Click on the Link below to go through the notification
http://www.servicetax.gov.in/notifications/notfns-2k11/st-odr03-29dec11.htm
http://www.servicetax.gov.in/notifications/notfns-2k11/st-odr03-29dec11.htm
Friday 30 December 2011
Sunday 18 December 2011
Service Tax proposed to undergo Plastic Surgery- Taxation based on Negative List
Service Tax is proposed to be levied on all services except those provided in Negative List.
Service is defined to “mean anything which does not constitute supply of goods, money or immovable property” A number of specific inclusions or exclusions were further elaborated.
The charging section somewhat as follows:
“There shall be levied a tax (hereinafter referred to as service tax) at the rate of ... per cent of the value of services provided or to be provided by a taxable person to another person and collected in such manner as may be prescribed.”
The above charging section is illustrative in terms of the present scheme of taxation and the same will naturally look quite different if the negative list is introduced alongwith the GST, capturing all the various activities that will be brought within the purview of the GST.
Taxable person may be defined as: “any person who independently carries out any economic activity, whether or not for a pecuniary profit”.
Thus the impact of all the proposed charging section will be to confine taxation to transactions in services carried out with another person by a person engaged in an economic activity on his own account
Check this link out for discussion paper on Revised Concept Paper on Taxation of Services based on Negative List:
http://www.cbec.gov.in/concpt-ppr-velst.pdf
Thursday 8 December 2011
Current A/c operated with Sister concerns for the purpose of business, such advances to be out of Deemed Dividend 2(22)(e) coverage - [CIT V/s Arvind Kumar Jain Delhi high Court-ITA 589 OF 2011]
This case is selected to be published on this blog for the following reasons:
In the given case:
[a] The High Court has applied one of the Rule of Interpretation of Statues "Noscitur a Sociis."
[b] The High Court laid principle for differentiating 'Loans & Advance' from 'Advances only'
[c] The High Court upheld the principle of substance over form reflected from assessee books.
Facts of the case
-Assessee holds 50% in a Pvt Ltd Co [A.A.Periodicals Pvt Ltd]
-Assessee and Pvt Ltd Co. were in same business [i.e Purchase & Sale of Books & Journals]
-Books of assessee reflected Unsecured Loan taken from Co.
-Assessing Officer treats the above Loan as Deemeed Dividend u/s 2(22)(e)
-Assessee takes the ground that the said amount reflected continuing Business relationship and running account was maintained showing those transaction
-Assessing Officer did not accept assessee's stand as in the books of accounts the said amount was shown as " Unsecured Loan"
Findings of CIT (A)
-A & A Periodicals were in the business of trading i.e. purchase and sale of books and journals.
-there were business transactions between the assessee and the A & A Periodicals
-a running account was being maintained reflecting the regular transactions between the two business entities
-the amount of Rs. 47,25,318.80 paise was the result of those business transactions
Conclusion of CIT (A)
-the amount was not given by A & A Periodicals to the assessee by way of loan
ITAT affirmed CIT (A) order
High Court judgement [Relevant extracts only]
4. It is not in dispute that Section 2 (22) (e) of the Act creates a fiction of making such loan and advance under circumstances, as deemed dividend, would be attracted only when some loan or advance is given by the company to another person who is having particular shareholding in the said company. However, in the present case, two authorities below have arrived at a finding of fact that the amount in question represented the credit balance as a result of transactions between A & A Periodicals and the assessee on account of business relations and payment was not in the nature of „loan or advance‟.
5. In CIT Vs. Raj Kumar (2009) 318 ITR 462, this Court has held that if the payments are made by such a company to even its shareholder having substantial interest but are the result of business transactions between the parties, then such payments cannot be treated as loan or advance and the money so received cannot be treated as deemed dividend within the meaning of Section 2 (22)(e) of the Act. The following discussion in the said judgment spells out the conditions which are to be fulfilled before the amount paid is treated as deemed dividend as well as the principle that trade advance does not fall within the ambit of provisions of Section 2 (22) (e) of the Act:-
“(i) The company making the payment is one in which public are not substantially interested.
(ii) money should be paid by the company to a shareholder holding not less than ten per cent (10%) of the voting power of the said company. It would make no difference if the payment was out of the assets of the company or otherwise.
(iii) The money should be paid either by way of an advance or loan or it may be “any payment” which the company may make on behalf of, or for the individual benefit of, any share holder or also to any concern in which such shareholder is a member or a partner and in which it is substantially interested.
(iv) And, lastly, the limiting factor being that these payments must be to the extent of accumulated profits, possessed by such a company.”
Therefore, if the said background is kept in mind, it is clear that Sub-clause (e) of Section 2(22) of the Act, which is pari-materia with Clause (e) of Section 2(6A) of the 1922 Act, plainly seeks to bring within the tax net accumulated profits which are distributed by closely held companies to its shareholders in the form of loans. The purpose being that persons who manage such closely held companies should not arrange their affairs in a manner that they assist the shareholders in avoiding the payment of taxes by having these companies pay or distribute, what would legitimately be dividend in the hands of the shareholders, money in the form of an advance or loan.
