Standard

The assumption under Section 20 of the PC Act may be used when gratification other than the lawful remuneration is proven

Fact and issue of the case

The original appellant P. Sarangapani son of Laxmaiah (accused no.1) having expired pending the present Appeal, his wife Paka Saroja was permitted to proceed further with the Appeal as per the order passed by the court on 31st August, 2023.

The instant Appeal is directed against the judgment and order dated 21st March, 2011 passed by the High Court of Andhra Pradesh at Hyderabad in Criminal Appeal No.54 of 2005, whereby the High Court had dismissed the Appeal filed by the appellant-accused no.1 and confirmed the judgment and order dated 06.01.2005 passed by the Principal Special Judge for SPE and ACB Cases-cum-IV Additional Chief Judge City Civil Court Hyderabad (hereinafter referred to as the Trial Court) in CC No.08 of 1994. The Trial Court had convicted the appellant accused no.1 P.Sarangapani for the offences under Section 7 and Section 13(1)(d)r/w 13(2) of the Prevention of Corruption Act, 1988 (for short, the PC Act) and sentenced him to imprisonment for one year and pay a fine of Rs.1,000/- in default, to suffer Simple Imprisonment for three months for the offence under Section 7 and to suffer Rigorous Imprisonment for two years and pay a fine of Rs.2,000/- in default, to suffer Simple Imprisonment for six months for the offence under Section 13(1)(d)r/w 13(2) of the P.C. Act.

The chargesheet for the alleged offences was laid by the Investigating Officer, Deputy Superintendent of Police Shri P.L. Raju, Anti-Corruption Bureau, Warangal Range, Warangal against the appellant accused no.1 P.Sarangapani and one another accused P.Vasudev son of Mallaiah. The said accused P.Vasudev having expired pending trial, the appellant accused alone was tried by the Trial Court. The defacto-complainant Sri Immadi Laxmaiah also had expired prior to commencement of the trial and therefore he could not be examined by the prosecution.

The case of prosecution in nutshell was that the appellant accused Sri Sarangapani while discharging his duty as the Sub Registrar, Cooperative Societies had demanded and accepted a sum of Rs.1500/- as gratification other then legal remuneration from the defacto-complainant Sri Immadi Laxmaiah on 27.03.1993, for himself and for the accused no.2 P.Vasudev, the Deputy Registrar Cooperative Societies in the office of Divisional Cooperative Khammam, as a motive or reward for showing an official favour, in allowing the complainant to continue as the President of the Society, and thereby both the accused had committed the offence under Section 7 and Section 13(1)(d)r/w 13(2) of the PC Act.

To prove the charges levelled against the appellant-accused, the prosecution had examined PW-1 Shri Dana Pullaiah to prove the contents of the RC No.1496/92-C. The PW-2 Sri M. Laxmi Narsu, one of the mediators (panch witness) working as Agricultural Officer, in the office of Joint Director Agriculture Khammam was examined to prove the pre-trap and post-trap proceedings. The PW-3 Sri K.L.N. Krishna Kumar was examined to prove the Sanction orders relating to the accused, accorded by the then Secretary of Agriculture Cooperative – II Department. The PW-4 was Sri B. Pulla Reddy, working as the President of Lachannagudem Village, who succeeded the Vice President of the society, on the previous Vice President B. Pulla Reddy having been suspended. The PW-5 was Sri V. Vengalaiah, Inspector of Police ACB, a member of raiding party; and lastly PW-6 Sri P.L. Raju, the then DSP Warangal Range, was examined as he was the trap laying officer cum investigating officer. The prosecution had also adduced documentary evidence in support of its case.

On the closure of prosecution evidence, the appellant-accused P.Sarangapani was examined under Section 313 of Cr.P.C, wherein he had denied the allegations levelled against him and had stated that he was falsely implicated. He also had filed a written statement contending inter alia that he never demanded and accepted any illegal gratification from the complainant as alleged. The appellant accused had also examined DW-1 Sri K. Venkateshwarlu, resident of Chintakani Mandal of Khammam District, to substantiate his defence.

The Trial Court after appreciating the oral as well as the documentary evidence adduced by the prosecution, held that the prosecution had proved the charges levelled against the appellant/ accused beyond reasonable doubt. Accordingly, the appellant was convicted and sentenced as stated hereinabove. In the Appeal preferred by the appellant before the High Court, against the said judgment of conviction and sentence, the High Court reappreciated the evidence on record and confirmed the conviction and sentence recorded by the Trial Court.

The learned counsel for the appellant vehemently submitted that both the courts had committed gross error of law in misappreciating evidence on record and in holding the appellant guilty of the alleged charges, though the prosecution had miserably failed to prove the demand of illegal gratification allegedly made by the appellant. Placing reliance on the decision of this Court in case of B. Jayaraj v. State of Andhra Pradesh1, he submitted that it was required to be proved by the prosecutor beyond reasonable doubt that the accused had voluntarily accepted the money knowing it to be a bribe, and in absence of proof of demand for illegal gratification, presumption under Section 20 could not be drawn against the accused. According to him in the instant case, the complainant having expired before the commencement of trial, could not be examined and hence the very allegation of demand of money as bribe was not proved by the prosecution. The learned counsel for the appellant placed reliance on the statement of complainant recorded before the Additional I-Class Magistrate under Section 164 of Cr.P.C. to submit that the complainant himself had stated therein that he had paid the amount to the accused towards the Audit fees of the society and that the accused was falsely implicated by the former President of the society Pulla Reddy, who had a grudge against the accused.

In our opinion, there is no substance in any of the submissions made by the learned counsel for the appellant. It is well settled proposition of law that the death of the complainant or non-availability of the complainant at the time of trial could be said to be fatal to the case of prosecution, nor could it be said to be a ground to acquit the accused. It is always open for the prosecution to prove the contents of the complaint and other facts in issue by leading other oral or documentary evidence, in case of death of or non-availability of the complainant. Recently, the Constitution Bench in case of Neeraj Dutta vs. State (Government of NCT of Delhi)2, has held that: –

(f) In the event the complainant turns “hostile”, or has died or is unavailable to let in his evidence during trial, demand of illegal gratification can be proved by letting in the evidence of any other witness who can again let in evidence, either orally or by documentary evidence or the prosecution can prove the case by circumstantial evidence. The trial does not abate nor does it result in an order of acquittal of the accused public servant.”

In the instant case the appellant/ accused in his explanation under Section 313 had accepted the receipt of alleged amount. The court therefore was required to appreciate the evidence laid by the prosecution in the light of the said explanation and to consider as to whether the said amount was an illegal gratification other than the legal remuneration or not. It cannot be gainsaid that if the accused offers reasonable and probable explanation based on the evidence that the money was accepted by him other than as illegal gratification, the benefit of doubt should be granted to the accused. It is also true that the accused is not required to establish his defence beyond reasonable doubt as the prosecution, and can establish the same on the preponderance of probability. However, the court cannot be oblivious to the statutory presumption permissible to be raised under Section 20 of PC Act with regard to the motive of the accused. Section 20 reads as under: –

Presumption where public servant accepts any undue advantage. —

Where, in any trial of an offence punishable under section 7 or under section 11, it is proved that a public servant accused of an offence has accepted or obtained or attempted to obtain for himself, or for any other person, any undue advantage from any person, it shall be presumed, unless the contrary is proved, that he accepted or obtained or attempted to obtain that undue advantage, as a motive or reward under section 7 for performing or to cause performance of a public duty improperly or dishonestly either by himself or by another public servant or, as the case may be, any undue advantage without consideration or for a consideration which he knows to be inadequate under section 11.”

Observation of the court

In view of the above, once the undue advantage i.e., any gratification whatever, other than the legal remuneration is proved to have been accepted by the accused, the Court is entitled to raise the presumption under Section 20 that he accepted the undue advantage as a motive or reward under Section 7 for performing or to cause performance of a public duty improperly or dishonestly. No doubt, such presumption is rebuttable. The Constitution Bench in Neeraj Dutta (supra), also had dealt with the issue of presumption under Section 20 of the Act and held as under: –

(g) Insofar as Section 7 of the Act is concerned, on the proof of the facts in issue, Section 20 mandates the court to raise a presumption that the illegal gratification was for the purpose of a motive or reward as mentioned in the said Section. The said presumption has to be raised by the court as a legal presumption or a presumption in law. Of course, the said presumption is also subject to rebuttal. Section 20 does not apply to Sections 13(1)(d)(i) and (ii) of the Act.”

In the instant case the pre-trap and post-trap proceedings were duly proved by the prosecution by examining the concerned witnesses, who had duly supported the case of prosecution. Both the courts below have recorded the findings that the prosecution had proved beyond reasonable doubt the conscious acceptance of the tainted currency by the accused and also the recovery of tainted currency from the appellant. Therefore, the burden had shifted on the appellant to dispel the statutory presumption under Section 20 of the said Act, and prove that it was not accepted as a motive or reward for the performance of his public duty, which the appellant had failed to dispel. The explanation offered by the appellant did not tally with the statement of the complainant recorded under Section 164 of Cr.P.C. The High Court had also recorded that the defence taken by the appellant that the acceptance of tainted currency by him was towards the Audit fees of the Society was not proved by him in as much as there was nothing on record to show that the amount paid by the complainant Immadi Laxmaiah to the appellant was out of the funds of the Society.

Both the courts have appreciated the evidence on record threadbare in the right perspective and have found the appellant guilty for the offence under Section 7 and Section 13(1)(d) r/w 13(2) of the PC Act. We do not see any valid ground to interfere with the well considered findings recorded by both the courts below.

In that view of the matter, the criminal appeal being devoid of merits is dismissed.

Notes:-

1 (2014) 13 SCC 55

2 (2023) 4 SCC 731

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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September, 27
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SC affirmed Settlement Commission’s decision giving immunity from punishment and prosecution

Fact and issue of the case

This appeal has been filed assailing the judgment dated 06.07.2012, passed by the High Court of Karnataka at Bangalore, in Writ Appeal No. 2458 of 2010 whereby the judgment of the learned Single Judge dated 20.05.2010 passed in Writ Petition No. 12239 of 2008, remanding the matter to the Settlement Commission to determine afresh, the question as to immunity from levy of penalty and prosecution, was affirmed and the aforesaid Writ Appeal filed by the appellant herein, was dismissed.

