COMPARISON OF GST ACT OF INDIA AND AUSTRALIA AND WHAT ARE THE IMPACT AND OVERVIEW

What is a GST IN INDIA?

The Goods and Service Tax Bill /GST Bill, officially known to be The Constitution (122nd Amendment) Bill, 2014, would be a Value added Tax (VAT) to be implemented in India, after became an “ACT” GST stands for “Goods and Services Tax”, and is proposed to be a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at the national level. It will replace all indirect taxes levied on goods and services by the Indian Central and State governments. GST is a comprehensive value added tax on goods and services. It is levied and collected on value addition at each stage of sale or purchase of goods or supply of services based on input tax credit method but without State boundaries. There is no distinction between taxable goods and taxable services and they are taxed at a single rate in a supply chain of goods and services till the goods / services reach the consumer. The administrative power generally vests with a single authority to levy tax on goods and services. It is aimed at being comprehensive for most goods and services. Exports will be zero-rated and imports will be levied the same taxes as domestic goods and services adhering to the destination principle. The introduction of Goods and Services Tax (GST) would be a very significant step in the field of indirect tax reforms in India.

What is a drastic impact of GST in economy of INDIA?

The taxation of capital goods discourages saving and investment and retards productive growth. The ‘flawless’ GST envisages full and immediate credit for GST on capital goods (both buildings and plant and machinery), thereby fully eliminating the incidence of any indirect tax on the capital goods. This enhances the productivity of capital and hence reduces the incremental capital-out ratio. Henceforth introduction of GST would encourage saving and bring new investment in the economy.

Benefit of the GST.

Uniform tax structure: - The difference in the tax structure of different states and the central government greatly increase the cost of doing business. The proposed GST, though dual in nature, envisages a uniform Structure, design and compliance system at all levels of government and across state. This will cut across heavy compliance cost currently borne by corporate’s working in multiple states.

Lower and combined signal tax rate: - Presently, the combined rate of indirect taxes is close to 22%. This marginal rate is applied to very narrow bases on account of a plethora of exemptions. Since economic decisions and compliance behavior are based on the marginal rate, the higher rate the greater the distortion and evasion. Since substantially lower, uniform and combined signal rate of 12 % on all goods and service is being recommended, the economic distortion and evasion of taxes would be considerable reduced.

Gains in GDP:-  A detailed study by task force has shown that implementation of GST across gods and services are expected to provide gains to India’s GDP somewhere within a range of 0.9% to 1.7 % the corresponding change in absolute values of GDP over 2008-09 is expected to between Rs.42,789 crore to Rs 83,899 crore, respectively.

Benefits to manufacturing sectors: - With the coming up of GST manufacturing sectors will earn a lot of benefits. the benefits occur from economic of scale output of sectors including textiles and minerals other then coal, petroleum, gas and iron, organic heavy chemicals industrial machinery for food and textiles, beverages and miscellaneous manufacturing is expected to increase. So may other benefits are also there.  

Division of power between center and the states.

• The constitution has clearly defined the power defined the power of the center and the state in matters relating to taxation. GST being a harmonized structure of the tax would require a judicious distribution of taxes among the two levels of government. Division should be such that both (central and state government) are able to enjoy autonomy to levy and collect taxes. Collision of interest between the centre and the states is quite possible, therefore division of power has to be clear and transparent and unambiguous. Parliament and state legislatures will have concurrent powers to make laws on GST.  Only the centre may levy an integrated GST (IGST) on the interstate supply of goods and services, and imports.Revenue loss to the states.
  Certain states are bound to lose revenue and therefore task force has recommended that the central government should provide a sum of Rs.30,000 crores over the next five year which will be used to compensate the state for revenue loss, if any, and the balance for distribution between the state on the basis of the same formula applicable for tax devolution to the states. There may arise several problems with regard to sharing of this money between the states.
  
  
  TAX CREDIT
  Tax credit would be admissible in both components of GST, CGST and SGST. CGST and SGST are to be treated sparatly for the purpose of tax credit. Structure of tax credit is as under.
  (a) Taxes paid against CGST shall be allowed to be taken as input tax credit for the CGST and could be utilized only against the payment of CGST.
  (b) Taxes paid against SGST shall be allowed to be taken as input tax credit for the SGST and could be utilized only against the payment of SGST.What is a GST in Australia?
  
