Tax Recovery Officer has no power to declare alienation of property as null and void when sale is made under sale deed by alleged tax defaulter – High Court
ABCAUS Case Law Citation: ABCAUS 2023 (2017) (08) HC
Brief Facts of the Case:
The present writ petition had challenged the order passed by the Income Tax Recovery Officer by which, he had declared the sale made in favour of the petitioner in respect of property under sale deed by the alleged defaulters as null and void, in view of the fact that the said property had been attached by the Income Tax Department for the income-tax arrears.
The Hon’ble High court observed that the second schedule of the Income-tax Act, 1961 provides for procedure for recovery of tax. One of the modes of recovery of tax is by attachment and sale of the defaulter’s immovable property as per Rule 4 of the second schedule. Rule 11 provides for adjudication of claims made to the attachment or sale of, any property in execution of a certificate, issued by the Tax Recovery Officer. Rule 16 provides where a notice has been served on a defaulter under rule 2, the defaulter or his representative interest shall not be competent to mortgage, charge, lease or otherwise deal with any property belonging to him except with the permission of the Tax Recovery Officer.
It was further observed Rule 16 (2) reads as follows.
“…..(2)Where an Attachment has been made under this Schedule, any private transfer or delivery of the property attached or of any interest therein and any payment to the defaulter of any debt, dividend or other moneys contrary to such attachment, shall be void as against all claims enforceable under the attachment.”
The Hon’ble High court further observed that Rule 48 provides for attachment of the immovable property and Rule 50 provides for proclamation of attachment. The impugned order had been passed by the Tax Recovery Officer under Rule 16(1) and (2). A reading of Rule 16(1) and (2) would show that the Tax Recovery Officer had no power to declare the alienation as null and void. Accordingly, the impugned order is liable to be quashed and it is quashed.
However, the Hon’ble High court made clear that the department will be at liberty to proceed against the properties of the defaulters which have been attached. Also It will be open to the petitioner to approach the Tax Recovery Officer under Rule 11(1) claiming that this property is not liable for attachment. Once such claim is preferred, it would be for the Tax Recovery Officer to adjudicate the sale of the property under Rule 11. If the claim is rejected, the aggrieved party has got a right to move the Civil Court to establish his right.
Decision: The writ petition was allowed. However, the right of the department to proceed against the property on the basis of the attachment made was protected with liberty to the petitioner to move the Tax Recovery Officer under Rule 11 seeking adjudication of his claim.
If assessee liable to pay service tax refund limitation period applies to refund application as stipulated u/s 11B of Central Excise Act 1944 – High Court
ABCAUS Case Law Citation: ABCAUS 2022 (2017) (08) HC
The Substantial Question of Law framed for determination: Whether the Customs, Excise and Service Tax Appellate Tribunal was in error in rejecting the plea of the Appellant/Assessee that its claim for refund of the service tax paid under the state of law is barred by limitation in terms of Section 11B of the Central Excise Act, 1944?
Important Case Laws Cited/relied upon by the parties: Hind Agro Industries Limited v. Commissioner of Customs 2008 (221) ELT 335 (Del) Alar Impex Private Limited v. Commissioner of Central Excise, Delhi-I 2016 (41) S.T.R. 407 (Del) Kochar Sung-Up Acrylic Limited v. CEGAT 2004 (175) ELT 81 (P&H) Mafatlal Industries Limited v. Union of India 1997 (89) ELT 247 (SC)
Brief Facts of the Case:
The Appellant company was inter alia engaged in the business of printing of newspapers and providing space for advertisements in newspapers. The Appellant obtained registration with jurisdictional Service Tax authority inter alia for providing services under taxable category of ‘Sale of Space or Time for Advertising Services’ with effect from 1st May, 2006.
The Appellant provided services of ‘sale of space or time for advertising services’ to various clients and raised invoices on them and thus, calculated service tax payable on the billed amount for the period between May, 2006 and January, 2007.
The submission of the Petitioner was that sometimes, the invoices were only part realised, i.e. the invoices issued for services for the aforementioned period were realised in the subsequent period. It was thus stressed that the Petitioner had paid excess amount for the Relevant Period equivalent to difference between amount paid on billed amount and Service Tax payable on realised amount for services during the Relevant Period.
The appellant filed a refund application on 25th September, 2007 before the Assistant Commissioner of Service Tax (‘AC’) for refund of the excess amount of Rs. 14,92,703/- paid as service tax during the aforementioned period.