The facts giving rise to the present appeal, in a nutshell are that the appellant-assessee, Kotak Mahindra Bank Limited (formerly, “M/s ING Vysya Bank Limited”) is a Public Limited Company carrying on the business of banking and is assessed to tax in Bangalore where its registered office is located. Apart from the business of banking, the appellant also carries out leasing business on receiving approval from the Reserve Bank of India (hereinafter “RBI” for short) vide Circular dated 19.02.1994. Thus, the appellant derives its income, inter alia, from banking activities as well as from leasing transactions.

The appellant filed its income tax returns for the assessment years 1994-1995 to 1999-2000 and assessment orders were passed up to assessment year 1997-1998 and the assessment for the subsequent years was pending. During the assessment proceedings for the assessment year 1997-1998, the Assessing Officer made certain additions and disallowances based on which the assessment already concluded for the assessment years 1994-1995 to 1996-1997 were proposed to be reopened. The Assessing Officer then passed an Assessment Order dated 30.03.2000 for the Assessment Year 19971998. The main issue pertained to the income in respect of the activity of leasing. As per the Assessment Order, the appellant had been accounting for lease rental received, by treating the same as a financial transaction. As a result, the lease rental was bifurcated into capital repayment portion and interest component. Only the interest component was offered to tax. In other words, the appellant treated such leases as loans granted to the “purported” lessees to purchase assets. In such cases, the ownership of the assets is vested with the lessees. However, the appellant claimed depreciation on those assets under Section 32 of the Income Tax Act, 1961 (hereinafter referred to as “the Act” for the sake of convenience) though the appellant was not the owner of the assets for the purpose of the said transactions.

On 09.06.2000 the Assessing Officer issued a notice under Section 148 of the Act for the reassessment of income for the aforesaid assessment years. The Assessing Officer also passed a penalty order dated 14.06.2000 levying a penalty under Section 271 (1)(c) of the Act after being satisfied that the appellant had concealed its income as regards lease rental.

While various proceedings, such as an appeal before the CIT (A) for the assessment year 1997-1998, re-assessment proceedings for the assessment years 1994-1995 to 1996-1997 and regular assessment proceedings for the assessment years 1998-1999 and 1999-2000 were pending before various income tax authorities, the appellant, on 10.07.2000, approached the Settlement Commission at Chennai to settle its income tax liabilities under Section 245C (1) of the Act, by way of an application in Form No. 34B bearing No. 563/KNK-III/15/2000-IT. The appellant sought for determination of its taxable income for the assessment years 1994-1995 to 1999-2000, after considering the issues pertaining to the income assessable in respect of its leasing transaction; eligibility to avail depreciation in respect of leased assets; the quantum of allowable deduction under Section 80M and exemption under Section 10(15) and 10(23G); and depreciation on the investments portfolio of the bank classified as permanent investments.

When matters stood thus, the concluded assessments for earlier assessment years were reopened by issuance of notices under Section 148 of the Act. The appellant filed returns under protest with respect to the said assessment years.

Before the Settlement Commission, the Respondents-Revenue raised a preliminary objection contending that the appellant did not fulfil the qualifying criteria as contemplated under Section 245C(1) and hence, the application filed by the appellant was not maintainable, as, under the said provision, the appellant was required to make an application in the prescribed manner containing full and true disclosure of its income which had not been disclosed before the Assessing Officer and also the manner in which such income had been derived. That unless there is a true and full disclosure there would be no valid application and the Settlement Commission will not be able to assume jurisdiction to proceed with the admission of the application. It was thus contended that the purported application made before the Settlement Commission was not an application as contemplated under section 245C (1) of the Act for the reason that the appellant had not made a full and true disclosure of its income which had not been disclosed before the Assessing Officer.

After considering the contentions of both parties, the Settlement Commission passed an Order dated 11.12.2000 entertaining the application filed by the appellant under Section 245C and rejecting the preliminary objections raised by the Revenue. The Settlement Commission allowed the application filed by the appellant by way of a speaking order and permitted the appellant to pursue its claim under Section 245D. Thus, the application was proceeded further under Section 245D (1) of the Act.

The Revenue challenged the Order dated 11.12.2000 passed by the Settlement Commission before the High Court of Karnataka at Bangalore by way of Writ Petition No. 13111 of 2001. The Revenue questioned the jurisdiction of the Settlement Commission in entertaining the application filed by the appellant under Section 245C(1) of the Act.

The learned Single Judge of the High Court of Karnataka, after going through the legislative history of the provisions of Chapter-XIXA, accepted the argument advanced by the appellant that the proviso to Section 245C as it stood earlier, which enabled the Commissioner to raise an objection even at the threshold to entertain an application of this nature had been later shifted to sub-section (l)(A) of Section 245D and from the year 1991, it had been totally omitted and in the light of such legislative history, it was not open to the Revenue to raise any such preliminary objection regarding maintainability of the application itself. It was further held that the application can be proceeded with by the Settlement Commission for determination of the same on merits and it was not necessary that the Revenue should be permitted to raise a preliminary objection as to the maintainability of the application. The learned Single Judge disposed of the above Writ Petition by way of an Order dated 18.08.2005 in favour of the appellant herein by holding that notwithstanding any preliminary finding, it was still open to the Commissioner to agitate or to apprise the Commission of all the aspects of the matter that he may find fit to be placed before the Commission. The Single Judge was of the view that it was not necessary to examine the legal position that may require an interpretation of provisions of Section 245C at that stage when the matter itself was still at large before the Settlement Commission as the very object of Chapter-XIXA was to settle cases and to reduce the disputes and not to prolong litigation. Thus, the High Court disposed of the Writ Petition holding that it was open to the parties to raise all their contentions before the Commission at the stage of disposal of the application and the Commission may, independent of the findings which it has given under the Order dated 11.12.2000, examine all the contentions and proceed to pass orders on merits in accordance with the provisions of the Act.

As a result of the Order dated 18.08.2005 passed by the High Court of Karnataka, the Settlement Commission heard both parties on merits as well as on the issue of maintainability. The Settlement Commission upheld the maintainability of the application filed by the appellant and passed an Order dated 04.3.2008 under Sections 245D(1) and 245D(4), determining the additional income at Rs.196,36,06,201/-. As regards the issue of immunity from penalty and prosecution, the Commission, having regard to the fact that the appellant had co-operated in the proceedings before the Settlement Commission and true and full disclosure was made by the appellant before the Commission in paragraph 18.2 of its Order granted immunity under Section 245H(1) from the imposition of penalty and prosecution under the Act and the relevant sections of the Indian Penal Code. Further, the Settlement Commission annulled the penalty levied by the Assessing Officer under Section 271(1)(c) for the assessment year 19971998 in respect of non-disclosure of lease rental income. The same was annulled considering that the non-disclosure was on account of RBI guidelines and subsequent disclosure on the part of the appellant, of additional income of the lease income before the Settlement Commission when the appellant realised the omission to disclose the same as per income tax law.

Observation of the court

In the light of the aforesaid discussion, we are of the view that the learned Single Judge of the High Court was not right in holding that the reasoning of the Settlement Commission was vague, unsound and contrary to established principles. Division Bench was also not justified in affirming such view of the learned Single Judge. The Commission, in our view, adequately applied its mind to the circumstances of the case, as well as to the relevant law and accordingly exercised its discretion to proceed with the application for settlement and grant immunity to the assessee from penalty and prosecution. The Order of the Commission dated 04.03.2008 did not suffer from such infirmity as would warrant interference by the High Court, by passing an order of remand.

It may be apposite at this juncture, to refer to the decision of this Court in Ashirvad Enterprises vs. State of Bihar, (2004) 3 SCC 624 wherein it was stated that whether immunity from prosecution and penalty should be granted in a given case, has to be decided by the Commission by exercising its discretion, in the light of the facts and circumstances of each case. There is no straight jacket formula that would universally apply in every case. Where the Commission is satisfied that the applicant (a) has made full and true disclosure of his income and the manner in which such income was derived, and (b) has co-operated with the Commission in the proceedings before it, immunity under Section 245H may be granted.

In the present case, as noted above, we find that the appellant placed material and particulars before the Commission as to the manner in which income pertaining to certain activities was derived and has sought to offer such additional income to tax. Based on such disclosures and on noting that the appellant co-operated with the Commission in the process of settlement, the Commission proceeded to grant immunity from prosecution and penalty as contemplated under Section 245H of the Act. The High Court ought not to have sat in appeal as to the sufficiency of the material and particulars placed before the Commission, based on which the Commission proceeded to grant immunity from prosecution and penalty as contemplated under Section 245H of the Act.

We are fortified in our view by the judgment of this Court in Jyotendrasinhji vs. S.I. Tripathi, 1993 Supp (3) SCC 389, wherein it was observed that a Court, while exercising powers under Articles 32, 226 or 136 of the Constitution of India, as the case may be, may not interfere with an order of the Commission, passed in exercise of its discretionary powers, except on the ground that the order contravenes provisions of the Act or has caused prejudice to the opposite party. Interference may also be open on the grounds of fraud, bias or malice. Therefore, this Court has carved out a very narrow scope for judicial review of the Commission’s orders, passed in the exercise of its discretionary powers. Hence, we hold that sufficiency of the material and particulars placed before the Commission, based on which the Commission proceeded to grant immunity from prosecution and penalty as contemplated under Section 245H of the Act, are beyond the scope of judicial review, except under the circumstances set out in Jyotendrasinhji vs. S.I. Tripathi (supra).

We find that the judgment of this Court in Express Newspapers (supra), sought to be relied upon by the Respondents, would not come to their aid in the present case. It is to be noted that the said judgment turns on its own facts. In the said case, the income tax authorities had made extensive investigation and inquiry, whereby they had collected voluminous material demonstrating large scale concealment of income on the part of the assessee therein. In that background, this Court observed that the assessee, having merely offered a part of such concealed income before the Commission, the application for settlement ought to have been rejected.