  
  The Goods and Services Tax (GST) in Australia is a value added tax of 10% on most goods and services sales. GST is levied on most transactions in the production process, but is refunded to all parties in the chain of production other than the final consumer.
  The tax was introduced by the Howard Government and commenced on 1 July 2000, replacing the previous federal wholesale sales tax system and designed to phase out a number of various State and Territory Government taxes, duties and levies such as banking taxes and stamp duty.
  The Australian goods and service tax (GST) was modeled on the EU’s VAT system, although at a lower rate and flat rate of 10%. A number of European systems, especially the Scandinavian countries, operate a three or two-tiered system of graduated taxes. The GST was designed to eradicate a number of state taxes and charges and to reduce tax avoidance through the cash economy
  Should we broaden the tax?
  In short: yes. At present, the GST exempts educational services and supplies, fresh food and beverages and some other items. Any form of tax exemption encourages inefficiency and misallocation and adds complexity and transaction costs to a system. As to increasing the rate, in 2011-2012 the GST raised $45,861 million or about 4% of GDP, compared to 7% of GDP raised by VAT taxes in the OECD. By contrast, Australia operates a higher company tax rate (30%) compared to OECD average of 25%.
  The OECD Going for Growth report (2012) argues the low rate of GST makes the Australian system relatively inefficient. There is clearly room to raise the level of the GST but this would need to be offset by reductions in personal and company tax. As well, the rate should be kept flat to avoid distortions in consumption.
  Would it have a significant impact on government revenue?
  This would depend on offsetting reductions in direct tax. However, food and education are significant parts of household and company budgets. OECD estimates would indicate that a target of 7% of GDP would be reasonable. On this basis, GST receipts would need to rise to $80,256 million (2011/12 figures). Given that fresh food accounts for about 7%-9% of household budget, the eradication of exemptions would probably not be enough to generate this. A rate increase would also be required.

  What policy reasons are there to reform the GST?

  The two errors made at the time of introduction were exemptions and a “fixed rate”, whereby the government put strict conditions on any altering of the rate. These both reduced the simplicity and the revenue-raising potential of the tax and made it difficult to use as a policy weapon. As a tax, the GST has the advantage of taxing (to some degree) parasitic industries such as tourism, by at least extracting some revenue directly from tourists. Used properly, it can reduce the cash economy, spread the incidence of tax and give some tax relief to PAYE taxpayers. The immediate issue to face would be the inflation effect on food prices and any distorting effect this would have on interest rates.
  GST / VAT in other countries
  It is dangerous to make direct rate comparisons because some countries operate different rates across various commodities. A VAT should always be placed in the context of the overall taxation mix. Other countries, such as Canada, split their VAT taxes into federal and state taxes. However, these warnings accepted, by way of comparison with reasonably similar systems we have Brazil (17% to 25%); Denmark (25%) Finland (24% but 13% on food), Japan (5%), South Korea (10%), New Zealand (15%); Singapore (7%), UK (20% standard but a significant group such as energy at 5%). Overall, Australia is at the lower end in terms of tax rate and has the added advantage of being flat.
   
  
  
  
                                                                                                                                   
  
  

when assessee's Chartered Accountant committed a mistake while computing book profits under section 115JB which he admitted by filing a personal affidavit, no case was made out for levy of penalty u/s 271(1)(c)

HIGH COURT OF DELHI

Commissioner of Income-tax, Delhi-2

v.

Compro Technologies (P.) Ltd.

SANJIV KHANNA AND V. KAMESWAR RAO, JJ.

IT APPEAL NO .744 OF 2014

read with section 115JB, of the Income-tax Act, 1961 - Penalty - For concealment of income (Disallowance of claim, effect of) - Assessment year 2009-10 - Whether where Chartered Accountant appointed by assessee - Company committed a mistake while computing book profits under section 115JB which he admitted by filing a personal affidavit before Tribunal, assessee could not be held guilty of concealment of particulars of income so as to levy penalty under section 271(1)(c) 

Sanjiv Khanna, J. - This appeal by the Revenue challenges the order of the Income Tax Appellate Tribunal (Tribunal, for short) deleting penalty under Section 271(1)(c) of the Income Tax Act, 1961 (Act, for short). The appeal pertains to Assessment Year 2009-10.