The Assistant Commissioner allowed a refund of Rs. 10,69,249/- and rejected the refund of Rs. 4,23,454/- on the ground that the said refund claim was barred by limitation under Section 11B of the Central Excise Act 1944 (CE Act). According to the Assistant Commissioner, the aforementioned refund claim for Rs. 4,23,454/- pertained to period prior to 25th September, 2006.
The appeal filed by the Appellant against the above order was dismissed by the Commissioner (Appeals) in 2009. Thereafter the Appellant went in appeal before the CESTAT, which too by the impugned order dated 10th January 2017, dismissed the appeal.
Contention of the Appellant Assessee: It was submitted that the CESTAT was in error in holding that the Appellant’s claim for refund was barred by limitation. It was contended that since the service tax was not payable twice, the provision of Section 11B (1) of the CE Act would not apply to the claim for refund of the excess service tax paid.
Observations made by the High Court:
The Hon’ble High court observed that in the case laws relied by the appellant, the question examined was whether the levy in question, which was cess in one case and service tax in the other, was at all payable in the first instance. As far as the levy of cess was concerned, the High Court held that it was outside the purview of ‘customs duty’ under Section 27 of the Customs Act, 1962. In other case, the High Court found that the CESTAT had failed to satisfy itself that the “services rendered by the appellant were, on facts, amenable to service tax”. Where the services rendered were not amenable to service tax, the question of applying for refund under Section 11B of the CE Act would not arise.
It was observed that the facts of the instant case were different. The Appellant did not dispute that it is liable to pay service tax for the services rendered by it. In such a situation, it was abundantly clear that the Appellant had to seek refund of service tax, paid in excess, in terms of and within the limitation period stipulated under Section 11B of that CE Act i.e. before the expiry of one year from the relevant date which is the date of payment of duty.
It was noted by the Hon’ble High court that the the Assistant Commissioner had rejected only the claim for refund of service tax paid by the Appellant prior to 25th September, 2006. Such claim was clearly barred by limitation in terms of Section 11B (1) of the CE Act. Since the payment of service tax during the said period was not under protest, the Appellant was unable to take advantage of the second proviso under Section 11B (1) of the CE Act which states that the limitation of one year will not apply where any duty and interest has been paid under protest.
Held: It was held that the order of the CESTAT affirming the order of the Assistant Commissioner, and the consequential order of the Commissioner (Appeals) did not suffer from any legal infirmity.
Legal expenses to defend writ filed to quash mining lease of the company are revenue expenditure not capital expenditure and deduction is allowable u/s 37 of the Income Tax Act, 1961 – High Court
ABCAUS Case Law Citation: ABCAUS 2021 (2017) (08) HC
The Substantial Question of Law framed for determination: Whether, in the facts and circumstances of the case, the tribunal is justified in holding that the legal expenditure incurred by the assessee to defend the writ petition filed to quash the government notification and lease deed, is capital expenditure and is a deduction allowable within the meaning of section 37 of the Income tax Act?
Assessment Year : 2008-09 and 2009-10
Important Case Laws Cited/relied upon by the parties: Dalmia Jain & Co., Ltd., vs. CIT [81 ITR 754 (SC)]
Sree Meenakshi Mills Ltd., vs. CIT [63 ITR 207 (SC)]
V.Jaganmohan Rao and Others vs. Commissioner of Income Tax
Excess Profits Tax, Andhra Pradesh [(1970) 75 ITR 373 (SC)]
M/s.Mangalore Ganesh Beedi Works vs. Commissioner of Income Tax, Mysore and Another [2015-TIOL-241-SC-IT],
Commissioner of Income Tax vs. M/s.ITC Hotels Ltd.
Atherton vs. British Insulated and Helsby Cables Ltd.  A.C. 205
M/s.Assam Bengal Cement Co. Ltd., vs. Commr. of Income-tax, West Bengal [AIR 1955 SC 89]
Brief Facts of the Case: One of the business activities of the respondent assessee was mining of iron ore by taking lands on lease from the State Government. Ccertain lands were leased out to assessee for the purpose of mining iron ore by the Department of Mines and Geology. The assessee was working on the said lease as a lessee of the State Government.
The grant of lease to the assessee was challenged by two companies in writ petitions before the High Court. The assessee, for the relevant assessment years had debited certain legal expenditure incurred while defending the said writ petitions filed which were seeking quashing of Government notifications granting mining lease to the assessee.