While we are mindful of the fact that the provisions of Chapter XIX-A of the Act are not to be employed so as to provide a shelter for tax dodgers to obtain immunity from facing the consequences of tax evasion by simply approaching the Settlement Commission, vide N. Bhattacharjee (supra), we are however of the view that in the present case, the Commission rightly exercised its discretion under Section 245H having regard to the bona fide conduct of the assessee of offering additional income for tax, apart from the income disclosed in the return of income.

Before parting with the record, we may add that having regard to the legislative intent, frequent interference with the orders or proceedings of the Settlement Commission should be avoided. We have already indicated the limited grounds on which an order or proceeding of the Settlement Commission can be judicially reviewed. The High Court should not scrutinize an order or proceeding of a Settlement Commission as an appellate court. Unsettling reasoned orders of the Settlement Commission may erode the confidence of the bonafide assessees, thereby leading to multiplicity of litigation where settlement is possible. This larger picture has to be borne in mind.

In light of the aforesaid discussion, we are of the view that the Order of the Settlement Commission dated 04.03.2008 was based on a correct appreciation of the law, in light of the facts of the case and the High Court ought not to have interfered with the same. Therefore, the judgment dated 06.07.2012, passed by the High Court of Karnataka at Bangalore in Writ Appeal No. 2458 of 2010 whereby the judgment of the learned Single Judge dated 20.05.2010, passed in Writ Petition No. 12239 of 2008, remanding the matter to the Settlement Commission to determine afresh, the question as to immunity from levy of penalty and prosecution was affirmed, is hereby set aside.

Consequently, the order of the learned Single Judge is also set aside. The Order of the Settlement Commission dated 04.03.2008 is restored. The appeal is allowed. Pending application (s), if any, stand disposed of in the aforesaid terms.

No order as to costs.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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Kotak-Mahindra-Bank-Limited-Vs-CIT-Supreme-Court-of-India-2

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September, 26
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Income Tax, Income Tax Circular Notification
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Standard

When the Order has reached finality, the enforcement of the Award cannot be contested

Fact and issue of the case

This petition has been filed challenging the proceedings that have been initiated by the learned Motor Accidents Claims Tribunal-02, North, Rohini, Delhi (hereinafter referred to as the ‘Tribunal’) in Execution No.272/2020, New India Assurance Co. Ltd. v. Ram Kumar & Anr. against the petitioner herein, seeking enforcement of the Award dated 22.12.2010 passed by the learned Tribunal in MACT Case no.269/10/07.

The learned Tribunal, by way of the above Award, while awarding compensation to the claimants therein, had granted a right in the respondent no.1 herein to recover the same, jointly or severely from the petitioner herein, who is the owner of the offending vehicle, and Mr.Shukhbir Singh, driver of the offending vehicle.

The petitioner is further aggrieved of the demand notice dated 05.05.2022 issued by the respondent no. 2 herein, issuing recovery certificate for recovering a sum of Rs.41,99,490/- from the petitioner herein.

The learned counsel for the petitioner submits that the petitioner, as owner of the offending vehicle, had the requisite Permit and Certificate of Fitness, issued by the registering authority under the Motor Vehicles Act, 1988 and the Central Motor Vehicles Rules, 1989, for the offending vehicle. He submits that, therefore, the entire compensation paid to the Claimants in the above Claim Petition, cannot be claimed by the respondent no.1 from the petitioner.

He further submits that the compensation amount has to be recovered from the driver of the offending vehicle and the petitioner herein in equal proportion.

He submits that pursuant to the interim order dated 15.07.2022 of this Court, the petitioner has already deposited approximately Rs.21 lakhs with the learned Registrar General of this Court. He submits that, therefore, the above execution proceedings and the demand notice issued by the respondent no.2 should be quashed.

On the other hand, the learned counsel for the respondent no.1 submits that the present petition is a gross abuse of the process of the Court. He submits that the petitioner/owner, alongwith the driver of the Offending Vehicle, namely Mr.Shukhbir Singh, had challenged the Award dated 22.12.2010 by way of an appeal, being MAC.APP.237/2017, Ram Kumar & Anr v. New India Assurance Co. Ltd & Ors. The said appeal was dismissed by this Court vide its

He submits that the petitioner herein cannot reopen his challenge to the Award passed by the Tribunal by now challenging the execution proceedings initiated for the enforcement of the said Award.

I find merit in the submissions made by the learned counsel for the respondent no.1.

The learned Tribunal, by way of the Award dated 22.12.2010, while awarding compensation in favour of the claimants in the Claim Petition before it, had observed as under: “Issue No. 3 Respondents no.1 and 2 in their written statement nowhere stated that respondents no.1 was having any valid driving license to drive the offending truck at the time of accident. They even had not disclosed the detail and particulars of the driving license in their written statement so that insurance company could get it verified R3W1 proved notice under order 12 Rule 8 CPC Ex. R3W1/A stated to respondents no.1 and 2 during evidence stage asking them to produce driving license of the respondents no.1 also. This notice was sent by registered post to both respondents vide postal receipts Ex.R3W1/2 and 3 which is presumed to be served upon them but they did not care to produce the valid and proper driving license of the respondent no.1 and to appear in the court to give any other explanation. In such circumstances, by taking adverse interfere against respondents no.1 & 2, it can be said that respondent no.1 was not having any valid and proper driving license at the time of accident. This issue is thus decided against the respondents no.1 and 2 and in favour of respondent no.3. xxxxxx “Respondent no.3 had issued notice under order 12 Rule 8 CPC to the respondents no. 1 and 2 to produce the valid permit of the offending truck also but it was not produced nor anything about it is alleged in the written statement by them. Non compliance of the notice and not coming forward to contest the defence/averments of the respondent no.3, it can be held that offending vehicle had no valid permit at the time of accident so in such circumstances and due to breach of the conditions of the Insurance Policy, after relying upon the decision of Supreme Court given in Oriental Insurance Co. Vs. Zharulnisha AIR 2008 SC 2218, National Insurance Co. Ltd. Vs. Swaran Singh 109 (2010) DLT 304 and of our own High Court in case Oriental Insurance Co. Vs. Pyare Lal 2010 ACJ 1647, I am of the view that Insurance Company must pay the compensation at the first instance and then it can be given recovery rights to get the compensation amount recovered from driver and owner of the offending truck.”

The petitioner herein challenged the above Award by way of an appeal, being MAC.APP.237/2017. In the said appeal, the petitioner herein produced a driving licence of the driver of the offending vehicle. This Court, vide its order dated 12.07.2017, recorded the admission of the learned counsel for the petitioner herein that the driving license produced by the petitioner herein, who was the appellant no. 1 in the said appeal, is fake. The learned counsel for the petitioner herein, however, submitted before the Court that there is another driving license of the driver which was valid and effective. On basis this statement, this Court directed an inquiry under Section 340 of the Code of Criminal Procedure, 1973 to be conducted.

The matter was inquired by the learned Joint Registrar (Judicial). Based on the Inquiry Report dated 11.09.2017 submitted by the learned Joint Registrar (Judicial), this Court had dismissed the appeal filed by the appellant, inter-alia observing as under:

“It is submitted on behalf of the appellants that at the time of the accident, appellant no. 2 had a valid driving licence issued by the State of Manipur. There is no explanation as to why the said driving licence, issued in Manipur, did not find any mention before the learned Tribunal or before this Court, in the earlier appeal filed by the insurance company, bearing number MAC. APP. 378/2011, which was disposed off on 30.10.2014. Even in this appeal, which is pending since 10.03.2017, there has been no whisper of the said driving licence issued in Manipur. The matters before the learned Tribunal and before this Court have, thus far, proceeded on the basis of a driving licence issued by the Mathura Transport Authority (UP). The said DL has been found to be fake as per the aforesaid inquiry report. The Court is of the view that if the appellants did indeed have another driving licence as of the date of the accident, or if the vehicle owner had knowledge, on the basis of the documents, that the driver possessed a valid driving licence issued in Manipur, they would have ordinarily produced such valid driving licence and/or mentioned the same in their defence before the learned Tribunal or in the two proceedings before this Court. As it stands, the Court having already found that the driving licence produced by the driver was fake, the impugned order cannot be faulted with. The Court finds no reason to interfere with the same. The appeal is without merit and is accordingly dismissed.”

At the outset it is noticed that the petitioner did not disclose the fact of filing of the above appeal or the dismissal thereof, in the present petition. These facts were material to be disclosed upfront in the petition. The petitioner is therefore, guilty of concealment of facts and on this ground itself the present petition is liable to be dismissed.

It is also important to note here that this order passed in the appeal gained finality and was not challenged by the petitioner or the driver. Once the order had gained finality, no fault can be found with the learned Tribunal seeking to enforce the Award in accordance with the law.

Observation of the court

The submission of the learned counsel for the petitioner, that the petitioner holds valid permit and fitness certificate for the offending vehicle and therefore, the petitioner be not made liable to reimburse the compensation amount to the respondent no. 1, cannot be accepted. The Permit or the Fitness Certificate was neither produced by the petitioner before the learned Tribunal nor filed with this petition. The same have only later been filed pursuant to the order dated 26.07.2023 of this Court.

Be that as it may, one of the grounds on which the learned Tribunal has allowed the respondent no.1 to recover the compensation amount from the petitioner herein is that the petitioner had failed to produce the valid driving licence of the driver for the offending vehicle in the proceedings before the learned Tribunal. Thereafter, before this Court, the petitioner alongwith the driver of the offending vehicle sought to produce a driving licence, however, the same was admittedly fake. They then sought to contend that the driver has another driving license. This Court did not believe the same and dismissed the appeal of the petitioner.

In terms of Section 149 of the Motor Vehicles Act, 1988, as was then applicable, one of the grounds on which the Insurance Company could seek the right to recover the compensation paid to the claimants from the owner/driver of the offending vehicle is, where the vehicle is being driven by a person who does not possess a valid driving licence. In the present case, this Court, in its judgment and order dated 08.07.2019, has allowed the respondent no.1 to recover the compensation amount from the owner/driver of the offending vehicle, as it found that the driver was not holding valid driving licence as on the date of the accident. The question of permit and fitness certificate, therefore, fades into inconsequence.