2. The finding of the Tribunal is that the assessee had discharged the onus and established their bona fides for the purpose of Explanation 1 to Section 271(1)(c) of the Act. The Chartered Accountant of the respondent-assessee had filed his own personal affidavit accepting his fault that he had misunderstood and misinterpreted the provisions of Section 115JB of the Act. Computation of book profits under Section 115JB requires skill and knowledge of accounts. The Act mandates and requires an assessee to file Form No. 29B from a Chartered Accountant. The computation made by the Chartered Accountant in this case in Form No. 29B was erroneous and he had owned his fault and mistake. This was the first year when Section 115JB was made applicable to companies covered by Section 10A of the Act. Thus, the explanation of the Chartered Accountant, who made an error in calculating book profits with reference to exempt income under Section 10A of the Act. Complexity had arisen due to interplay of Section 115JB with Section 10A of the Act.

3. On considering the factual matrix, the Tribunal has observed that the explanation and conduct did not reflect any attempt to propound an excuse which was sham or a ruse. The reason given was not a device to cover an ulterior purpose. The mistake made by the Chartered Accountant was a result of a human error in correctly interpreting and applying the complex interconnect between two sections. The error was bona fide. Noticeably, the assessee had realised their fault and had filed revised returns for the subsequent years.

4. The view and reasoning given by the Tribunal is plausible and objective. They have rightly relied on the findings and ratio in Price Waterhouse Coopers (P.) Ltd. v. CIT [2012] 348 ITR 306/211 Taxman 40/25 taxmann.com 400 (SC). Keeping in view the findings recorded by the Tribunal, we do not think any substantial question of law arises for consideration. The appeal is accordingly dismissed.

Whether Individual Truck owner is Goods Transport Agency

Introduction

Section 66D of the Finance Act, 1994 (hereinafter referred to as 'Finance Act') enlists the services falling under the negative list which are out of the ambit of chargeability of Service Tax. Services by way of transportation of goods by road is one such service which falls under the Negative List [Section 66D(p)(i)] on which Service Tax is not leviable. However, services provided by a Goods Transport Agency (GTA) or by a Courier Agency in relation to transportation of goods by road is excluded from the negative list which means the services provided by a GTA is not excluded from the purview of Service Tax and is chargeable to Service Tax.

Interestingly, in the case of GTA services, the person who is liable to pay freight will be the person liable to pay Service Tax as provided in Rule 2(1)(d) of the Service Tax Rules, 1994 (hereinafter referred to as "ST Rules") and Notification No.30/2012 dated 20.06.2012.

GTA is defined under Section 65B(26) which reads as follows:

'goods transport agency' means any person who provides service in relation to transportation of goods by road andissues consignment note, by whatever name called.

(emphasis supplied)

Rule 4B of the ST Rules states that any goods transport agency which provides service in relation to transport of goods by road in a goods carriage shall issue a consignment note to the recipient of service.

Circular definition – difficulty faced by the trade

A combined reading of Section 65B(26) of the Finance Act and Rule 4B of ST Rules infuses doubt in the minds of the service provider and the service receiver as to whether a person becomes a GTA by issue of consignment note or whether any person who provides services in relation to transportation goods by road in a goods carriage has to mandatorily issue a consignment note to qualify as GTA. The circular definition has caused considerable difficulty in understanding whether an individual truck owner is a goods transport agency to comply with Rule 4B of ST Rules for issue of a consignment note. This is the subject matter of dispute before various forums.

In this context, the only support for individual truck owners is the Budget Speech for the year 2004 – 05, while introducing the levy on GTA services where the Hon. Finance Minister has made it very clear that Service Tax levy shall not be applicable to individual truck owners or truck operators. The speech of the Finance Minister has been relied by various Tribunals² to hold that the services provided by individual truck owners will not be considered as GTA service.

Another round of litigation

While the applicability of the decisions after the introduction of Negative List is yet to be tested and we can foresee another round of litigation. The Tribunal in Coromandel Agro Products & Oils Ltd. vs Commr. Of C. Ex., Guntur³ has rightly captured the issue and observed that even when the truck owner provides goods transportation services, the service would be treated as a GTA service and Service Tax would be leviable on the activity.

Even after the introduction of Negative List, it can be argued that the Act will prevail over the Rules and unless the service provider issues a consignment note the recipient of service is not under any liability to pay Service Tax under reverse charge which is affirmed by many tribunals. However, this cannot be the intention of the legislature as the service receivers have control over the service providers and can prevent them from issuing consignment note in which case there will be no Service Tax on transportation services provided by any person.

