable, argues Revenue - SC disposes of Infosys Technologies' appeal by setting aside Karnataka HC rulingand remanding the matter back to HC to re-examine the issue of TDS on payments over royalty characterisation; Karnataka HC had quashed the ITAT order, where tax liability under Section 201(1) and interest levied under Section 201(1A) was deleted, by relying on the coordinate bench ruling in Samsung Electronics that was later overruled by a three-judge bench of SC in Engineering Analysis; SC accepts submission of both Assessee and the Revenue that the HC had not analysed the facts found by the lower authorities; Thus, states, “parties would be entitled to raise all pleas and contentions... including ………………..Click here to read and download SC Judgment.

 

9) SC: Reiterates law on bad debts’ allowability; Disallows deduction where sum not written-off in books as irrecoverable - SC allows Revenue’s appeal against Bombay HC rulingthat confirmed ITAT’s order allowing alternate claim for advance written-off as business loss under Section 37(1) which was held disallowable as bad debt under Section 36(1)(vii); SC follows division bench ruling in Southern Technologies in the peculiar facts of the case  wherein it was held, “If an item falls under Sections 30 to 36, but is excluded by an Explanation to Section 36 (1) (vii) then Section 37 cannot come in. Section 37 applies only to items which do not fall in Section 30 to 36. If a provision for doubtful debt is expressly excluded from Section 36 (1) (vii) then such a provision cannot claim deduction under Section 37 of the IT Act even on the basis of “real income theory”…”; Before following Southern Technologies ruling, SC makes it clear that as a proposition of law – even if a claim for deduction under Section 36(1) is not allowed, the possibility of its exclusion under Section 37 cannot be ruled out – is unexceptional, since the heads of expenditure that can be claimed as deduction are not exhaustive which is why Section 37 exists; Therefore, in a given case, if the expenditure relates to business, and the claim for its treatment under other provisions are unsuccessful, application of Section 37 is per se not excluded; Assessee-Company, engaged in the business of real estate development, trading in transferable development rights and finance, had advanced Rs.10 Cr. in 2007 for acquiring a commercial property; The said sum was written-off and claimed as bad debt for AY 2009-10 which was disallowed by the Revenue …………………Click here to read and download SC Judgment.

 

10) SC: Dismisses Assessee's SLP for interest waiver; Rejects MAP resolution plea - SC dismisses Assessee's SLP, upholds HC order denying waiver of interest charged under Section 220(2); Rejects Assessee’s plea that its dispute was pending for resolution under Mutual Agreement Procedure (MAP) which got culminated subsequently and the tax liability arose thereafter, therefore, interest shall be waived under Section 220(2A)(ii); SC remarks, “Merely raising the dispute before any authority cannot be a ground not to levy the interest and/or waiver of interest under Section 220(2A) of the Act. Otherwise each and every assessee may raise a dispute and thereafter may contend that as the assessee was bona fidely litigating and therefore no interest shall be leviable.”; Pursuant to rejection of application for waiver of interest on the ground of financial hardship, Assessee, a US-based company with a branch in India, filed a writ petition challenging the CIT order………………Click here to read and download SC Judgment.

 

11) SC: Fresh reassessment notice unwarranted on change of AO; Upholds proceedings, basis Sec.129 - SC sets aside the Delhi HC judgmentquashing the reassessment for numerous legal infirmities where second reassessment notice was issued by the successor AO without even mentioning that the second notice was in continuation of the first notice; SC opines that fresh issue of notice was not warranted, since Section 129 permits continuation with the earlier proceedings in case of change of the AO from the stage at which the proceedings were before the earlier AO; Holds that HC ought to have considered the reasons to reopen the assessment as furnished after the issuance of first notice and was not required to consider at all the reasons recorded for issuance of second notice; Assessee-Company, filed a loss return for AY 2008-09 and was served with a reassessment notice under Section 148 on Mar 23, 2015, however the AO  ……………Click here to read and download SC Judgment.