As far as the submission of the learned counsel for the petitioner that by the Award dated 22.12.2010 passed by the learned Tribunal, the petitioner herein is liable to pay only 50% of the compensation to the respondent no.1 is concerned, it also cannot be accepted. The Award dated 22.12.2010 fastened the liability jointly and severally on the owner, that is, petitioner herein and the driver of the Offending Vehicle, to reimburse the compensation paid by the respondent no.1 to the claimants. Being jointly and severely liable, the petitioner would remain fully liable to reimburse the respondent no.1 of the compensation paid by the respondent no. 1 to the Claimants.

I therefore, do not find any merit in the present petition. The same, along with the pending application, is dismissed. The amount deposited by the petitioner before this Court pursuant to the order dated 15.07.2022, be released to the respondent no. 1 in partial satisfaction of the Execution Proceedings. The Execution Proceedings be continued in accordance with law.

There shall be no order as to cost.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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August, 26
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Amalgamation plan in force as of the date high courts approved it: SC

Fact and issue of the case

Feeling aggrieved and dissatisfied with the impugned judgment and order dated 23-07-2019 passed by the High Court of Gujarat at Ahmedabad in Tax Appeal No. 311/2019, the Revenue has preferred the present Special Leave Petition

We have heard Shri N Venkataraman ,learned ASG appearing on behalf of the Revenue

From the impugned judgment and order passed by the High Court, it appears that the High Court has heavily relied upon the earlier decision of the High Court in the case of IRM Limited v. Deputy Commissioner of Income Tax, Circle-4, reported in (2016) 72 taxmann.com 288 (Gujarat), which was rendered after following the decision of this Court in Marshall Sons & Co.(India) Ltd. Vs. Income Tax Officer (1997) 2 SCC 302. In para 13 of the said decision, this Court has observed and held as under

A reading of the above clauses of the scheme shows that according to the scheme, the entire undertaking of the Subsidiary Company shall be transferred to the Holding Company with effect from the transferred date and that the Subsidiary Company shall be amalgamated with the Holding Company with effect from the said date. Clause (6) states clearly that the implementation of the said scheme “is conditional upon the scheme being sanctioned under Section 391 of the Act and the appropriate orders for the implementation of this scheme being made under Section 394 of the Act by the High Courts of Tamil Nadu and Calcutta”. Clause (8) further provides that the implementation of the said scheme “is conditional also upon shareholders holding not less than nine-tenths in value of the shares in the Subsidiary company becoming shareholders of the Holding Company by virtue of the amalgamation”. It is one the basis of the language of clauses (7) and (8) that the High Court has opined that the scheme takes effect only on and from the date it was sanctioned by the High Courts of Madras and Calcutta coupled with the date on which the shareholders of the Subsidiary Company becomes the shareholders of the Holding Company as provided in the sub-clauses. The High Court has opined that the transfer date mentioned in the scheme viz., January 1, 1982 is “totally artificial and arbitrary” [for the reason that on the said date neither the company nor their shareholders had even thought of amalgamation] and that it has no legal significance. According to the High Court, therefore, the date on which the amalgamation should be deemed to have come into being is not January 1, 1982 but January 20, 1984/February 24, 1984, on which dates the Madras and Calcutta High Courts respectively approved the scheme. In other words, the High Court has taken the view that in the absence of any date being specified in the order of the High Court as the date of amalgamation, the date of the order of the High Court [Company Courts] shall be taken as the date of amalgamation. For arriving at the said view, the High Court followed an earlier Full Bench decision of that Court in Sahayanidhi (Virudhnagar) Ltd. v. A. R.S. Subramanivam Nadar [(1950) 20 Company Cases 214]. The High Court also opined that the decision of the Bombay High Court in Swastik Rubber Products Ltd. is of no assistance to the appellant. On this basis, the High Court has upheld the validity of the notices issued by the Income Tax Officer, which notices were impugned in the writ petition, and dismissed the writ petition. The question is whether the view taken by the High Court is correct

Shri N Venkataraman, learned ASG appearing on behalf of the Revenue is not in a position to point out any contrary decision of this Court taking a contrary view than the view taken in the case of Marshall Sons & Co. (India) Ltd. (supra)

Observation of the court

In view of the above, the impugned judgment and order passed by the High Court does not require any interference of this Court. Under the circumstances, the present Special Leave Petition deserves to be dismissed and is accordingly dismissed

Pending application(s), if any, shall stand disposed of

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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May, 10
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State tax rates may be higher than those capped by CST for gutkha and pan masala

Fact and issue of the case

This judgment will dispose of appeals arising from judgments of three High Courts, on the question of taxability of pan masala or gutka/gutkha1, under state enactments. The appellants unsuccessfully argued that state legislatures were not empowered to levy sales tax on those articles, in view of the provision in the Constitution enabling the Union to levy additional duties of excise, and further that in any case, the rate of state tax cannot exceed the limit prescribed by the Central Sales Tax Act, 1956

The relevant central enactments are the Central Sales Tax Act, 1956 (hereafter “CST Act”), the Central Excise Tariff Act, 1985 (hereafter “CET Act”), and the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (hereafter “ADE Act”). The state enactments in question are the Delhi Sales Tax Act, 1975 (hereafter “DST Act”); Tamil Nadu General Sales Tax Act, 1959 (hereafter “TNGST Act”) and the Uttar Pradesh Trade Tax Act, 1948 (hereafter “UPTT Act

Section 14 of the CST Act declares certain goods to be of special importance; and Section 15 restricts the power of taxation on the said goods. Originally Section 14(ix) of the CST Act read as follows

tobacco, as defined in Item No. 4 of the First Schedule to the Central Excises and Sale Act, 1944 (1 of 1944)

Entry 4 of the CET Act, which defines ‘tobacco’, reads as follows

Tobacco

Tobacco” means any form of Tobacco, whether cured or uncured and whether manufactured or not and includes the leaf, stalks and stems of the tobacco plant, but does not include any part of a tobacco plant while still attached to the earth

Manufactured Tobacco

Chewing tobacco, including preparations commonly known as “Khara Masala”, “Kimam”, “Dokta”, “Zarda”, “Sukha” and “Surti

The Finance Act, 1988 (Central Act No. 26/1988) substituted the expressions in Section 14(ix) of the CST Act, with the following words, w.e.f. 13.05.1988

Unmanufactured tobacco and tobacco refuse covered under sub-Heading No. 2401.00, cigars and cheroots of tobacco covered under Heading No. 24.02, cigarettes and cigarillos of tobacco covered under the sub-Heading Nos. 2403.11 and 2403.21, and other manufactured tobacco covered under sub-heading Nos. 2404.41, 2404.50 and 2404.60 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986)

The 1988 amendment to Section 14 of the CST Act was with a view to align the description of goods in that law, with the description in the CET Act, as is clear from the Finance Bill, 1988. Heading 24.04 of the CET Act originally read to include “Gudaku with brand name and without brand name” (Entries 2404.11 and 2404.12); cut tobacco (Entry 2404.13); hookah tobacco, chewing tobacco (including preparations known as khara masala, khiman, dokta, zarda and surti (Entry 2404.39); snuff (Entry 2404.49); and snuff of tobacco (Entry 2404.50). The entry in relation to chewing tobacco was amended w.e.f. 1993-94

By Finance Act, 1995, ‘Pan Masala’ was brought under the Heading 21.06. In the year 1995, the Fourth Schedule was amended, and the relevant Clause (8) in Chapter 21 read as follows

in Chapter 21

for NOTE 3, the following NOTE shall be substituted, namely

In this Chapter, ‘Pan Masala’ means any preparation containing betel nuts and any one or more of the following ingredients, namely lime, katha (catechu) and tobacco, whether or not containing any other ingredients, such as cardamom, copra and menthol

Clause (10) in Chapter XXIV reads as follows: (i) for NOTE 2, for the figures and word ‘24.02, 24.03 and 24.04ç the figures and word ‘24.01, 24.02, 24.03 and 24.04’ shall be substituted

Clause (9) in Chapter XXI reads as follows

for Heading Nos. 21.06 and 21.07 and the entries relating thereto, the following shall be inserted, namely:

21.06 2106.00 ‘Pan Masala’ 50%

Finance (No. 2) Act, 1996, again changed the entry, in the following manner

in Chapter 24, after NOTE 4, the following NOTE shall be inserted, namely

In this Chapter, ‘smoking mixtures for pipes and cigarettes’ of sub-heading No. 2404.10 does not cover ‘Gudaku

Observation of the court

This court, in Kothari Products Ltd. (supra) reversed the Full Bench decision stating that

The contention on behalf of the appellants is that it is not open to the State of Andhra Pradesh to tax gutka. Section 8 of the State Sales Tax Act provides that a dealer who deals in the goods specified in the Fourth Schedule thereto shall be exempt from tax thereunder in respect of such goods. Entry 7 of the Fourth Schedule of the State Sales Tax Act refers to tobacco and the explanation in this behalf is that the goods mentioned in Entry 7

shall be goods included in the relevant heads and sub-heads of the First Schedule to the Additional Duties of Excise (Goods of Special Importance) Act, 1957, but does not include goods where no additional duties of excise are levied under that Schedule

The said Additional Duties of Excise Act, in Entry 2404, refers to “Gudaku” under the sub-Heading “Other manufactured tobacco”. Gudaku which bears a brand name is taxable under Entry 2404.11 at the rate of 5% and Gudaku not bearing a brand name is subject to tax at nil rate under Entry 2404.12. The Schedule to the Central Excise Act also makes the same distinction between Gudaku bearing a brand name and Gudaku not bearing a brand name under the sub-Heading, “Other manufactured tobacco and manufactured tobacco substitutes; homogenised or ‘reconstituted’ tobacco; tobacco extracts and essences

Clearly, therefore, gutka is a tobacco that is covered by an entry in the First Schedule to the said Additional Duties of Excise Act and the branded gutka that the appellants manufacture is liable to tax thereunder. Gutka, therefore, is ‘goods’ covered by the Explanation to the Fourth Schedule to the State Sales Tax Act and, therefore, covered by the exemption contained in Section 8 thereof. The Schedule to the State Act could, therefore, not have been amended by including gutka as a kind of pan masala in entry 194 of its First Schedule. It must, therefore, be held that the inclusion of gutka in the said entry 194 in the manner in which it is done is bad in law and is struck down. The appellants will be entitled to all consequential benefits

As far as the first point argued by the appellants are concerned, which is, whether in a state law which contains two provisions: one which taxes entries, and another which exempts articles from levy (the latter being listed separately, in a notification, or a schedule to the enactment itself), the inclusion, or insertion into the list or schedule of articles that can be taxed (like Section 4 of the DST Act) without amending the subsisting notification that excludes levy (as under Section 7 DST) would the levy fail?