Proposed amendment to the Rule

In my view, the intention of the legislature seems to be, to exclude transportation of goods other than by goods carriage from the purview of Service Tax.

Considering the unsettled position of law and the contrary decisions rendered by the Tribunal, to clear the confusion, Rule 4B of the ST Rules should be suitably modified by replacing 'Any Goods Transport Agency which provides service in relation to transportation of goods..' with 'Any person who provides services in relation to transportation of goods..".

This will be a great relief for manufacturers who avail GTA service for inward transportation of inputs or outward transportation of goods as the manufacturer would be the person liable to pay Service Tax under reverse charge. The manufacture would rather prefer paying Service Tax on the abated value⁴ of twenty five per cent rather than dispute the issue with the department and pay hefty interest if the issue is decided against the Assessee.

PRE-BUDGET: WHETHER TRANSFER OF UNDERTAKING BY WAY OF EXCHANGE OF SHARES IS TAXABLE AS 'SLUMP SALE'?

I. Introduction

Merger and acquisition of one entity into another or takeover of one entity by another is one of the means for organizations who want to exit their businesses and for the organizations looking forward to increase their business size.

In merger/ acquisitions businesses/undertakings are acquired 'lock stock and barrel' as a going concern. In most of such cases the consideration is based on discounted future cash flow of the business/undertaking instead of following the traditional method of the 'intrinsic value' of the assets transferred. Therefore, in such cases the consideration offered for acquisition is a lump sum amount without allocating the same to individual assets and liabilities acquired.

II. On the tax front - Taxing provision

Under the tax laws, any profit or gain arising on transfer of any capital asset is chargeable to tax under the head capital gains. Further, the tax rate depends on whether the asset transferred is a long-term capital asset or short-term capital asset.

However, transfer of undertaking contains several assets, both short-term as well as long-term, without separate consideration being assigned to each asset.

Thus, for taxing such transactions, the Finance Act, 1999 introduced section 50B in the Income tax Act, 1961 ("the Act")whereby such transactions being termed as Slump Sale, profits/gains were to be taxed under the head 'Capital gains', since the undertaking (along-with all its assets/liabilities) transferred was treated as capital assets.

'Slump sale' was further defined to mean the transfer of one or more undertakings as a result of sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales.

III. The judicial view

The tax law provides for taxing the sale transaction wherein there is 'sale' of whole of the undertaking for a 'lump sum consideration'. Here these words 'sale' and 'lump sum consideration' have become a cause for tax storms.

Recently, in the case of CIT v. Bharat Bijlee Ltd [2014] 46 taxmann.com 257 (Bom) the taxpayer had insisted on a narrower interpretation of provisions of the slump sale and argued that a transaction can be taxed as slump sale only when there is a 'sale' of undertaking and the resulting consideration is monetary consideration. Thus, the transfer of undertaking against bonds and shares is a transaction of 'exchange' and not that of 'sale' so as to be taxable as slump sale under section 50B of the Act.

The Bombay High Court had accepted the contention of taxpayer and further held that the transaction of exchange in the case had also involved approval of the High Court (as a scheme of amalgamation under Company law) and, thus, was different in species from the transaction of 'slump sale', which is merely a sale against monetary consideration. Thus, the provision of section 50B are not applicable to such transactions of 'exchange'.

IV. Resulting tax controversy and need for clarity

The above ruling by one of the most forefront courts of the country has created controversy surrounding taxability of transfer of undertakings as a going concern.

The following questions are now at the center of controversy:

(a)  Does exchange of assets against transfer of undertaking not result in slump sale?

(b)  Are the words 'exchange' and 'sale' to be interpreted so narrowly that the term 'sale' covers transactions involving only monetary consideration?

(c)  Are requirements of some other laws such as company law result in immunity of the transaction from bringing it under tax net?

V. Recommendation

We hope that the Finance Bill takes a view on above questions and provides clarity on the provisions of slump sale by taking into consideration various manners of transfer of undertakings.

In view of the fact that the Indian industry is looking for expansion and would witness many of such acquisitions among the industry players, to address such issues becomes more important in the upcoming budget.

Pre-Budget: Tax Incentives to the manufacturing sector for make in india

Backdrop

India's general elections of 2014 resulted in a Government having a clear and decisive majority for the first time in 30 years. The new Government with a clear majority seeks to boost Indian manufacturing with a "Make in India" campaign. Manufacturing sector is the backbone of any economy. In this backdrop, one can expect tax incentives in the forthcoming Union Budget for the manufacturing sector.