 

12) SC: Moulding 'Polyurethane Foam' car seats ineligible under Sec.80-IB as no further process undertaken - SC dismisses Assessee’s appeal and upholds Karnataka HC judgmentdisallowing Section 80-IB deduction by holding that the Assessee manufactured 'polyurethane foam' which falls under Schedule 11 (Entry 25) of the Act which is not eligible for deduction as per exceptions contained in Section 80-IB(2)(iii); SC observes that no further process is undertaken by Assessee to convert polyurethane foam into automobile seats and holds that Assessee cannot be said to be  producing the car seats as final product just because it is supplying/selling the polyurethane foam in different sizes/designs/shapes which is ultimately used by others for making the car seats; Assessee-Company, filed return of income for AY 2003-04 and claimed deduction under Section 80-IB which was denied by the Revenue on the basis that the nature of Assessee’s business is ‘manufacturer of polyurethane foam seats’ which falls under Eleventh Schedule (Entry 25) of the Act, thus, ineligible for deduction, which was confirmed by CIT(A); ITAT allowed the deduction by observing that polyurethane foam was neither produced as a final product nor is an intermediate product or a by-product, but the same was used as automobile seat, thus does not fall under the Eleventh Schedule, which was overturned by the Karnataka HC; Before SC, Assessee submited that it manufactured different…………Click here to read and download SC Judgment.

 

13) SC: Upholds TDS as Supplementary Commission, accessory to principal-agent relationship; Quashes penalty - SC upholds applicability of Section 194H on ‘supplementary commission’ earned by air travel agents; Opines that “the lack of control that the airlines have over the Actual Fare charged by the travel agents over and above the Net Fare, cannot form the legal basis for the Assessees to avoid their liability.”; Holds that although there can be no recovery of shortfall of tax from the Assessee (payer) since the travel agents (payee) have paid taxes on the said commission, interest may be levied under Section 201(1A); Thus, directs the Revenue to compute interest payable by the Assessees for the period from the date of default till date of payment of income tax by the travel agents, also grants liberty to proceed in accordance with law to recover tax in the cases where any of the travel agents have not paid taxes on supplementary commission; Also quashes penalty proceedings on the airlines under Section 271C, opines that “there was clearly an arguable and “nascent” legal issue that required………….Click here to read and download SC Judgment.

 

14) SC: Dismisses SLP by Big 4's US arm against reassessment proceedings in new regime -SC dismisses the Special Leave Petition preferred by Ernst and Young US LLP against Delhi HC judgment upholding the reassessment proceedings under the new regime; SC observes, "We are not inclined to entertain the Special Leave Petition under Article 136 of the Constitution of India."; In the impugned judgment, Delhi HC followed the SC ruling in Rajesh Jhaveri to uphold Section 148A(d) order and reiterated that it was not necessary for the Revenue to have some fresh tangible material to form a belief that income had escaped assessment where the Assessee’s return was only processed under Section 143(1); HC also held that the Assessee could not demonstrate that the services of Rs.1.92Cr. rendered to Batliboi & Associates LLP during the relevant AY i.e., AY 2018-19 were similar/identical to the services rendered in the AY 2019-20, thus, denied the benefit of Article 15 of the India-US DTAA which was granted for AY 2019-20………. Click here to read and download SC Judgment.

 

15) SC: Upholds search validity; Advises 'judicial restraint', prescribes 9 principles on writ powers -SC allows Revenue’s appeal against the Gujarat HC order quashing the search warrant which rendered all the consequent actions invalid; SC observes that the Revenue is at liberty to proceed against the Assessee in accordance with law while holding, “the sufficiency or inadequacy of the reasons to believe recorded cannot be gone into while considering the validity of an act of authorization to conduct search and seizure” and that the belief recorded alone is justiciable but only while keeping in view the Wednesbury Principle of Reasonableness; SC holds that the relevance of the reasons for the formation of the belief is to be tested by the judicial restraint as in administrative action as the Court does not sit as a Court of appeal but merely reviews the manner in which the decision was made; Assessee-Individual, gave a secured a loan of Rs.10 Cr. to one M/s Goan Recreation Clubs Private Ltd. during FY 2016-17 and declared interest income of Rs.42.51 Lakh which was subjected to scrutiny assessment; Subsequently, Assessee was subjected to search whereas the Assessee challenged the authorisation for search and seizure on the grounds that it was a fishing enquiry and the conditions specified under Section 132 were not satisfied; In disposing of the writ petition, the…………Click here to read and download SC Judgment.

 

16) SC: Declines to interfere with Karnataka HC judgment on valuation of IISc employees' residential accommodation - SC upholds Karnataka HC rulingin the case of Indian Institute of Science (Assessee) holding that that even if Assessee may be considered as a State instrumentality within Article 12 of the Constitution, its employees cannot be treated at par with the Central/State Government employees for valuing perquisites under Section 17(2); SC observes that merely because Assessee adopted the Central Government Rules and/or the pay-scales etc., it cannot be said that Assessee is Central/State Government and declines to interfere with HC ruling; On merits of the claim, SC permits Assessee to file a review application without expressing anything in favour of either of the parties as Assessee mentioned that some of the crucial aspects were not considered by the HC; SC clarifies that the Assessee is not permitted to file the review on whether the Assessee can be treated at par with the Central/State Government employees or not for the purpose of Section 17…………..Click here to read and download SC Judgment.