There was apparent conflict between two lines of judgments of this court i.e., Radheshyam Gudakhu Factory and Kothari Products Ltd. (supra) on the one hand, and Dealing Dairy Products (supra), Krishna Kuthar Kabra (supra) and Agra Belting Works (supra) on the other hand. This court, in the latter three judgments held that notification introducing an entry and subjecting it to levy, when previously, it was exempt in another part of the taxing statute, the intention was to withdraw the exemption and make the sale leviable to tax at the rate prescribed in the later notification. The court held it to be unnecessary that “a specific or separate notification withdrawing or revoking the notification should be issued”. This conflict was referred to a larger bench of five judges, in Trimurti Fragrances (P) Ltd v. Govt of NCT of Delhi30 (a case, which is part of the present batch). The court held that the judgment in Agra Belting Works (supra) does not in any manner conflict with the ruling in Kothari Products Ltd. (supra) or Radheshyam Gudakhu Factory (supra)

In our considered opinion there is no conflict between the Kothari Products (supra) line of cases and the Agra Belting line of cases. The Kothari Products (supra) line of cases was on the question of whether “tobacco” or other goods specified in the First Schedule to the ADE Act and hence exempted from Sales Tax under State sales tax enactments, can be made exigible to tax under the State enactments by amending the Schedule thereto. On the other hand, Agra Belting Works (supra) line of cases was on the question of interplay between general exemption of specified goods from sales tax under Section 4 of the U.P. Sales Tax Act and specification of rates of sales tax under Section 3-A of the said Act. This Court held that goods exempted from sales tax under Section 4 would be exigible to tax by virtue of subsequent notification under Section 3-A specifying the rate of sales tax for any specific item of the class of goods earlier exempted under Section 4. There being no conflict, the reference to Constitution Bench is incompetent

The above holding, that there is no conflict between the Agra Belting Works (supra) line of cases, and the Kothari Products Ltd. (supra) line of cases, therefore, concludes the question urged with respect to efficacy or validity of notifications introducing as entries in a schedule(s) and subjecting them to tax, when those articles are part of the statute or are exempted from taxation. The assessees’ contentions therefore, fail on this point

Turning next to the question of whether pan masala was an exempted item, being “tobacco”, it is noticeable that pan masala was expressly mentioned in Chapter 21 for the first time, in 1995 in the CET Act. Note 3 defined ‘Pan Masala’ as “any preparation containing betel nuts and any one or more of the following ingredients, namely lime, katha (catechu) and tobacco, whether or not containing any other ingredients”. However, at the same time, Chapter 24 contained a specific entry “tobacco” which enumerated tobacco, manufactured tobacco, substitutes etc. The relevant sub-heading at that time was 2404.41 which enumerated chewing tobacco, including preparations commonly known as khara masala, kimam, dokta, zarda, sukha and surti. Thus, the CET Act itself made a distinction between pan masala – whether it contained tobacco, or not, and all forms of tobacco. Right from 1995, the distinction in the CET Act between pan masala (Chapter 21) and tobacco (Chapter 24), had been made. The definition of pan masala also clarified that despite one of its ingredients being tobacco, it would nevertheless be a separate article

This court had to consider the effect of the term “includes” in relation to the definition of tobacco in Mahalakshmi Oil Mills (supra). The controversy was whether the term “tobacco” and the inclusive clause was wide enough to cover tobacco seeds. This court, observed that

Can then the words “tobacco” and “any form of tobacco” in the first part of the definition be given a wider meaning and read as including the seeds also, particularly as it talks of “tobacco in any form, cured or uncured, manufactured or unmanufactured”? We do not think they can be for several reasons. In the first place, tobacco seeds hardly answer to the description of either the expression “manufactured tobacco” or the expression “unmanufactured tobacco” in their ordinary connotation; and the expression “cured or uncured” cannot also be associated with tobacco seeds. The expression used in the first part of the definition, though every wide, is, therefore, singularly inappropriate to take within its purview tobacco seeds as well. Secondly, the definition occurs in a statute levying excise duty which is concerned not with the parts of a plant grown on the field but with the use to which those parts are put or can be put after severance. The legislature could not but have been aware that if the leaves, stalks and stems of the tobacco plant are used for manufacturing cured tobacco, biris, cigarettes and so on, the seed is also used to produce oil and cake. It takes care to mention the first three items which are used in the manufacture of some forms of tobacco consumption which are also enumerated but refrains from referring to seeds which it would have done had it been intended to include the oil and cake also for purposes of the levy. The categories of unmanufactured tobacco enumerated in the entry in the Schedule include “stalks” but not “seeds”. This also indicates that seeds are not intended to be included. In other words, the omission of the word “seeds” from the second part of the definition casts its shadow on the first part as well. Indeed it rather looks as if the second part of the definition is intended to restrict rather than expand the scope of the first part. Thirdly, it is to be noticed that the first part of definition is somewhat restrictively worded

In P. Kasilingam v. PSG College of Technology31 this court followed the same principle, i.e., that “includes” used in conjunction with some words, expands the natural import of the term, to the extent it incorporates those words: “The word “includes”, when used, enlarges the meaning of the expression defined so as to comprehend not only such things as they signify according to their natural import but also those things which the clause declares that they shall include

The words “means and includes”, on the other hand, indicate “an exhaustive explanation of the meaning which, for the purposes of the Act, most invariably be attached to these words or expressions” [See: Dilworth v. Commissioner of Stamps, [1899] AC 99 at pp. 105-106 (Lord Watson); Mahalakshmi Oil Mills v. State of Andhra Pradesh, [1989] 1 SCC 164, at p. 169)

These decisions have been followed in later judgments as well; one of them is Pioneer Land & Urban Infrastructure v. Union of India32. For these reasons, throughout (till 2001), “Pan masala” and chewing tobacco have received different treatment. They are not interchangeable or synonymous expressions. Entry 2404 refers to chewing tobacco “including preparations commonly known as “Khara Masala”, “Kimam”, “Dokta”, “Zarda”, “Sukha” and “Surti””. Gudaku and snuff are dealt with under a separate heading. The effect of inclusion of pan masala with tobacco in Chapter 24 and simultaneously that product’s exclusion from Chapter 21, as well as imposition of ADE with effect from 2001, on ‘pan masala containing tobacco’ meant that the product (i.e. pan masala without tobacco) went out, for the first time, of the reach of state sales tax. All along, goods and products described as pan masala and gutkha, were included in Chapter 21. The conclusion therefore, is that till 2001, and the introduction of ADE, these two products were covered by local or sales tax levies

The General Rules of Interpretation (of the CET Act) which guide the appropriate classification of products, inter alia, provide that

THE FIRST SCHEDULE—IMPORT TARIFF (See Section 2) GENERAL RULES FOR THE INTERPRETATION OF THIS SCHEDULE

Classification of goods in this Schedule shall be governed by the following principles

The titles of Sections, Chapters and Sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions

Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or, finished by virtue of this rule), presented unassembled or disassembled

Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of rule 3

When by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows

the heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods

mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable

when goods cannot be classified by reference to (a) or (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration

In Collector of Central Excise Nagpur v. Simplex Mills Co. Ltd33 this court outlined the role of the interpretive rules

for legal purposes, classification “shall be determined according to the terms of the headings and any relevant section or chapter notes”. If neither the heading nor the notes suffice to clarify the scope of a heading, then it must be construed according to the other following provisions contained in the Rules. Rule 1 gives primacy to the section and chapter notes along with terms of the headings. They should be first applied. If no clear picture emerges then only can one resort to the subsequent rules. The appellants have relied upon Rule 3. Rule 3 must be understood only in the context of sub- rule (b) of Rule 2 which says inter alia that the classification of goods consisting of more than one material or substance shall be according to the principles contained in Rule 3. Therefore when goods are prima facie, classifiable under two or more headings, classification shall be effected according to sub- rules (a), (b) and (c) of Rule 3 and in that order

On a plain application of the interpretive rules, especially Rule 3(a) it is clear that the heading which provides the most accurate description has to be followed. In the present case, there is no doubt, that before 2001, pan masala and gutkha fell within Chapter 21, as pan masala, regardless of whether they contained tobacco. Goods classifiable under Chapter 24, i.e. tobacco items were more general; also they did not include pan masala

As regards the question of the rate of tax, in view of the restrictions under Section 15 CST Act, neither gutkha nor pan masala were “declared goods” under Section 14 of the CST Act. The amendment to the CET Act did not become part of Section 14(ix). The goods under the relevant sub-headings of the CET Act were absent in the list of declared goods of the CST Act; they were not part of the provisions introduced to the Finance Act, 1988. Therefore, the subsequent changes made introducing 2404.40 in the CET Act do not affect or change the CST Act. Consequently gutkha and pan masala are not covered under sub-heading 2404.40 so far as CST Act is concerned. Resultantly the arguments of the assessees that the rate of local tax, cannot exceed the limit under the CST Act, are rejected as unmerited

For the foregoing reasons, the appeals by the assessees have to fail. The revenue’s appeals are consequently allowed. There shall be no order on costs