The tax incentives are more likely to be by way of investment-linked incentives rather than profit-linked incentives. Profit-linked incentives incentivise creative book-keeping to shift profits from taxable business/unit to tax-free business/unit. To overcome this, profit-linked incentives have been sought to be replaced by investment-linked incentives over the years. One is likely to witness tweaking of investment-linked incentives to boost investments in manufacturing sector

Investment Allowance

Investment allowance was introduced for manufacturing companies by the Finance Act, 2013 by inserting section 32AC which allowed investment allowance of 15% for investment of more than 100 crore in plant and machinery during the period from 01.04.2013 to 31.03.2015. To incentivise smaller entrepreneurs, the Finance (No.2) Act, 2014 reduced the investment threshold from Rs.100 crores to Rs.25 crores. New sub-section (1A) has been inserted in section 32AC by the Finance (No.2) Act, 2014 specifying the conditions to be fulfilled for availing benefit under the lower threshold of Rs.25 crores.

This minimum investment threshold limit in plant and machinery is Rs.25 crores. Even this threshold is pretty high and many micro and small enterprises would not be able to avail of the investment allowance incentives under section 32AC. One can expect the threshold limit of investment to be lowered even further to say Rs.5 crores so that micro and small enterprises would be able to avail the benefits under section 32AC

Investment allowance deduction is not an expenditure and is not debited to profit and loss account. Therefore, it does not reduce "book profit" for the purpose of calculation of MAT for companies. The Union Budget 2015 is expected to rectify this anamoly by allowing deduction of investment allowance for calculation of MAT as well

Further, section 32AC applies only to assessees which are companies. One may expect the extension of the investment allowance benefit under section 32AC to non-corporate assessees as well.

Additional Depreciation under section 32(1)(iia)

Section 32(1)(iia) provides additional depreciation at the rate of 20% on new plant and machinery acquired and installed by an assessee engaged in the business of manufacture or production of any article or thing or in the business of generation or generation and distribution of power.

This section is similar to Section 32AC of the Income-tax Act in following terms:

  (i) Both reliefs are in respect of investment in new plant and machinery.

 (ii) Both are one-time benefits, not recurring annual benefits like depreciation under section 32(1)(ii)

(iii) Both are sector-specific

But, there are some differences also which can be described with the help of following table:

S. No.	Depreciation under section 32(1)(iia)	Investment allowance under section 32AC
1.	Available to all assesses engaged in manufacturing or production or generation or distribution of power	Available to companies engaged in manufacturing or production of any article or thing.
2.	No qualifying minimum investment to avail the benefits	Actual cost of new asset acquired and installed in previous year should be more than Rs. 100 crore/Rs. 25 Crore, as the case may be.
3.	If asset is put to use for less than 180 days in the year of acquisition, then depreciation restricted to 50% of the entitled depreciation	Even if new assets is acquired and installed on last day previous year, full investment allowance provided if other conditions satisfied
4.	Rate is 20% of actual cost	Rate is 15% of actual cost

So, instead of amending section 32AC to extend it to non-corporate assessees, it is quite possible that the additional depreciation benefit may be tweaked to do away with "restriction of benefit to 50% if asset put to use for less than 180 days" clause for additional depreciation. Additional depreciation may be tweaked to do away with the "put to use" requirement. Indeed if investment has to be incentivised, the "put to use" clause is redundant

Combining additional depreciation and investment allowance for simplicity sake

Isaac Newton is said to have made a big hole in his wall to allow his pet cat to come into his room. The cat gave birth to a kitten. Newton made another small hole for the kitten. Little did it occur to him that the kitten can also pass through the hole meant for the cat. Basic difference between additional depreciation and investment allowance is that the former is linked to putting asset to use and latter is linked merely to investment in asset. To incentivise investments and simplify matters, additional depreciation of 20% may be scrapped and merged in investment allowance and total investment allowance of 35% may be allowed. There is a possibility that this may happen.

