Top 25 Cases of Tax & Corporate Laws Reported in the Year 2017

We bid adieu to the Year 2017 and have begun a new journey. The Year 2017 has witnessed some landmark rulings which shall be referred to by the Courts to understand and to decipher some aspects of Income-tax or Corporate Laws.

During the Year 2017, the CBDT tried to reduce the frivolous conflicts among taxpayers & revenue and to minimize the litigations. However, the numbers of clarifications or notifications issued during the Year 2017 by the CBDT are less than the number CBDT achieved in the year 2016. During the year 2017, CBDT issued approx. 600 statutes while as it had issued more than 800 statutes in the year 2016.

Inspite of these clarifications, taxpayers and revenue had to approach the Courts to settle the controversies either left behind or created by the CBDT. Throughout the year, Taxmann’s editorial board has been carefully selecting the cases for reporting at taxmann.com. We hope to have reported almost all good cases on all important aspects of Income-tax and Corporate Laws.

We enthusiastically announce that every year Taxmann would bring out the list of top 25 cases reported by us at taxmann.com. The list for the year 2017 is given below.

1. Disclosing income in IT return won’t certify authenticity of its source:

In the case of State of Karnataka v. Selvi J. Jayalalitha [2017] 78 taxmann.com 161, the Apex Court held that disclosure of income in income-tax returns does not certify or authenticate the lawfulness of sources of income of accused persons. The Income-tax returns and orders would not ipso facto either conclusively prove or disprove charge of disproportionate assets (acquisition of assets disproportionate to known sources of income). Therefore, the tax returns or orders do not provide any shield to any public servant in case of criminal misconduct under the Prevention of Corruption Act.

2. Delhi HC strikes down certain ICDS provisions:

In the case of Chamber of Tax Consultants v. Union of India [2017] 87 taxmann.com 92, the Delhi High Court provided relief to taxpayers at large by striking down certain provisions of Income Computation and Disclosure Standards (ICDS) that were overriding and binding judicial precedents or provisions of Income-tax Act or Rules framed thereunder. The High Court held that CBDT couldn’t override the well-established legal position under the Act regarding the concept of accrual, income, prudence, materiality, etc.

3.Levy of DDT on dividend declared by agricultural companies:

In the case of Union of India v. Tata Tea Co. Ltd. [2017] 85 taxmann.com 346, the Supreme Court upheld the constitutional validity of Section 115-O that imposes an additional tax on dividend. It held that the provisions of this section would be applicable in the event of declaration, distribution or payment of dividend by a domestic company, even if the said company generates only agriculture income.

4. ‘Payable’ v. ‘Paid’ Controversy in Sec. 40(a)(ia) resolved:

In the case of Palam Gas Service v. CIT [2017] 81 taxmann.com 43, the Hon’ble Supreme Court reversing the ratio of Vector Shipping Services (P) Ltd., [2013] 38 taxmann.com 77 held that the provision of Section 40(a)(ia) requires deduction of tax at source not only from the amount payable at the year-end but also from the sums actually paid during the year. Therefore, the provision of section 40(a)(ia) shall be applicable even if the amount is not ‘payable’ at the year end.

5. No Credit for Surcharge & Ed. Cess paid under provisions of MAT:

In the case of Harbinger Systems (P.) Ltd. v. DCIT [2017] 77 taxmann.com 284, the Pune ITAT held that when only Income-tax is calculated and payable as per provisions of Section 115JB, it is natural that tax credit to be allowed under Section 115JAA shall be restricted to income-tax excluding surcharge and education cess.

6. No deduction of tax if payee is not identifiable:

In the case of Apollo Tyres Ltd. v. DCIT [2017] 78 taxmann.com 195, the Delhi Tribunal held that the identification of the person, from whose account tax is to be deducted, is a prerequisite to make the provisions of Chapter XVII-B workable. Therefore, assesse shall not be required to deduct tax at the time of creating provision for expenses if identity of payees couldn’t be ascertained.

7.Notice pay forfeited by employer is not taxable in hands of employee:

In the case of Nandinho Rebello v. DCIT [2017] 80 taxmann.com 297 (Ahmedabad – Trib.), the assesse claimed deduction in the return of income in respect of notice pay recovered from his salary by the previous employers. The CIT(A) was of the view that no such deduction is available under Section 16 as the salary income is taxable on due basis or on paid basis. However, the Tribunal held that only actual salary received by an employee shall be taxed in the hands of the assesse.