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here

Trimurthi-Fragrances-P-Ltd.-Vs-Govt.-of-N.C.T-of-Delhi-Supreme-Court-of-India-2

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As a result of a search in a group company that demonstrated the keeping of accounts outside of ordinary books, addition u/s 69C was upheld

Fact and issue of the case

Feeling aggrieved and dissatisfied with the impugned judgment and order dated 23.02.2010 passed by the High Court of Gujarat at Ahmedabad passed in Tax Appeal No. 2186 of 2009, by which the High Court has allowed the said Appeal preferred by the assessee and has reversed the judgment and order passed by the ITAT restoring the Assessment Order passed by the Assessing Officer upholding the additions of Rs.17,15,00,000/- as unexplained expenditure under Section 69C of the Income Tax Act, 1961 (for short “the Act”), the Revenue has preferred the present appeal

At the outset, it is required to be noted that, in the present case, considering the material on record, the Assessing Officer made additions of Rs. 17,15,00,000/- as unexplained expenditure under Section 69C of the Act taking into consideration the actual consumption of diamonds as 4,30,701.14 carats as mentioned in the audit report and after considering the consistent trend on yield which was found to be between 10-18%, the Assessing Officer made the aforesaid additions. The Assessing Officer also considered the alternative prayer made by the assessee on claiming deductions as expenditure under Section 80HHC. The CIT (Appeals) reversed the addition. The ITAT, on appreciation of the entire material on record and even after taking into consideration the remand order which was necessitated due to the affidavits filed before the ITAT of the Typist and the Chartered Accountant, reversed the order passed by the CIT (Appeals) and restored the Assessment Order by upholding the addition of Rs.17,50,00,000/- as unexplained expenditure under Section 69C of the Act. By the impugned judgment and order, the High Court has set aside the order passed by the ITAT solely relying upon the two affidavits – one of the Typist and another of the Chartered Accountant and accepted the submission on behalf of the assessee that there was a typographical error in the audit report in which the consumption was shown at 4,30,701.14 carats and that the actual consumption was 2,90,701.14 carats

In light of the above, the impugned judgment and order passed by the High Court is required to be considered

We have heard Shri N. Venkataraman, learned ASG, appearing on behalf of the Revenue

Though served, none has appeared on behalf of the respondent- assessee.

Shri N. Venkataraman, learned ASG, has taken us through the findings recorded by the Assessing Officer on the actual consumption and the yield in the respective years. It is submitted that, in the audit report, it was specifically mentioned that the consumption was 4,30,701.14 carats and on that basis the Assessing Officer proceeded further and considered that the difference between the declared carats and the carats mentioned in the audit report can be said to be de hors the books of accounts/unaccounted and therefore the Assessing Officer rightly made the additions as unexplained income under Section 69C of the Act taking into consideration the trend with respect to the consumption in the last few years. It is submitted that, as such, the affidavits of the typist and the Chartered Accountant were filed for the first

time before the ITAT and, in fact, the Assessing Officer submitted his comment in the remand report also. It is submitted that, while passing the impugned judgment and order, the High Court has solely relied upon the affidavits of the Typist and the Chartered Accountant and the High Court has not at all considered the conduct on the part of the assessee and its associates, which came to be considered by the Assessing Officer as well as the ITAT

Making the above submissions and relying upon the findings recorded by the Assessing Officer, which came to be affirmed by the ITAT, it is prayed to allow the present Appeal

Observation of the court

We have gone through the findings recorded by the Assessing Officer, CIT (Appeals) as well as the ITAT. Before the Assessing Officer, though it was the specific case on behalf of the assessee that the figure of Rs.4,30,701.10 was a typing mistake, except the statement of the assessee, no further material was produced before the Assessing Officer. Therefore, the Assessing Officer proceeded further with the assessment taking into consumption of 4,30,701.14 carats. That thereafter, considering the figure of yield in different assessment years, the Assessing Officer came to the conclusion that the percentage of the yield would be ranging between 10-18%. That thereafter, the Assessing Officer specifically gave the finding that taking into consideration the figures on record for the relevant year under consideration, the yield would come to 24%. Therefore, taking into consideration the average yield in the last assessment years, the Assessing Officer treated the same as unexplained income and made the additions of Rs.17,50,00,000/- under Section 69C. The ITAT has concurred with the said findings. As observed hereinabove, solely relying upon the statements of the Typist and the Chartered Accountant, the High Court has reversed the findings of the Assessing Officer as well as the ITAT. The High Court has also not properly appreciated and considered the fact that the affidavits were filed for the first time before the ITAT. The High Court has also not at all considered the conduct on the part of the assessee, which came to be considered in detail by the ITAT in para 10 of the order passed by the ITAT. It was found that there has been search in the case of the assessee and its group concern on 07.01.1999 which was concluded on 23.03.1999 and during the course of the search, duplicate cash book, ledger and other books showing the unaccounted manufacturing and trading arrived at by the assessee in diamonds were found. The ITAT has also noted that the huge addition was made in the case of assessee’s group in the block assessment on the basis of the books so found. Therefore, it was found that the assessee was maintaining the books of accounts outside the regular books. The aforesaid has not at all been considered by the High Court, while passing the impugned order

In view of the above and for the reasons stated above, the impugned judgment and order passed by the High Court is unsustainable and the same deserves to be quashed and set aside and is, accordingly, quashed and set aside. The order passed by the ITAT as well as the Assessment Order are restored

The present Appeal is, accordingly, allowed. No costs

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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May, 6
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Objections to the ITAT Order will be heard by the HC in the jurisdiction where the AO is located: SC

Fact and issue of the case

Feeling aggrieved and dissatisfied with the impugned judgment and order dated 21-05-2021 passed by the High Court of Judicature at Bombay in Writ Petition (L) No. 3865/2020, by which the High Court has allowed the said writ petition preferred by the Assessee and has quashed and set aside the order passed by the President of the ITAT transferring four appeals from Bangalore Bench to Mumbai Bench, which was passed in exercise of powers under Rule 4 of the Income Tax Appellate Rules, the Revenue and Anr. have preferred the present Special Leave Petition

We have heard Shri N Venkataraman, learned ASG appearing on behalf of the Revenue/Appellant(s) and Shri Jahangir D. Mistri, learned Senior Advocate appearing on behalf of the Assessee

Learned Senior Advocate appearing on behalf of the Assessee has drawn out attention to the recent decision of this Court in Principal Commissioner of Income Tax-I, Chandigarh Vs. ABC Papers Limited (2022) 9 SCC 1, more particularly paragraphs 24, 25, 42 and 45. It is submitted that in the said decision, it is observed and held by this Court that the seat of ITAT and/or jurisdiction of the concerned High Court would depend upon where the seat of Assessing Officer was and the Assessing Officer, who passed the order. It is submitted that in the present case, the Assessing Officer passed order in Bangalore. Even the CITA also passed order in Bangalore. It is submitted that, therefore, as observed and held by this Court, the appeal against the Assessment order/the order passed by the CITA would only lie before the ITAT, Bangalore

The aforesaid factual aspects have not been disputed by Shri N Venkataraman, learned ASG appearing on behalf of the Revenue

In paras 24, 25, 42 and 45 of the judgment and order in the case of ABC Papers Limited (supra), this Court has observed and held as under

Keeping the above principle in mind, we will now return to the inquiry into the appropriate High Court for filing an appeal against an order of a bench of the ITAT exercising jurisdiction over more than one state. We notice that the issue has already fallen for consideration before a Division Bench of the High Court of Delhi way back in 1978 in the case of Seth Banarsi Dass Gupta. Having considered the matter in detail, the High Court of Delhi held that the “most appropriate” High Court for filing an appeal would be the one where the Assessing Officer is located. The decision was followed in Suresh Desai (supra) by Justice Lahoti (as he then was) and provided additional reasons in support of the same view. The interpretative choices are based on the following reasons, which we have reformulated as under

As benches of the ITAT exercise jurisdiction over more than one state, Explanation to Standing Order No. 1 of 1954 and Standing Order No. 1 of 1967 issued under the Rules prescribe that, the jurisdiction of the ITAT should be based on the location of the Assessing Officer. The same principle should apply for determining the jurisdiction of the High Court for an appeal against the decision of the ITAT

It would be appropriate for the ITAT to refer a question of law to the High Court within whose jurisdiction the Assessing Officer or the CIT which has decided the case is located, as these authorities would be bound to follow the decision of the concerned High Court

This interpretation will also be in consonance with the expression “in relation with any State, the High Court of that State” provided in the definition of the “High Court” in Section 66(8) (under the present 1961 Act, it is Section 269)

The appeals and references cannot be made to a High Court only on the basis that a bench of the ITAT is located within the jurisdiction of the said High Court, as it will create an anomalous situation for that as well as other High Courts

In view of the doctrine of precedents and the rule of binding efficacy of law laid down by a High Court within its territorial jurisdiction, a question of law arising for decision in a reference should be determined by the High Court which exercises territorial jurisdiction over the situs of the Assessing Officer (Suresh Desai)

The principle laid in Seth Banarasi Dass is followed in Suresh Desai & Associates v. Commissioner of Income Tax, Birla Cotton Spinning and Weaving Mills Ltd. v. Commissioner of Income Tax, Commissioner of Income Tax v. Digvijay Chemicals Ltd. and Commissioner of Income Tax v. Motorola India Ltd. It is interesting to note that this basic principle is accepted and abided as a precedent even in the two subsequent judgments of the High Court of Delhi in Sahara and Aar Bee.Thus, it is well-settled that the appellate jurisdiction of a High Court under Section 260A is exercisable by a High Court within whose territorial jurisdiction the assessing officer is located

The power of transfer exercisable under Section 127 is relatable only to the jurisdiction of the Income Tax Authorities. It has no bearing on the ITAT, much less on a High Court. If we accept the submission, it will have the effect of the executive having the power to determine the jurisdiction of a High Court. This can never be the intention of the Parliament. The jurisdiction of a High Court stands on its own footing by virtue of Section 260A read with Section 269 of the Act. While interpreting a judicial remedy, a Constitutional Court should not adopt an approach where the identity of the appellate forum would be contingent upon or vacillates subject to the exercise of some other power. Such an interpretation will clearly be against the interest of justice