Suggestions-Increasing tax-free income-tax slabs for individuals more effective than investment linked incentives for businesses

The primary stimulus for investments in plant and machinery is not investment allowance or additional depreciation. Prime driver of investments is demand which in turn depends on purchasing power of consumers. The best way to put money in the hands of people is to increase the tax-free slabs for individuals to Rs.5 lakhs from Rs.Rs.2.5 lakhs (for those aged below 60)/Rs.3lakhs (for those aged 60 or more but less than 80). There is a good case for doing away with normal, senior citizens and super senior citizens categories and have common exemption threshold and tax slabs for all. The 10% tax slab which is currently Rs.2.5/3 lakhs to Rs.5 lakhs may be revised to Rs.5 lakhs to Rs.6 lakhs and 20% tax slab may be revised to Rs.6 lakhs to Rs.10 Lakh which is presently at Rs.5 Lakh to Rs.10 Lakh

Increasing threshold income-tax exemption limit for Individuals from Rs.2,50,000/Rs. 3,00,000 to Rs.5,00,000 makes sense for the Government . Here is why, the Parliamentary Standing Committee on finance in its 49^th report (March 2012) pointed out that:

  •  Almost 90% of taxpayers comprise of individual taxpayers in the 0-5 lakh income slab without commensurate tax yield; which translates into nearly 3 crore assesees.

  •  It is absurd that the Department should diffuse their energies and spread their resources thin over handling such a large number of individuals with low income potential.

  •  The argument that more taxpayers have to be brought within the tax net for widening the tax base can hold water only to the extent that this approach brings in more taxpayers and tax revenue from the higher income brackets, rather than simply adding to the numbers in the lower segments.

  •  Keeping in view the inflationary trends in the economy and the imperative to leave more disposable incomes in the hands of individual tax payers, particularly those in the lower income bracket, the Committee would recommend that the tax slab attracting „nil rate, that is, full exemption from tax on income should be raised to three lakhs from the proposed two lakhs.

  •  Higher exemption limit would go a long way in minimising the compliance and transaction costs of the Income Tax Department, which can now focus their attention and re-orient their resources on the higher income groups, untaxed or concealed incomes, and categories and sectors that are avoidance or evasion prone.

  •  The revenue gap, if any, could be easily bridged by way of stringent measures to curb and bring to book unaccounted money and through realisation of huge tax arrears and by way of savings from the proposed transition to the investment-linked incentive / exemption regime. 

Increasing exemption limit will be win-win for Government, taxpayers, businesses and economy in general as under:

  ♦  incentivise hardwork and enterprise

  ♦  incentivise more investments since purchasing power of consumers increase and businessmen will want to profit from that; this will generate higher employment

  ♦  due to higher consumer spends, indirect tax collections will increase

  ♦  increase voluntary compliance and reduce evasion and avoidance of tax

  ♦  reduce cost of collection and administrative work for Government

Where assessee had voluntarily given his consent to cost of land, assessee could not filed appeal against it under section 246A later on

FACTS of the case

■		The assessees were co-owners of an ancestral property. The land was sold by taking cost of acquisition at Rs. 2,70,000 per bigha.
■		The Assessing Officer found that the prescribed circle rate for agricultural land, as on 1-4-1981, in the area was ranging from Rs. 7,000 to Rs. 8,000 per bigha. The amount is taken as Rs. 2,70,000 per bigha by the assessees as cost as on 1-1-1981.
■		The assessees gave their acceptance for applying the rates for cost of acquisition of land at Rs. 8000 per bigha. On the said basis, the rate was applied; the cost was worked out; and there is resultant assessment on the capital gains.
■		Later on, the assessees preferred appeals before the Commissioner under section 246A.
■		The Commissioner took the view that there was no explanation for the delay and the assessees are not aggrieved persons. Even though the matter was carried before the Tribunal, the Tribunal affirmed the order of the Commissioner. HELD in this case ■   The assessees had given, in writing, his consent to the cost of the land being Rs. 8000 per bigha, as on the relevant date, for the purpose of calculation of capital gains. This is not a case, which involved concession of law. It is a case, where pure question of fact as to what is the value of the land was involved. It is also relevant to notice that the assessee did not choose to make available any evidence in support of their contentions, which they seem to do now. [Para 15] ■   When an assessment is made on the basis of the consent of the parties, in view of the provision creating the right of appeal, namely, section246A, unless there is any grievance for the party as such that the concession was wrongly recorded or that he was coerced into making such concession, which case also the assessees do not have in these cases; the order of the appellate authority, as affirmed by the Tribunal, that the appellants cannot be treated as aggrieved persons is not liable to be interfered with. In such circumstances, the assessees have not made out a case for interference with the order of the Commissioner, as affirmed by the Tribunal. [Para 16] full judgment link

commercial vehicles used for transportation of goods on hire are depreciable at 30% and not at 15%

