CASE VERDICT 1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION
COURT
HIGH COURT OF JUDICATURE AT BOMBAY
JUDGE
S. C. DHARMADHIKARI AND PRAKASH D. NAIK, JJ.
APPELLANT
Director of Income Tax (International Taxation) II, Mumbai
RESPONDENT
M/s. Marks & Spencer Reliance India Pvt. Ltd.
U/S
201
DATE
3RD MAY, 2017
FACTS FROM THE CASE
• The Assessing Officer, from the records noted that the Respondent Company had made payment of a sum of Rs.4.83 crore, to Marks & Spencer's PLC London, on which no tax was deducted at Source. The application made by the Respondent company was withdraw without assigning any reasons for the said withdrawal.
• While the Company argued that these payments were merely reimbursement of expenditure, it was held by the AO to be fee for technical services as per the provisions of the DTAA. Accordingly, the AO passed orders u/s 201 holding the Company to be liable for the tax and simultaneously charged interest.
JUDGEMENT
The tribunal after having noted all these facts found that the first appellate authority by its order dated 28the November 2011 for the assessment year 2010-2011 rightly interfered with the order of the Assessing Officer. The finding of fact of the Tribunal is that the Commissioner was right that the assesse paid sum of Rs.4866187/- to M/s. Marks & Spencer PLC towards salary expenditure of four employees deputed to the assesse for providing assistance in the area of management, to setting up of business, property selection and retail operations etc. There was a service agreement drawn up and for providing such assistance between these two companies. It was essentially a joint venture. Having noted all the clauses in the agreement, the Tribunal rendered a finding of fact that there is no rendering of service within the meaning of the double tax avoidance treaty. This was a clear case of deputing the officials / employees for the promotion of the business of the assesse which is Indian arm of M/s. Marks & Spencer PLC, UK. Since the said payment to the employees is already subjected to tax in India, therefore there is no question of treating the assesse in default for non deduction of tax at source. Once the facts were clear, as these, there was no illegality in the order of the Commissioner of Income Tax (Appeals) which was maintained by the Tribunal. The appeal of the Revenue was rightly dismissed by the Tribunal.
CASE VERDICT 2
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
COURT
SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION.
JUDGE
APPELLANT
M/s. Raylan Corporation Pvt. Ltd.
RESPONDENT
Assistant Commissioner of Income Tax
U/S
373 ITR 673
DATE
11th August, 2016.
FACTS FROM THE CASE
• The appellant-assesse, a private limited company, is having house property, which has been rented and the assesse is receiving income from the said property by way of rent. The main issue in all these appeals is whether the income so received should be taxed under the head “Income from House Property” or “Profit and gains of business or profession”. The reason for which the aforestated issue has arisen is that though the assesse is having the house property and is receiving income by way of rent, the case of the assesse is that the assesse company is in business of renting its properties and is receiving rent as its business income, the said income should be taxed under the Head “Profits and gains of business or profession” whereas the case of the Revenue is that as the income is arising from House Property, the said income must be taxed under the head “Income from House Property”.
• The learned counsel also submitted the assesse is a private limited company and even as per its Memorandum of Association its business is to deal into real estate and also to earn income by way of rent by leasing or renting the properties belonging to the assesse company.
• The learned counsel also drew our attention to the fact that the High Court and the authorities below had come to a specific finding to the effect that the assesse company had stopped its other business activities and was having only an activity with regard to the leasing its properties and earning rent therefrom. Thus, except leasing the properties belonging to the assesse company, the company is not having any other business and the said fact is not in dispute at all.
JUDGEMENT
• Submissions made by the learned counsel appearing for the Revenue is to the effect that the rent should be the main source of income or the purpose for which the company is incorporated should be to earn income from rent, so as to make the rental income to be the income taxable under the head “Profits and Gains of Business or Profession”. It is an admitted fact in the instant case that the assesse company has only one business and that is of leasing its property and earning rent therefrom. Thus, even on the factual aspect, we do not find any substance in what has been submitted by the learned counsel appearing for the Revenue.
• The business of the company is to lease its property and to earn rent and therefore, the income so earned should be treated as its business income.
• The income of the assesse shall be subject to tax under the head “Profits and gains of business or profession”
CASE VERDICT 3
Tips are not hotel employees’ salary income as employment contract is not proximate cause for such receipts.
CASE FACTS
• Recently, the Supreme Court (SC) held that since the employment contract was not the proximate cause for receipt of tips by hotel employees, that tips would not fall under the head “income from salary” under sections 15 and 17 (salary taxation provisions) of the Income-tax Act, 1961 (the Act). Hence, no tax needed to be deducted at source when the amounts were paid to the employees.
• Furthermore, it was held that such tips received by hotel employees were their “income from other sources”.
• The taxpayer1— the employer—was engaged in the hotel business. It collected tips charged to the customers' credit cards and then passed the same over to the employees without withholding any tax thereon.
• The Tax Officer (TO) treated such receipt of tips as “income from salary” in the hands of the employees and held that the taxpayers were liable to withhold tax on such payments under section 1922 of the Act. For failure to withhold such tax, TO treated the taxpayer as a “taxpayer-in-default” under section 201(1)3 of the Act and asked for the tax and interest
• The taxpayer argued that tips were paid by customers out of their own volition, the payment was gratuitous, the taxpayer acted as a mere trustee for its employees in collecting the tips charged to the customers’ credit cards, and such tips had no connection with the employment contract. It further argued that tips were not remuneration/ reward for services to the taxpayer, and the employees had no vested right to claim any tip from the customers.