If this purpose is kept in mind then, in our view, the word "advance' has to be read in conjunction with the word "loan'. Usually attributes of a loan are that it involves positive act of lending coupled with acceptance by the other side of the money as loan: it generally carries an interest and there is an obligation of re-payment. On the other hand, in its widest meaning the term "advance' may or may not include lending. The word "advance' if not found in the company of or in conjunction with a word "loan' may or may not include the obligation of repayment. If it does then it would be a loan. Thus, arises the conundrum as to what meaning one would attribute to the term "advance'. The rule of construction to our minds which answers this conundrum is "noscitur a sociis."
The said rule has been explained both by the Privy Council in the case of Angus Robertson v. George Day (1879) 5 AC 63 by observing "it is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them" and our Supreme Court in the case of Rohit Pulp & Paper Mills ltd v. CCE, AIR 1991 SC 754 and State of Bombay v. Hospital Mazdoor Sabha, AIR 1960 SC 610.
Importantly, the broad principles which emerge from the judgment of the Supreme Court with regard to the applicability of the said rule of construction are briefly as follows:
(i) does the term in issue have more than one meaning attributed to it i.e., based on the setting or the context one could apply the narrower or wider meaning;
(ii) are words or terms used found in a group totally "dissimilar' or is there a "common thread' running through them;
(iii) the purpose behind insertion of the term.
Let's examine as to whether based on the aforesaid tests the said rule of construction "noscitur a sociis' ought to be applied in the instant case.
(i) the term "advance' has undoubtedly more than one meaning depending on the context in which it is used; (ii) both the terms, that is, advance or loan are related to the "accumulated profits' of the company; (iii) and last but not the least the purpose behind insertion of the term advance was to bring within the tax net payments made in guise of loan to shareholders by companies in which they have a substantial interest so as to avoid payment of tax by the shareholders;
Keeping the aforesaid rule in mind we are of the opinion that the word "advance' which appears in the company of the word "loan' could only mean such advance which carries with it an obligation of repayment. Trade advance which are in the nature of money transacted to give effect to a commercial transactions would not, in our view, fall within the ambit of the provisions of Section 2(22)(e) of the Act. This interpretation would allow the rule of purposive construction with noscitur a sociis, as was done by the Supreme Court in the case of LIC of India v. Retd. LIC Officers Assn. [2008] 3 SCC 321.”]
6. Learned counsel for the appellant hammered the fact that the amount was shown by the assessee himself in his books of accounts as “unsecured loan” and, therefore, the order of the Assessing Officer was correct.
7. It is trite law that mere nomenclature of entry in the books of accounts is not determinative of the true nature of transaction. See Commissioner of Income Tax Vs. India Discount Co. Ltd. 75 ITR 191 (SC), Commissioner of Income Tax Vs. Provincial Farmers (P) Ltd. 108 ITR 219 (Cal) and KCP Ltd. Vs. CIT, 245 ITR 421. In the present case after going through the relevant evidence as well as current account maintained between the parties, it has been established that the payment made were the result of trading transaction between the parties and the amount was not given by way of loan or advance.
8. We thus, find that no question of law arises in this appeal which is accordingly dismissed.
In the given case:
[a] The High Court has applied one of the Rule of Interpretation of Statues "Noscitur a Sociis."
[b] The High Court laid principle for differentiating 'Loans & Advance' from 'Advances only'
[c] The High Court upheld the principle of substance over form reflected from assessee books.
Facts of the case
-Assessee holds 50% in a Pvt Ltd Co [A.A.Periodicals Pvt Ltd]
-Assessee and Pvt Ltd Co. were in same business [i.e Purchase & Sale of Books & Journals]
-Books of assessee reflected Unsecured Loan taken from Co.
-Assessing Officer treats the above Loan as Deemeed Dividend u/s 2(22)(e)
-Assessee takes the ground that the said amount reflected continuing Business relationship and running account was maintained showing those transaction
-Assessing Officer did not accept assessee's stand as in the books of accounts the said amount was shown as " Unsecured Loan"
Findings of CIT (A)
-A & A Periodicals were in the business of trading i.e. purchase and sale of books and journals.
-there were business transactions between the assessee and the A & A Periodicals
-a running account was being maintained reflecting the regular transactions between the two business entities
-the amount of Rs. 47,25,318.80 paise was the result of those business transactions
Conclusion of CIT (A)
-the amount was not given by A & A Periodicals to the assessee by way of loan
ITAT affirmed CIT (A) order
High Court judgement [Relevant extracts only]
4. It is not in dispute that Section 2 (22) (e) of the Act creates a fiction of making such loan and advance under circumstances, as deemed dividend, would be attracted only when some loan or advance is given by the company to another person who is having particular shareholding in the said company. However, in the present case, two authorities below have arrived at a finding of fact that the amount in question represented the credit balance as a result of transactions between A & A Periodicals and the assessee on account of business relations and payment was not in the nature of „loan or advance‟.