In conclusion, we hold that appeals against every decision of the ITAT shall lie only before the High Court within whose jurisdiction the Assessing Officer who passed the assessment order is situated. Even if the case or cases of an assessee are transferred in exercise of power under Section 127 of the Act, the High Court within whose jurisdiction the Assessing Officer has passed the order, shall continue to exercise the jurisdiction of appeal. This principle is applicable even if the transfer is under Section 127 for the same assessment year(s)

Observation of the court

In view of the above and for the reasons stated hereinabove, it cannot be said that the High Court has committed any error in setting aside the order passed by the President of the ITAT transferring the appeals from the Bangalore Bench to the Mumbai Bench. We are in complete agreement with the view taken by the High court. Therefore, now the appeals will be heard by the ITAT, Bangalore Bench

In view of the above, the present Special Leave Petition deserves to be dismissed and is accordingly dismissed

However, it is observed that the other issues including the powers of the President under Section 255 read with Income Tax Appellate Rules are kept open to be considered in an appropriate proceedings

Pending application(s) shall stand disposed of

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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May, 6
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A large surplus-generating educational institution is not exempt under section 10(23C)(vi): SC

Fact and issue of the case

Feeling aggrieved and dissatisfied with the impugned judgment and order 20.05.2010 passed by the High Court of Punjab & Haryana at Chandigarh passed in CWP No. 18251 of 2009, by which the High Court has allowed the said Writ Petition preferred by the respondent-assessee and has set aside the order passed by the Commissioner denying the exemption under Section 10(23C)(vi) of the Income Tax, Act, 1961 (for short “the Act”), the Revenue has preferred the present Appeal

The dispute is with respect to the Assessment Year 2006-2007. The respondent-assessee was indulged in the activity of imparting the Therefore, the respondent-assessee claimed the exemption under Section 10(23C)(vi) of the Act by submitting an application before the Jurisdictional Commissioner. On appreciation of evidence and considering the material on record, it was found that the assessee has been earning systematic profits year after year and, in the year in question, earned profit to the extent of 67.81% without depreciation and therefore, the Commissioner was of the opinion that the activity of the respondent-assessee cannot be said to be solely for imparting the education and, therefore, not entitled to the benefit/exemption under Section 10(23C)(vi) of the Act and consequently dismissed the said application. The order passed by the Jurisdictional Commissioner denying the exemption under Section 10(23C)(vi) was the subject-matter of Writ Petition before the High Court. By the impugned judgment and order and relying upon its earlier order in the case of Shri Atmanand Jain Gurukul Educational Society (Gujranwala) vs. Chief Commissioner of Income Tax dated 15.03.2010 in CWP No. 1509 of 2010, the High Court has disposed of the Writ Petition, which has given rise to the present Appeal

At the outset, it is required to be noted that, by deciding the Writ Petition in the case of Shri Atmanand Jain Gurukul Educational Society (supra), the Punjab & Haryana High Court relied upon its earlier decision dated 29.01.2010 in CWP No. 6031 of 2009 in the case of Pinegrove International Charitable Trust vs. Union of India and Others. It is also required to be noted that, while rejecting the application of the assessee in the present case for exemption under Section 10(23C)(vi), the Commissioner, as such, heavily relied upon the decision of the Uttarakhand High Court in the case of Queen’s Educational Society, Haldwani vs. Commissioner of Income Tax (2009) 319 ITR 160. It is required to be noted that the decision of the Uttarakhand High Court in the case of Queen’s Educational Society (supra) and in the case of Pinegrove International Charitable Trust (supra), as such, were the subject-matter of Appeals before this Court and by a judgment and order dated 16.03.2015 in Queen’s Educational Society vs. Commissioner of Income Tax, reported in (2015) 8 SCC 47, this Court has set aside the order passed by the Uttarakhand High Court in the case of Queen’s Educational Society (supra) and also approved the decision of the Punjab & Haryana High Court in the case of Pinegrove International Charitable Trust (supra). Therefore, by the reported judgment, this Court approved the decision of the Punjab & Haryana High Court in the case of Pinegrove International Charitable Trust (supra).

However thereafter, the decisions of this Court in the case of Queen’s Educational Society (supra) again fell for consideration before this Court in the recent decision of this Court in the case of New Noble Educational Society vs. Chief Commissioner of Income Tax 1 and Another, 2022 SCC OnLine 1458 wherein a three-Judge Bench of this Court has not approved the decision of this Court in the case of Queen’s Educational Society (supra)

The relevant paras are para 50, 51, 52, 55, 56 & 68, which are as under:-

The next judgment is that of Queen’s Education Society (supra). In that case, the society was engaged in imparting education through its schools. For two successive assessment years the society recorded some profits. It was denied exemption, on the ground that the society’s objects included not only education, but others as well, and that its aim was to make profit. The Uttarakhand High Court affirmed the view of the revenue. On appeal, this court after considering the previous judgments (discussed above), held that the High Court was in error. After quoting extensively from the judgment in Surat Art Silk (supra), this court recorded its conclusions, entirely affirming the ‘predominant object’ test

Thus, the law common to Section 10 (23C)(iiiad) and (vi) may be summed up as follows:

Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit

The predominant object test must be applied – the purpose of education should not be submerged by a profit making motive

A distinction must be drawn between the making of a surplus and an institution being carried on “for profit”. No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit

If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not be cease to be one existing solely for educational purposes

The ultimate test is whether on an overall view of the matter in the concerned assessment year the object is to make profit as opposed to educating persons

The court disapproved the Uttarakhand High Court’s view that generating surplus was prohibited and adversely commented on the inferences drawn by the High Court. It was held that the High Court had misconstrued the judgment in Aditanar (supra). It then discussed the appeal directed against the judgment of the Punjab and Haryana High Court in Pinegrove International Charitable Trust Vs. Union of India, where the exemption application was denied by the revenue on the ground that the level of fees collected and the surplus generated consistently for several years indicated that the trust was essentially engaging itself in profitable activity under the garb of imparting education. The High Court had held that the generation of profits could not be the only reason to deny exemption, and what was relevant was the ‘predominant’ or main object of the society, which in that case was to impart education. The High Court also held that after granting approval, if the PA notices that the conditions in which approval had been granted were violated under the circumstances detailed in the thirteenth proviso (as it existed then), approval could be withdrawn after following the procedure prescribed

This court in Queens Educational Society (supra) approved the judgement of the Punjab and Haryana High Court in Pinegrove International (supra). By the same judgement, it also approved other judgements of High Courts which had followed Pinegrove and disagreed with the Uttarakhand High Court’s judgement

The basic provision granting exemption, thus enjoins that the institution should exist ‘solely for educational purposes and not for purposes of profit’. This requirement is categorical. While construing this essential requirement, the proviso, which carves out the exception, so to say, to a limited extent, cannot be looked into. The expression ‘solely’ has been interpreted, as noticed previously, by other judgments as the dominant/predominant/primary/main’ object. The plain and grammatical meaning of the term ‘sole’ or ‘solely’ however, is ‘only’ or ‘exclusively’. P.Ramanath Aiyar’s Advanced Law Lexicon explains the term as,“ ‘Solely’ means exclusively and not primarily”. The Cambridge Dictionary defines ‘solely’ to be, “Only and not involving anyone or anything else”. The synonyms for ‘solely’ are “alone, independently, single-handed, single‑ handedly, singly, unaided, unassisted” and its antonyms are “inclusively, collectively, cooperatively, conjointly etc

It is, therefore, clear that term ‘solely’ is not the same as ‘predominant/ mainly’. The term ‘solely’ means to the exclusion of all others. None of the previous decisions–especially American Hotel (supra) or Queens Education Society (supra)– explored the true meaning of the expression ‘solely’. Instead, what is clear from the previous discussion is that the applicable test enunciated in Surat Art (supra) i.e., the ‘predominant object’ test was applied unquestioningly in cases relating to charitable institutions claiming to impart education. The obvious error in the opinion of this court which led the previous decisions in American Hotel (supra) and in Queens Education Society (supra) was that Surat Art (supra) was decided in the context of a society that did not claim to impart education. It claimed charitable status as an institution set up to advance objects of general public utility. The Surat Art (supra) decision picked the first among the several objects (some of them being clearly trading or commercial objects)as the ‘predominant’ object which had to be considered while judging the association’s claim for exemption. The approach and reasoning applicable to charitable organizations set up for advancement of objects of general public utility are entirely different from charities set up or established for the object of imparting education. In the case of the latter, the basis of exemption is Section 10(23C) (iiiab), (iiiad) and (vi). In all these provisions, the positive condition ‘solely for educational purposes’ and the negative injunction‘ and not for purposes of profit’ loom large as compulsive mandates, necessary for exemption. The expression ‘solely’ is therefore important. Thus, in the opinion of this court, a trust, university or other institution imparting education, as the case may be, should necessarily have all its objects aimed at imparting or facilitating education. Having regard to the plain and unambiguous terms of the statute and the substantive provisions which deal with exemption, there cannot be any other interpretation

Observation of the court

In the light of the above discussion, this court is of the opinion that the interpretation adopted by the judgments in American Hotel (supra) as well as Queens Education Society (supra) as to the meaning of the expression ‘solely’ are erroneous. The trust or educational institution, which seeks approval or exemption, should solely be concerned with education, or education related activities. If, incidentally, while carrying on those objectives, the trust earns profits, it has to maintain separate books of account. It is only in those circumstances that ‘business’ income can be permitted-provided, as stated earlier, that the activity is education, or relating to education. The judgment in American Hotel (supra) as well as Queens Education Society (supra)do not state the correct law, and are accordingly overruled

In the recent decision of this Court in the case of New Noble Educational Society (supra), it is specifically observed and held by the three-Judge Bench of this Court that for claiming the benefit/exemption under Section 10(23C)(iii)(ab) which is para materia to Section 10(23C)(vi) the activity of the assessee must be be solely for educational purposes and if ultimately it is found that the activity is for profits the assessee is not entitled to the exemption under Section 10(23C)(vi) of the Act