Where assessee was commercially using vehicles for transporting goods on hire, assessee was entitled for depreciation at rate of 30 per cent according to CBDT Circular No. 609 dated 29-7-1991


Section 32, read with section 143, of the Income-tax Act, 1961 - Depreciation - Allowance/Rate of (Rate of depreciation) - Assessment year 2009-10 - Assessee was engaged in business of transportation of municipal waste and claimed depreciation at rate of 30 per cent - Assessing Officer allowed depreciation at 15 per cent - Whether, where there was a commercial exploitation of vehicles for transporting goods on hire and thus nature of assessee's business was under ambit of Circular No. 609 dated 29-7-1991, assessee was entitled for depreciation at rate of 30 per cent - Held,  [In favour of assessee]


facts of the case:-

■		The assessee was engaged in the business of transportation of municipal waste. It had various vehicles namely wheel tippers, push carts and light good vehicles etc. It had claimed depreciation at the rate of 30 per cent.
■		The Assessing Officer confronted the assessee as to why depreciation should not be allowed at the rate of 15 per cent. The assessee had filed a detailed note indicating his activities and as to why depreciation was applicable at the rate of 30 per cent. The Assessing Officer was not satisfied with the contention of the assessee. He allowed the depreciation at the rate of 15 per cent and made an addition.
■		The Commissioner (Appeals) confirmed the action of Assessing Officer. HELD ■   The Board has issued a circulars No. 609 dated 29-7-1991 pointing out as to how this controversy is to be silenced. [Para 4] ■   The facts of the present case are perused in the light of the Bombay High Court decision in CIT v.S.C. Thakur & Bros. [2010] 322 ITR 463/[2009] 180 Taxman 348 as well as in the light of thecirculars No. 609 dated 29-7-1991 and No. 652 dated 14-6-1993 of the Board, then it would reveal that the Commissioner (Appeals) has failed to construe the circular in right perspective. According to the Commissioner (Appeals) the circular is applicable if an assessee has used the motor vehicle for transporting the goods on hire or the higher rate of depreciation would be applicable or given on hire like Taxis. In the present case, the assessee has been transporting the solid waste of municipality on hire. Thus, the very nature of the assessee's business is such which bring him in the ambit of the said circular. It is not the case where a person is running any consultancy firm and used a motor car for himself. Here the vehicles are used for transporting the goods of third concern by virtue of a contract. There is a commercial exploitation of the vehicles for transporting the goods on hire. Therefore, the assessee is entitled for higher rate of depreciation. The appeal of the assessee allowed and the disallowance is deleted.

Institutions set-up to provide placement services to ex-army personnel and their widows were charitable institutions

Facts of the case :-

		The assessee was a welfare and non-profitable organization set-up by Indian Army. Its aims and objectives, inter alia, included placement for retired army personnel and their widows.
		Its application for registration under section 12A was rejected by DIT on the ground that assessee was doing a commercial activity as it was a placement agency which was charging fee for its services.
		The aggrieved assessee filed the instant appeal before the Tribunal. Tribunal held in favour of assessee :-   As per section 2(15) charitable purpose includes advancement of any object of general public utility. However, the proviso to sec. 2(15) provides that advancement of any object of general public utility shall not be a charitable purpose if it involves carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business for a cess, fee or consideration.   Thus, rendition of a service would vitiate a charitable nature of the activity only when the service is rendered to a trade, commerce or business. In the instant case the service was rendered to ex-army personnel, their widows and dependents, rather than to any trade, commerce or business and, therefore, proviso to section 2(15) was not applicable.   There was nothing on record to suggest that this organization was set-up on any commercial basis. Mere receipt of fees from applicants could not convert a charitable activity into a commercial activity.   The assessee-institution was set-up by Indian army and it sought to promote the well being of their personnel after their retirement from the services, as also of the widows and dependents of the brave army men who sacrificed their lives, and would help them to integrate in the civil society by taking up suitable employment. This was an activity of general public utility, and, therefore, was covered by definition of charitable purpose.   Therefore, the activities undertaken by assessee-institution were not with a profit motive and such activity could not be considered as business activity. The DIT was to be directed to grant registration to assessee-institution under section 12A.