 

17) SC: Strikes balance between Revenue's & Assessees' rights to settle reassessment controversy; Modifies HC rulings by invoking Art.142 - SC partly allows Revenue’s appeal, modifies HC judgments quashing reassessment notices issued under the old reassessment regime and holds the reassessment notices as deemed to have been issued under Section 148A; Observes, “Revenue cannot be made remediless and the object and purpose of reassessment proceedings cannot be frustrated. It is true that due to a bonafide mistake and in view of subsequent extension of time vide various notifications, the Revenue issued the impugned notices under section 148 after the amendment was enforced w.e.f. 01.04.2021, under the unamended section 148”; Opines that the notices ought to have been issued under the substituted provisions of Sections 147 to 151 and remarks that there appears to be genuine non-application of the amendments as the Revenue may have been under a bonafde belief that the amendments may not yet be enforced; States that “some leeway must be shown in that regard which the High Courts could have done so”, and observes that instead of quashing and setting aside the reassessment notices issued under the unamended provisions, the HC ought to have passed an order construing the notices issued under unamended provisions as those deemed to have been issued under Section 148A, and permitted the Revenue to proceed with reassessment proceedings in accordance with the substituted provisions subject to compliance of all the procedural requirements and the defences as available to the assessees thereunder; Thus, holds that the impugned notices be treated as show-cause notices in terms of Section 148A(b) and directs that the Revenue shall within thirty days provide the assessees with all the material and information relied upon, so as to enable the assessees to file their reply to the notices within two weeks ………Click here to read and download SC Judgment.

 

18) SC: Approves Allahabad HC Full Bench judgment holding no deemed registration under Sec.12AA - SC dismisses Special Leave Petition preferred by Harshit Foundation where Allahabad HC held that there is no specific provision allowing deemed registration under Section 12AA with respect to application not decided within a period of six months by following Full Bench ruling in Muzafar Nagar Development Authority; SC observes, "the Full Bench of the High Court has rightly held that even if in a case where the registration application under Section 12AA is not decided within six months, there shall not be any deemed registration. We are in complete agreement with the view taken by the Full Bench of the High Court……….Click here to read and download SC Judgment.

 

19) SC: Dismisses Assessee’s SLP on merits; Vacates attachment order basis CBDT’s tax-effect Circular - SC dismisses Assessee’s SLP against Madras HC rulingon taxability of minor’s income in the hands of guardian and recovery thereof; SC opines that no interference is called for with the reasoning of HC ruling but vacates the attachment order while observing that the Assessee was entitled to the benefit of the withdrawal of the Revenue’s appeals from the HC on account of CBDT Circulars dt. Jul 11, 2018 and Aug 8, 2019; Thus, holds Revenue’s application alleging that cases fell within the exception of Para 10(a) of Circular dt Jul 11, 2018 was unwarranted and in the interest of justice restores ITAT’s directions, "so far as tax is concerned"; Thus, directs Revenue that any amounts collected pursuant to HC ruling shall be refunded in accordance with law within two months…………….Click here to read and download SC Judgment.

 

20) SC: Upholds maintainability of appeal basis tax-effect in impugned order, de hors subsequent reduction in penalty - SC dismisses Assessee’s appeal, upholds Rajasthan HC rulingallowing Revenue’s appeal against penalty of Rs.29.02 Lakh as maintainable and not affected by the CBDT Circular No. 21 dt. Dec 12, 2015, where Assessee contended the appeal as not maintainable in view of CIT(A)’s subsequent order reducing penalty to Rs.6 Lakh; SC also agrees with the Revenue’s contention that post of JCIT includes Addl.CIT as per the definition under Section 2(28C) and observes that since Addl.CIT’s approval for levy of penalty was obtained in the instant case, refuses to interfere with HC's order; ITAT had quashed the penalty order for AY 1998-99 on the grounds that it was without jurisdiction while on Revenue's appeal HC held that “the Tribunal in our view erred in quashing the penalty order merely on the premise that Addl. CIT does not find place in Sec. 274(2)(b)”; HC also rejected Assessee’s contention over maintainability of appeal and held that the Circular as inapplicable since the tax-effect exceeding Rs.20 Lakh…………Click here to read and download SC Judgment.