Applying the law laid down by this Court in the case of New Noble Educational Society (supra) referred to hereinabove to the facts of the case on hand, the impugned judgment and order passed by the High Court is unsustainable. At this stage, it is required to be noted that taking into consideration the entire material on record, in fact, the Commissioner, while considering the application of the assessee for grant of exemption under Section 10(23C)(vi) specifically observed and held that the activity of the assessee cannot be said to be solely for imparting the education and that the assessee is indulging into the profit which was found to be 67.81% without depreciation and 44.48% with depreciation. The finding of fact recorded by the Commissioner, as such, not been upset by the High Court in the impugned judgment and order

In view of the above and for the reasons stated above, the present Appeal succeeds. The impugned judgment and order passed by the High Court deserves to be quashed and set aside and is, accordingly, quashed and set aside

The present Appeal is, accordingly, allowed. No costs

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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May, 4
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Income Tax, Income Tax Circular Notification
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Software purchased and sold on CDs is considered to be a good: SC

Fact and issue of the case

These Appeals are against the Judgment dated 12th December, 1996 of the Andhra Pradesh High Court. The Appeals have been placed before this Bench pursuant to an Order of this Court dated 16th January, 2002

Briefly stated the facts are as follows :

The Appellants provide consultancy services including Computer Consultancy Services. As part of their business they prepare and load on customers’ computers custom made software (for sake of convenience hereinafter referred to as ‘uncanned software’) and also sell Computer Software Packages off the shelf (hereinafter referred to as ‘canned software’). The canned Software Packages are of the ownership of companies/persons, who have developed those software. The Appellants are licensees with permission to sub-licence these packages to others. The canned software programmes are pragrammes like Oracle, Lotus, Master Key, N-Export, Unigraphics, etc

In respect of the canned software the Commercial Tax Officer, Hyderabad, passed a provisional Order of Assessment under the provisions of the Andhra Pradesh General Sales Tax Act, 1957 [hereinafter called ‘the said Act’] holding that the software were goods. The Commercial Tax Officer accordingly levied sales tax on this software. The Appellate Deputy Commissioner of Commercial Taxes also held that the software were goods and liable to tax. However, the matter was remanded back for purposes of working out the tax

The further Appeal, filed by the Appellants, before the Sales Tax Appellate Tribunal, Andhra Pradesh, was dismissed on 1st April, 1996. The Appellants then filed a Tax Revision Case in the Andhra Pradesh High Court, which has been dismissed by impugned Judgment dated 12th December, 1996

Observation of the court

The copyright in that programme may remain with the originator of the programme. But the moment copies are made and marketed, it becomes goods, which are susceptible to sales tax. Even intellectual property, once it is put on to a media, whether it be in the form of books or canvas (in case of painting) or computer discs or cassettes, and marketed would become “goods”. We see no difference between a sale of a software programme on a CD/floppy disc from a sale of music on a cassette/CD or a sale of a film on a video cassette/CD. In all such cases, the intellectual property has been incorporated on a media for purposes of transfer. Sale is not just of the media which by itself has very little value. The software and the media cannot be split up. What the buyer purchases and pays for is not the disc or the CD. As in the case of paintings or books or music or films the buyer is purchasing the intellectual property and not the media i.e. the paper or cassette or disc or CD. Thus a transaction sale of computer software is clearly a sale of “goods” within the meaning of the term as defined in the said Act. The term “all materials, articles and commodities” includes both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed etc. The software programmes have all these attributes. At this stage it must be mentioned that Mr. Sorabjee had pointed out that the High Court has, in the impugned Judgment, held as follows

In our view a correct statement would be that all intellectual properties may not be ‘goods’ and therefore branded software with which we are concerned here cannot be said to fall outside the purview of ‘goods’ merely because it is intellectual property; so far as ‘unbranded software’ is concerned, it is undoubtedly intellectual property but may perhaps be outside the ambit of ‘goods [emphasis supplied]

Mr. Sorabjee submitted that the High Court correctly held that unbranded software was “undoubtedly intellectual property”. Mr. Sorabjee submitted that the High Court fell in error in making a distinction between branded and unbranded software and erred in holding that branded software was “goods”. We are in agreement with Mr. Sorabjee when he contends that there is no distinction between branded and unbranded software. However, we find no error in the High Court holding that branded software is goods. In both cases, the software is capable of being abstracted, consumed and use. In both cases the software can be transmitted, transferred, delivered, stored, possessed etc. Thus even unbranded software, when it is marketed/sold, may be goods. We, however, are not dealing with this aspect and express no opinion thereon because in case of unbranded software other questions like situs of contract of sale and/or whether the contract is a service contract may arise

Before concluding, it must be mentioned that before the High Court certain other questions were also raised. However, those have not been agitated or pressed before us

In this view of the matter, we see no infirmity in the Judgment of the authorities below or in the impugned Judgment. Accordingly, the Appeals shall stand dismissed with no order as to costs

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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May, 3
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No duty drawback or DEPB profit is subject to Section 80IB deductions: SC

Fact and issue of the case

Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the High Court of Judicature for Rajasthan at Jaipur dated 04.02.2016 in D.B. Income Tax Appeal No. 7 of 2014 by which the High Court has allowed the said appeal preferred by the Revenue and has held that the assessee is not entitled to the deduction under Section 80-IB of the Income Tax Act, 1961 (hereinafter referred to as “Act, 1961”) with respect to the receipts under the Duty Drawback Scheme (hereinafter referred to as “Duty Drawback”) and on transfer of Duty Entitlement Pass Book Scheme (hereinafter referred to as “DEPB”), the assessee has preferred the present appeal.

The facts leading to the present appeal in nutshell are as under:-

The assessee, a partnership firm, was engaged in the business of manufacturing and exporting wooden handicraft items. For the Assessment Year (A.Y.) 200809, the assessee filed its return on 30.09.2008 declaring its income as nil, claiming deduction of Rs. 70,197/- on account of DEPB and of Rs. 76,27,636/- on account of receipts under the Duty Drawback.

The assessee credited the receipts of the aforesaid amounts into the Profit & Loss Account and claimed the same as “Profit / gains of business / profession” under Sections 28(iiic) and 28(iiib) of the Act, 1961. The assessee was issued a notice under Section 143(2) of the Act, 1961.

By order dated 24.11.2010, the Deputy Commissioner disallowed the deductions as claimed. The order of the Deputy Commissioner disallowing the exemption as claimed, came to be upheld by the Commissioner of Income Tax (Appeals). However, the Income Tax Appellate Tribunal (ITAT) allowed the appeal preferred by the assessee vide order dated 17.12.2013 by inter alia observing that the decision of this Court in the case of Liberty India Vs. Commissioner of Income Tax, (2009) 9 SCC 328 : (2009) 317 ITR 218 (SC) can be said to be per incuriam and allowed the deductions as claimed on the receipts of amount under DEPB Scheme and Duty Drawback Scheme.

By the impugned judgment and order and relying upon the decision of this Court in the case of Liberty India (supra) and the decision of this Court in the case of Commissioner of Income Tax, Karnataka Vs. Sterling Foods, Mangalore (1999) 4 SCC 98, the High Court has allowed the appeal preferred by the Revenue and has restored the order passed by the Deputy Commissioner disallowing the deductions claimed under Section 80-IB of the Act, 1961. The impugned judgment and order passed by the High Court is the subject matter of the present appeal.

Learned counsel appearing on behalf of the assessee has heavily relied upon the decision of this Court in the case of Commissioner of Income Tax Vs. Meghalaya Steels Limited, (2016) 6 SCC 747 : (2016) 383 ITR 217 (SC),

1 It is submitted that the meaning of “derived from” under Section 80-IB as laid down in Liberty India (supra) has been widened by this Hon’ble Court in the case of Meghalaya Steels Limited (supra).

2 It is further submitted that the conclusion of Liberty India (supra) is based on the finding that “derived from” under Section 80-IB requires a “first degree” connection with the business of the industrial undertaking whereas the source of DEPB / Duty Drawback are incentives given under the Duty Exemption Remission Scheme / Section 75 of the Customs Act, 1962. That applying the test of “first degree”, this Court in the case of Liberty India (supra) held that receipts from DEPB / Duty Drawback cannot be deducted under Section 80-IB.

Observation of the court

Thus, from paragraph 20 of the said decision, it can be seen that this Court did not disapprove of the decision of this Court in the case of Liberty India (supra). Even in the case of Meghalaya Steels Limited (supra), this Court did not consider the earlier decision in the case of Sterling Foods, Mangalore (supra). Thus, the decision of this Court in the cases of Liberty India (supra) and Sterling Foods, Mangalore (supra), which as such are on DEPB / Duty Drawback Schemes clinch the issue at hand. It cannot be said that the decision taken in the case of Meghalaya Steels Limited (supra) is contrary to the decisions in the case of Sterling Foods, Mangalore (supra) and Liberty India (supra). On the contrary, the observations made in paragraph 20 can be said to be in favour of the Revenue and against the assessee.

In view of the above and for the reasons stated above, the High Court has rightly held that the respondent – assessee is not entitled to the deductions under Section 80-IB on the amount of DEPB as well as Duty Drawback Schemes. We hold that on the profit earned from DEPB / Duty Drawback Schemes, the assessee is not entitled to deduction under Section 80-IB of the Act, 1961. Any contrary decision of any High Court is held to be not good law.

Present appeal deserves to be dismissed and is accordingly dismissed. However, in the facts and circumstances of the case, there shall be no order as to costs.

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Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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April, 12
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Income Tax, Income Tax Circular Notification
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The assumption under Section 20 of the PC Act may be used when gratification other than the lawful remuneration is proven

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SC affirmed Settlement Commission’s decision giving immunity from punishment and prosecution

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Objections to the ITAT Order will be heard by the HC in the jurisdiction where the AO is located: SC

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A large surplus-generating educational institution is not exempt under section 10(23C)(vi): SC

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Software purchased and sold on CDs is considered to be a good: SC

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No duty drawback or DEPB profit is subject to Section 80IB deductions: SC

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