5. In CIT Vs. Raj Kumar (2009) 318 ITR 462, this Court has held that if the payments are made by such a company to even its shareholder having substantial interest but are the result of business transactions between the parties, then such payments cannot be treated as loan or advance and the money so received cannot be treated as deemed dividend within the meaning of Section 2 (22)(e) of the Act. The following discussion in the said judgment spells out the conditions which are to be fulfilled before the amount paid is treated as deemed dividend as well as the principle that trade advance does not fall within the ambit of provisions of Section 2 (22) (e) of the Act:-
“(i) The company making the payment is one in which public are not substantially interested.
(ii) money should be paid by the company to a shareholder holding not less than ten per cent (10%) of the voting power of the said company. It would make no difference if the payment was out of the assets of the company or otherwise.
(iii) The money should be paid either by way of an advance or loan or it may be “any payment” which the company may make on behalf of, or for the individual benefit of, any share holder or also to any concern in which such shareholder is a member or a partner and in which it is substantially interested.
(iv) And, lastly, the limiting factor being that these payments must be to the extent of accumulated profits, possessed by such a company.”
Therefore, if the said background is kept in mind, it is clear that Sub-clause (e) of Section 2(22) of the Act, which is pari-materia with Clause (e) of Section 2(6A) of the 1922 Act, plainly seeks to bring within the tax net accumulated profits which are distributed by closely held companies to its shareholders in the form of loans. The purpose being that persons who manage such closely held companies should not arrange their affairs in a manner that they assist the shareholders in avoiding the payment of taxes by having these companies pay or distribute, what would legitimately be dividend in the hands of the shareholders, money in the form of an advance or loan.
If this purpose is kept in mind then, in our view, the word "advance' has to be read in conjunction with the word "loan'. Usually attributes of a loan are that it involves positive act of lending coupled with acceptance by the other side of the money as loan: it generally carries an interest and there is an obligation of re-payment. On the other hand, in its widest meaning the term "advance' may or may not include lending. The word "advance' if not found in the company of or in conjunction with a word "loan' may or may not include the obligation of repayment. If it does then it would be a loan. Thus, arises the conundrum as to what meaning one would attribute to the term "advance'. The rule of construction to our minds which answers this conundrum is "noscitur a sociis."
The said rule has been explained both by the Privy Council in the case of Angus Robertson v. George Day (1879) 5 AC 63 by observing "it is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them" and our Supreme Court in the case of Rohit Pulp & Paper Mills ltd v. CCE, AIR 1991 SC 754 and State of Bombay v. Hospital Mazdoor Sabha, AIR 1960 SC 610.
Importantly, the broad principles which emerge from the judgment of the Supreme Court with regard to the applicability of the said rule of construction are briefly as follows:
(i) does the term in issue have more than one meaning attributed to it i.e., based on the setting or the context one could apply the narrower or wider meaning;
(ii) are words or terms used found in a group totally "dissimilar' or is there a "common thread' running through them;
(iii) the purpose behind insertion of the term.
Let's examine as to whether based on the aforesaid tests the said rule of construction "noscitur a sociis' ought to be applied in the instant case.
(i) the term "advance' has undoubtedly more than one meaning depending on the context in which it is used; (ii) both the terms, that is, advance or loan are related to the "accumulated profits' of the company; (iii) and last but not the least the purpose behind insertion of the term advance was to bring within the tax net payments made in guise of loan to shareholders by companies in which they have a substantial interest so as to avoid payment of tax by the shareholders;
Keeping the aforesaid rule in mind we are of the opinion that the word "advance' which appears in the company of the word "loan' could only mean such advance which carries with it an obligation of repayment. Trade advance which are in the nature of money transacted to give effect to a commercial transactions would not, in our view, fall within the ambit of the provisions of Section 2(22)(e) of the Act. This interpretation would allow the rule of purposive construction with noscitur a sociis, as was done by the Supreme Court in the case of LIC of India v. Retd. LIC Officers Assn. [2008] 3 SCC 321.”]
6. Learned counsel for the appellant hammered the fact that the amount was shown by the assessee himself in his books of accounts as “unsecured loan” and, therefore, the order of the Assessing Officer was correct.
7. It is trite law that mere nomenclature of entry in the books of accounts is not determinative of the true nature of transaction. See Commissioner of Income Tax Vs. India Discount Co. Ltd. 75 ITR 191 (SC), Commissioner of Income Tax Vs. Provincial Farmers (P) Ltd. 108 ITR 219 (Cal) and KCP Ltd. Vs. CIT, 245 ITR 421. In the present case after going through the relevant evidence as well as current account maintained between the parties, it has been established that the payment made were the result of trading transaction between the parties and the amount was not given by way of loan or advance.
8. We thus, find that no question of law arises in this appeal which is accordingly dismissed.
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