 

21) SC: Directs Gujarat HC to pass speaking & reasoned order after recording parties' submissions; Allows Revenue's appeal - SC allows Revenue’s appeal, sets aside the Gujarat HC orderon the ground of absence of discussions on factual matrix of the case and remands the matter back with a direction to pass a speaking and reasoned order; SC notes that the Gujarat HC dismissed Revenue's appeal simply by observing that none of the questions proposed by the Revenue could be termed as the substantial questions of law and were on factual aspects of the matter; Further notes that the HC in its order did not discuss the factual matrix of the case; SC holds HC's order as a non-speaking and non-reasoned order which cannot be sustained since even the Revenue's submissions was not recorded; Thus, SC quashes the impugned order and remands it back to be decided afresh in accordance with law and on its own merits; SC remarks that if HC opines that the proposed questions of law are not substantial questions of law and they are on factual aspects, it will be open for HC to consider the same in accordance with law, however, HC is required to pass a speaking and reasoned order after recording the submissions made on behalf of the respective parties…………….Click here to read and download SC Judgment.

 

22) SC: Factually distinguishes Maruti Suzuki ruling to hold order in amalgamating company's name as valid; Directs ITAT to decide on merits - SC allows Revenue’s appeal against Delhi HC rulingthat followed SC ruling in Maruti Suzuki to uphold ITAT order quashing the assessment order for being passed in the name of the amalgamating company; SC holds that whether corporate death of an entity upon amalgamation per se invalidates an assessment order ordinarily cannot be determined on a bare application of provision of Companies Act but would depend on the terms of the amalgamation and the facts of each case; SC holds that the combined effect of amalgamation related  provisions in the Companies Act and Income Tax Act, "is that despite amalgamation, the business, enterprise and undertaking of the transferee or amalgamated company which ceases to exist, after amalgamation, is treated as a continuing one, and any benefits, by way of carry forward of losses (of the transferor company), depreciation, etc., are allowed to the transferee. Therefore, unlike a winding up, there is no end to the enterprise, with the entity. The enterprise in the case of amalgamation, continues.”; SC distinguishes the coordinate bench ruling in Maruti Suzuki by observing that in the present case too the assessment order was passed in amalgamating company’s name (MRPL, represented by MIPL) but the Revenue was not intimated about the amalgamation; SC observes that MRPL filed the ITR with its PAN for AY 2006-07 pursuant to notice under Section 153A which was issued after amalgamation (into MIPL) became effective wherein in the ‘Business Reorganization’ column, MRPL mentioned ‘not applicable’ in amalgamation section; SC remarks that for AY 2007-08 ………..Click here to read and download SC Judgment.

 

23) SC: Dismisses RIL's SLP against denial of settlement under VsV Act; Clarifies on scope of Bombay HC's observations - SC dismisses the Special Leave Petition preferred by Reliance Industries Ltd. against Bombay HC rulingwhere the writ petition challenging the rejection of 27 applications under VsV Act was dismissed in the light of pending prosecution under Indian Penal Code and Prevention of Corruption Act; SC shows no inclination to entertain the SLP but clarifies that HC's observations are only confined to the issue "as to whether the petitioner was entitled to the benefit of the provisions of the Act and shall not affect…………….Click here to read and download SC Judgment.

 

24) SC: Immunity under IDS not extendable to non-declarant, upholds reassessment proceeding - SC allows Revenue’s appeal, sets aside Gujarat HC rulingin writ petition against reassessment proceeding initiated on the basis of information that the Assessee received its unaccounted money routed through various group companies which was quashed since another company had owned and declared the investment under Income Disclosure Scheme, 2016 (IDS); SC opines “that the High Court fell into error, in holding that the sequitur to a declaration under the IDS can lead to immunity (from taxation) in the hands of a non-declarant”; On the scope of immunity granted under the IDS, SC observes that the protection given to the declarant is for a limited purpose under Section 192 of Finance Act, 2016 and does not bar the Revenue from scrutinizing the Assessee’s return; Assessee-Company, alleged to be beneficiary of accommodation entries was issued a reassessment notice pursuant to search operation carried out on a group of entry providers; In the reasons recorded for the search it was stated that huge amounts of unaccounted moneys of promoters/directors were introduced in closely held companies of the Assessee’s group and the group’s Chairman made a statement that the share application money received by the Assessee was declared by another entity under IDS; Revenue thus arrived at reason to believe Rs.6.25 Cr was accommodation entry received in the guise of share capital and share premium and issued the reassessment notice; On rejection of Assessee’s objections ………….Click here to read and download SC Judgment.