The Assessing Officer sought to disallow the claim of legal expenditure on the ground that it was a capital expenditure. But the assessee maintained that the mining lease was granted by the Department of Mines and Geology to the assessee, which was assailed in the writ petitions filed by two parties. The expenditure incurred was to protect the lease that was granted by the Government to the assessee, who was defending a claim made by third parties and not for the purpose of perfecting a mining lease.
The Assessing Officer not being satisfied with the contention of the assessee, held that the expenditure had to be construed to be capital expenditure, as it was an expenditure having nexus to earning of profits in business. Accordingly, the claim was disallowed.
The assessee filed an appeal before the Commissioner of Income Tax, Appeals (CIT-A), which allowed the claim of the assessee.
As against the order of the Appellate Commissioner, the Department filed appeals before the Income-tax Appellate Tribunal (ITAT). The Tribunal held that the CIT-A had not looked into the aspect as to whether the expenditure incurred long back could be allowed on piecemeal basis in subsequent years and that the approach of the Appellate Commissioner in deciding the matter was not proper. Therefore, the appeals were remanded for reconsideration by the CIT-A.
Being aggrieved by the order of Tribunal, the Revenue had preferred an appeal to High Court which is the subject matter of the present judgment.
Contention of the Respondent Revenue: It was contended that where money is paid to perfect a title or as consideration for getting rid of a defect in the title or a threat of litigation, the payment would be capital payment and not revenue payment.
Contentions of the Respondent Assessee: It was submitted that the said expenditure was incurred in order to defend a claim made by third parties in respect of a mining lease granted to the assessee. That the purpose of incurring the aforesaid expenditure towards litigation was for defending grant of mining lease and not merely a business expenditure or expenditure arising during the course of business. Such an expenditure cannot be treated as revenue expenditure, but it is a capital expenditure. Therefore, the expenditure cannot be treated wholly and exclusively incurred to protect the interest of business or for the purpose of business within the meaning of Section 34 of the Act.
Observations made by the High Court: The Hon’ble High court observed that the assessee was made a respondent in the writ petitions filed. It was in order to defend and sustain the said lease that the assessee had to incur expenditure towards legal fee and other allied expenditure. The assessee was dragged into litigation before the High Court by writ petitions filed by third parties. The assessee had to resist the writ petitions in order to protect his mining rights in respect of the contentious lease. Therefore, the expenditure incurred towards legal fee and other litigation charges was to protect its business interests in relation to the mining lease. The expenditure was not incurred to acquire the mining lease or to get rid of a defect in the title. While resisting the writ petitions, the assessee did not bring into existence any asset or create any capital asset. Therefore, the question, is, whether, the expenditure has to be attributed to be revenue expenditure or capital expenditure.
The Hon’ble High court noted the observations made in various judgments of the High Courts as under:
Dalmia Jain & Co., Ltd
“The question for decision is whether the litigation expenses incurred by the assessee were for the purpose of creating, curing or completing the assessee’s title to capital or whether it was for the purpose of protecting its business. If it is the former then the expenses incurred must be considered as capital expenditure. But, on the other hand, if it is held that the expenses were incurred to protect the business of the assessee, then it must be considered as a business loss. The principle which has to be deduced from decided cases is that, where the expenditure laid out for the acquisition or improvement of a fixed capital asset is attributable to capital, it is a capital expenditure but if it is incurred to protect the trade or business of the assessee then it is a revenue expenditure. In deciding whether the particular expenditure is capital or revenue in nature, what the courts have to see is whether the expenditure in question was incurred to create any new asset or was incurred for maintaining the business of the company. If it is the former it is the capital expenditure; if it is the latter, it is the revenue expenditure.”
The Hon’ble High court observed in the case of Dalmia Jain, the High Court relied upon Shree Meenakshi Mills and held that “Deductibility of expenditure incurred in prosecuting a civil proceeding depends upon the nature and purpose of the legal proceeding in relation to the assessee’s business and the same cannot be affected by the final outcome of that proceeding. However wrong-headed, ill advised, unduly optimistic or overconfident in his conviction the assessee might appear in the light of the ultimate decision; expenditure in starting and prosecuting a civil proceeding cannot be denied as a permissible deduction in computing the taxable income merely because the proceeding had failed, if otherwise the expenditure was laid out for the purpose of the business wholly and exclusively, that is, reasonably and honestly incurred to promote the interest of the business. Persistence of the assessee in launching the proceeding and carrying it from Court to Court and incurring expenditure is not a ground for disallowing the claim.”