Mere cash deposit of above 10 lakhs in bank account doesn’t indicate that income has escaped assessment, says ITAT

The assessee had deposited cash in excess of Rs 10 lakhs in his saving bank account but he had not filed return of income. The AO reopened the assessment of assessee, as he had reason to believe that there was an escapement of income of Rs 10 lakhs. The Tribunal held that the AO proceeded on the fallacious assumption that bank deposits constituted undisclosed income and overlooked fact that the source of deposit need not necessarily be income of the assessee.

Facts of the case :

		The assessee had deposited Rs 10 lakhs (approx) in his saving bank account but no return of income was filed by him. The AO reopened the assessment of assessee, as he had reason to believe that there was an escapement of income of Rs 10 lakhs on part of assessee.
		The instant appeal was filed against validity of reassessment proceedings.

held in favour of assessee as under:

		At the stage of recording the reasons for reopening the assessment, the formation of prima facie belief that an income has escaped the assessment is necessary. However, it is also necessary that there must be something which indicates, even if not establishes, the escapement of income from assessment.
		Merely because some further investigation had not been carried out, which, could have led to detection to an income escaping assessment could not be a reason enough to hold the view that income had escaped assessment.
		In the instant case, merely the fact that deposits have been made in a bank account do not indicate that these deposits constitute an income which had escaped assessment.
		AO proceeded on the fallacious assumption that bank deposits constituted undisclosed income and overlooked the fact that the sources of deposit need not necessarily be income of the assessee. The reassessment proceedings could not be resorted to unless there was reason to believe, rather than suspect, that income had escaped assessment. Thus, reassessment proceeding was to be set aside.

Trust entitled to exemption even if it charged fee for commercial activity, being incidental to its charitable nature

Fee charged by trust for processing subsidy applications could not be deemed as commercial receipts if it was incidental to its charitable objectives. Thus, assessee-trust was entitled to exemption under Section 10(23C)(iv).

Facts of the case:-

		The assessee, National Horticulture Board (NHB) was an autonomous society set up by the Government to promote, develop horticultural activities and to enhance the social and economic well-being of the farmers, etc.
		As a part of pursuing these objectives, one of the activities in which assessee was involved in was disbursement of subsidy received from the ministry of agriculture in respect of qualified horticulture projects and, in this regard, assessee had received certain sum on account of cost of application form and the brochure from subsidy seekers.
		Assessee had filed its return (including the amount received from subsidy seekers) and it claimed exemption under section 10(23C)(iv).
		The Assessing Officer ('AO') disallowed the exemption by contending that the amount so received were for services rendered to the customers, which were in the nature of business, commerce and trade and, therefore, the activities of assessee could not be treated as charitable activities.
		On appeal, CIT(A) affirmed the order of AO. Aggrieved by the order of CIT(A), assessee filed the instant appeal before the Tribunal. held in favour of assessee as under:

		First proviso to Section 2(15) provides that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity.
		Thus, the above proviso has two limbs, one is related to carrying on of any activity in the nature of trade, commerce or business and other one is related to carrying on any activity of rendering any service in relation to any trade, commerce or business.
		There was no dispute that first limb of first proviso was not attracted on facts of the instant case, in as much as it was not even revenue's case that the assessee was engaged in activity in the nature of trade commerce or business. The addition was made by revenue by invoking the second limb, i.e., rendering of services in relation to any trade, commerce or business.
		The Delhi High Court in case of GS1 v. DGIT (Exemption) [2013] 38 taxmann.com 364 (Delhi) held that even for invoking second limb of first proviso to Section 2(15), it was sine qua non that the assessee had extended services to business, trade or commerce and such services have been extended in the course of business carried on by the assessee.
		It was, thus, clear that even in a situation in which an assessee receives a fees or consideration for rendition of a service to the business, trade or commerce, as long as such a service was subservient to the charitable cause and was not in the nature of business itself, the disability under second limb of first proviso to Section 2(15) will not come into play.
		The Delhi High Court in case of GS1(Supra) also observed that a small contribution by way of fee that the beneficiary pays would not convert charitable activity into business, commerce or trade in the absence of contrary evidence.
		Thus, in view of the judgment of Delhi High Court, AO was not justified in contending that the assessee's activities cease to be charitable activities under section 2(15) merely because the assessee had charged fees for processing the subsidy applications.