 

25) SC: Remits appeal, holds HC not justified in disposing of appeal without discussing issues - SC allows Revenue’s Appeal, sets aside the Rajasthan HC ruling, where ITAT orderdeleting addition under Section 56(1) was upheld and remits the matter back to HC for fresh decision purely on merits with an observation, “the High Court was not right and justified in disposing of the appeal with one paragraph order without discussing the issues which arose for consideration”; Assessee-Company was subjected to an addition of Rs.7.78 Cr. for AY 2012-13 whereas CIT(A) deleted the addition of Rs.6.36 Cr on the ground that this amount was properly explained and affirmed the addition of Rs. 1.42 Cr holding that the source thereof was not properly explained; ITAT granted the relief to the Assessee with respect to the entire amount and HC upheld the ITAT order on the basis that the ITAT sufficiently discussed the law as well as factual matrix of the case; SC directs for listing of appeal before HC on Apr 18, 2022 for early disposal………….Click here to read and download SC Judgment.

 

26) SC: Dismisses Apex Labs' appeal over freebies to Doctors; Participation in action plainly prohibited by law, precludes deduction u/s 37(1) - SC dismisses appeal for AY 2010-11 preferred by Apex Laboratories P. Ltd. against Madras HC ruling, holds incentives or freebies given to the doctors directly resulted in exposing them to the "odium of sanctions, leading to a ban on their practice of medicine. Those sanctions are mandated by law, as they are embodied in the code of conduct and ethics, which are normative, and have legally binding effect"; Observes that the prohibition on medical practitioners from accepting gifts or freebies "was no less a prohibition on the part of their giver, or donor"; SC refers to latin maxim ex dolo malo non oritur actio and observes that no one should be allowed to profit from any wrongdoing coupled with the fact that statutory regimes should be coherent and not self-defeating; Notes that the Doctors and pharmacists are "complementary and supplementary" to each other in the medical profession, thus, adopts a comprehensive view to regulate their conduct in view of the contemporary statutory regimes and regulations i.e., Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002; Therefore, holds that denial of the tax benefit "cannot be construed as penalizing the assessee pharmaceutical company. Only its participation in what is plainly an action prohibited by law, precludes the assessee from claiming it as a deductible expenditure."; SC observes, "one arm of the law cannot be utilised to defeat the other arm of law" and relies on SC ruling in Maddi Venkataramanwhere fine imposed under FERA was sought to be deducted as a business expenditure but was disallowed by invoking public policy holding that if the deductions are allowed, the penal provisions of FERA will become meaningless; Further observes that the medical practitioners have a quasi-fiduciary relationship with their patients since a Doctor's prescription is considered the final word on the medication for the patient and it is a matter of great public concern if a Doctor’s prescription is demonstrated to be manipulated and driven by the motive to avail the freebies offered by pharmaceutical companies which are "technically not ‘free’ – the cost of supplying such freebies is ……….Click here to read and download SC Judgment.

 

27) SC: Liquor licence, gallonage fee & shop rental disallowable u/s 40(a)(iib); Surcharge on sales tax allowable - SC upholds Kerala HC rulingin the case of Kerala State Beverages Manufacturing & Marketing Corporation Ltd. (KSBC) involving disallowance of Rs.811.90 Cr. u/s 40(a)(iib) for AY 2015-16 on account of gallonage fee, licence fee, shop rental (kist) and surcharge on sales tax/turnover tax and  disallowance of surcharge on sales tax/turnover tax amounting to Rs.960 Cr. for AY 2014-15; Holds payment of gallonage fee, licence fee, shop rental (kist) for FL-9 and FL-1 licences to be covered u/s 40(a)(iib) and surcharge on sales tax and turnover tax to be not in the nature of fee or charge, thus, outside the scope of Section 40(a)(iib); Assessee, a State of Kerala undertaking, was subjected to disallowance of gallonage fee, licence fee, shop rental (kist) in respect of licences issued under FL-9 (wholesale liquor licence) and FL-1 (licence for sale of foreign liquor in sealed bottles) along with the surcharge on sales tax and turnover tax; At the outset, SC explains that in terms of Article 289 of the Constitution, Union Government is prevented from taxing the State on its income and property and as a result of such protection, States shift their income/profits from the State Government Undertakings into Consolidated Fund of the respective States; Observes, in the context of insertion of Section 40(a)(iib), "it is clear that the said amendment is made to plug the possible diversion or shifting of profits from these undertakings into State’s treasury";  Notes that HC held the gallonage fees, license fee in respect of FL-9 license not deductible u/s 40(a)(iib), being an exclusive levy on the Assessee, whereas such fees in respect of FL-1 to be deductible as FL-1 licenses are issued to one another Govt. undertaking apart from the Assessee, opines, "The aspect of ‘exclusivity’ under Section 40(a)(iib)………Click here to read and download SC Judgment.