It had been held, it is well established that where money is paid to perfect a title or as consideration for getting rid of a defect in the title or a threat of litigation the payment would be capital payment and not revenue payment. What is essential to be seen is whether the amount was paid for bringing into existence a right or an asset of an enduring nature. In other words, if the asset which is acquired is in its character a capital asset, then any sum paid to acquire it must surely be capital outlay. Money paid in consideration of the acquisition of a source of profit of income is capital expenditure.
M/s.Mangalore Ganesh Beedi Works
It was observed that on a consideration of the issues placed before the Tribunal, including the decision of High Court in Dalmia Jain, it was held that the expenses incurred by the Assesee were honest and reasonable and were incurred for the purpose of protecting the business of the firm as a going concern.
M/s. ITC Hotels Ltd
It had been observed that on a consideration of the facts in detail, the Tribunal has recorded a finding that the litigation expenses were incurred not to protect the lease hold rights or to protect its title, but were incurred to defend its right to carry on business of a hotel and therefore, the expenses are revenue in nature and it is purely a finding of fact and does not involve any question of law.
M/s.Assam Bengal Cement Co. Ltd
It had been held that the question as to whether any expenditure is capital or revenue in nature has all along been considered to be a question of fact to be determined by the Income-tax Authorities on an application of the broad principles laid down and the courts of law would not ordinarily interfere with such findings of fact if they have been arrived at on a proper application of those principles. It has also been held in the said decision that the aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. The source or the manner of the payment would then be of no consequence.
The Hon’ble High court opined that in B.Jaganmohan Rao, facts were that payment of money made by the assessee therein was in order to perfect his title to the capital asset. It was a lump sum payment for acquisition of a capital asset and therefore, the Hon’ble Supreme Court held that the amount should be treated as capital payment and the assessee was not entitled to exclude from the income sought to be assessed in his hands any portion of that amount. But having regard to the facts in the present case and by applying the decisions in the aforementioned judgments, he Hon’ble High court held that the Tribunal was justified in holding in favour of the assessee and thereby, dismissing Department’s appeal.
Held: The legal expenditure incurred by the assessee to defend the writ petitions filed to quash the Government notification and lease deed was not a capital expenditure and deduction was allowable within the meaning of Section 37 of the Act, as it was revenue expenditure.
Google India gets relief in deposit against income tax demand from High Court. The High Court reduced the deposit to 30% against the outstanding tax demand from 50% as directed by the ITAT
ABCAUS Case Law Citation: ABCAUS 2020 (2017) (08) HC
Brief Facts of the Case:
The petitioner-company M/s. Google India Pvt. Ltd. was aggrieved by the stay order passed by the Income Tax Appellate Tribunal (ITAT) directing the Internet Search Giant to deposit 50% of the impugned tax demand and out of such 50% of the tax demand, 20% was directed to be deposited within seven days and balance amount was to be paid within 180 days in six equal installments.
In view of the pendency of the cases, the Hon’ble High Court did not incline to go into the merit of the case and opined that they deserve to be heard by the Tribunal itself. However the ITAT was requested to decide the pending appeals expeditiously, preferably within a period of six months.
The Counsel for the petitioner-company referred to paragraph of the impugned order of the ITAT towards the suggestion of the ITAT that the Tribunal could stay the demand, subject to the condition of payment of 30% of the total tax demand, which, however was not accepted by the petitioner-company.
It was submitted that the company should be allowed to abide by the suggestion of the ITAT as stated in the impugned order and the petitioner company would be willing to deposit 30% of the total tax demand as indicated by the ITAT itself and the remaining 10% of the said demand may be directed to be deposited within a period of one month, since 20% of the total demand which was required to be deposited within seven days of the order passed by the ITAT stood deposited by the petitioner-company.
The Hon’ble High Court observed that the said prayer was found to be in tune with the suggestion of the Bench of ITAT itself in its order. The Hon’ble High Court stated that even though, it was not inclined to interfere with the aforesaid interlocutory interim order passed by the ITAT but in the facts and circumstances of the case, the said submission could be accepted even at this stage, coupled with the request made to the Tribunal to decide the present appeal as well as the connected appeals expeditiously.
Accordingly, the Hon’ble High Court made a slight modification of the direction given by the Tribunal that instead of 50% of the total tax demand, the petitioner-company may deposit 30% of the said total tax demand disputed before the learned Tribunal and if the petitioner company has already deposited 20% of the tax demand in view of the direction of the Tribunal, remaining 10% of the same to be deposited by the petitioner-company within the period of one month.