• The taxpayer further argued that the expression “employer” contained in salary taxation provisions of the Act was of crucial importance. Payment received from any person other than the employer could not qualify as salary.
JUDGEMENT
• The SC, while ruling in favour of the taxpayer and setting aside the Delhi HC’s judgement, held that since the contract of employment in the present cases was not the proximate cause for the receipt of tips by the employees from the customers, the same would be outside the dragnet of salary taxation provisions of the Act.
• Thus, there would be no obligation on the employer to withhold tax under section 192 of the Act while making over such payments to the employees.
CASE VERDICT 4: APPY FIZZ
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
COURT
SUPREME COURT OF INDIA
JUDGE
MR. JUSTICE ASHOK BHUSHAN
APPELLANT
M/S. PARLE AGRO (P) LTD.
RESPONDENT
COMMISSIONER OF COMMERCIAL
TAXES, TRIVANDRUM
U/S
94
DATE
9TH MAY, 2017
FACTS
• The appellant M/s. Parle Agro (P) Ltd. is a dealer engaged in fruit juice based drink known as ‘Appy Fizz’ which has obtained certificate of registration under Kerala Value Added Tax Act, 2003 (hereinafter referred to as “Act, 2003”). The appellant was classifying the product as fruit juice based drink under Entry 71 of the notification issued under Section 6(1)(d) of Act, 2003 till 2007 and was paying @ 12.5% VAT. One M/s. Trade Lines (a distributor of appellant Company) was assessed by the authorities under the Act, 2003 holding that M/s. Trade Lines is liable to pay tax @ 20% on the product. M/s. Trade Lines filed OT Revision No.114/2013 in the High Court of Kerala against the order passed by Kerala Value Added Appellate Tribunal dismissing the appeal.
• The High Court vide its judgment and order dated 17the November, 2014 dismissed the revision upholding the order passed by the Assessment Officer and the First Appellate Authority. Special Leave Petition was filed by M/s. Trade Lines against the judgment of Kerala High Court which was, however, permitted to be withdrawn by order dated 19the January, 2015 of this Court. On 4TH August, 2015 the assessment notices were issued to the appellant for Assessment Year 200915 proposing classification of ‘Appy Fizz’ under Section 6(1)(a)of the Act, 2003 as “aerated branded soft drink” and tax liability @ 20% . After receipt of the notices appellant filed an application dated 24the August, 2014 under Section 94 of the Act, 2003 seeking clarification of product ‘Appy Fizz’. In the clarification application the appellant claimed that product ‘Appy Fizz’ had rightly been clarified as ‘fruit juice based drink’ and which has tax liability of 12.5%. Along with the clarification application appellant has filed certificates and expert opinions. Writ Petition No.26279/2015 was filed by the appellant before Kerala High Court seeking direction to the Commissioner of Commercial Taxes to consider and pass order on the application for clarification within a specified time and the proceedings initiated by the Commissioner of Commercial Taxes by different notices be kept in abeyance.
• Learned Single Judge by its judgment and order dated 31sty August, 2015 disposed of the writ petition directing the Commissioner of Commercial Taxes to consider and pass orders on the clarification application within a period of one month from the date of receipt of the judgment and liberty was given to the appellant to produce all material on which it intends to place reliance to substantiate its clarification with regard to the classification of the product, further proceedings in various notices were kept in abeyance. The Assistant Commissioner and Commissioner of Commercial Taxes filed a writ appeal against the judgment of the learned Single Judge before Division Bench of the Kerala High Court. The Division Bench of Kerala High Court vide its judgment dated 5the October, 2015 dismissed the writ appeal by affirming the decision of the learned Single Judge.
JUDGEMENT
• The Committee of Joint Commissioner passed the clarification order dated 6the November, 2015 classifying the product as ‘aerated branded soft drinks', at the rate of 20%. Against the order passed under Section 94 of Act, 2003, the appellant filed O.T. Appeal No.7 of 2015 in the Kerala High Court. The Division Bench by its judgment and order dated 5the February, 2016 dismissed the appeal filed by the appellant upholding the order dated 6the November, 2015. A review application was also filed by the appellant to review the judgment dated 5the February, 2016 which has been dismissed on 23rd. March, 2016.
• In view of the above, we are of the opinion that common parlance and commercial parlance test was not the only test which could have been applied for interpreting the entries in items mentioned in Section 6(1)(a) and the entries which contain scientific and technical word were also to be looked into in technical and scientific meaning. Both the High Court and the Committee of Joint Commissioners discarded the evidence of technical and scientific meaning of word. The appellant has rightly relied on the technical evidence brought on the record which indicate that use of carbon dioxide to the extent of 0.6 per cent was only for the purpose of preservative in packaging the commodities and the product was thermally processed and carbon dioxide was added to as the preservative.
• Civil Appeals arising out of SLP(C)Nos.1469714698 of 2016 are allowed, judgment of the Division Bench as well as order passed in the Review Application are set aside. OT Appeal filed by the appellant is allowed and the order passed by the Committee of Joint Commissioners dated 06.11.2015 is set aside. It is declared that product of the appellant 'Appy Fizz' is required to be classified as under Item No.5 of Entry 71 as amended by S.R.O. No.119 of 2008.