8. Formula one Circuit – A Fixed Place PE of Foreign Co.

In the case of Formula One World Championship Ltd. v. CIT [2017] 80 taxmann.com 347, the Supreme Court upheld the Delhi High Court’s decision that F-1 Race Circuit, which was owned by Jaypee Sports, shall be deemed as PE of assesse (a UK based Co.) in India. In the instant case, the assesse granted the rights to Jaypee to host and promote Formula F-1 Race at latter’s motor racing circuit. The assesse had full access & control over the circuit and it could also dictate as to who can access the place. Further, organising any other event at this place was not permitted. Therefore, the Apex Court held that circuit shall constitute the PE of Assesse in India.

9.Period for which interest to be levied in case of late deposit of TDS:

In the case of Bank of Baroda v. DCIT [2017] 88 taxmann.com 103 (Ahmedabad – Trib.), the tax was deducted under section 194A by the assessee-bank for the month of September 2014 and was deposited on 8^th October 2014. While processing the TDS return, the Dept. charged interest for delay in depositing the tax at source, for a period of two months, i.e., September and October, 2014.

The Tribunal held that interest should be charged only for the actual period of delay in depositing TDS, i.e., from the date on which tax was deducted till the date on which tax was deposited. Levy of interest for the second month could arise only if the period between the date on which tax was deducted and the date on which tax was paid to the Government exceeded one month.

10. A trust created for benefit of an individual can claim Section 54F relief:

In the case of Balgopal Trust v. Assistant CIT [2017] 81 taxmann.com 367 (Mumbai – Trib.), the assesse was a private non-discretionary trust. Ms. V, daughter of the trustees, was the sole beneficiary of the said trust. Trust earned capital gain from sale of a capital asset and claimed deduction under section 54F. AO rejected said claim on the ground that said deduction was allowable only to an individual or HUF.

The Mumbai ITAT held that in terms of section 161, representative assessee is subjected to same tax treatment in respect of an income as if it was received by the beneficiary. By virtue of Section 161, a Trust is assessed in respect of income that is meant for the benefit of the beneficiaries. Therefore, deduction under section 54F couldn’t be denied on ground that trust wasn’t an individual or HUF.

11. Assesse to get Interest on refund arising due to waiver of interest under Sec. 234A to 234C:

In the case of K. Lakshmanya & Co. v. CIT [2017] 87 taxmann.com 190, the Settlement Commission partially waived off the interest levied under Sections 234A, 234B and 234C on the assessee-company. Consequent to such waiver, income-tax refund accrued to the assesse. The refund so calculated by the Assessing Officer didn’t include the interest payable under Section 244A. The Assessing Officer refused to grant interest on the refund arising after waiver of interest by SetCom.

The Supreme Court held that assessee was entitled to interest under section 244A, even if refund arose on account of waiver of interest levied under Sections 234A, 234B and 234C by an order of Settlement Commission.

12. Firms escape Capital Gain tax by distributing revaluation reserve to retiring partners:

In the case of Mahul Construction Corporation v. ITO [2017] 88 taxmann.com 181 (Mumbai – Trib.), the Mumbai Tribunal held that if retiring partner had just withdrawn the sum lying to credit in his capital account without any distribution of capital asset, then it would not bring the firm within sweep of capital gains under Section 45(4). The Tribunal held that when transfer by way of distribution of capital asset by firm is coupled with retirement or dissolution, it triggers the provisions of Section 45(4).

13.Payments by Google India to Google Ireland for use of ‘Adword Programs’:

In the case of, Google India (P.) Ltd. v. ACIT [2017] 86 taxmann.com 237 (Bengaluru – Trib), Google-Ireland gave non-exclusive distribution rights of ‘Adwods Programs’ to the assesse, Google-India. Under this arrangement, the assesse had been provided with access to IPR, Google Brand features, secret process embedded in Adwords Programme as tool of trade for generation of income.

It was held by the ITAT that the activities of assessee would fall within the ambit of ‘Royalty’ as mentioned in Income-tax Act & under DTAA. Therefore, Payment made by assessee to Google-Ireland was royalty chargeable to tax in India.

14.Outsourcing operations carried on by an Indian subsidiary won’t constitute its PE in India: 

In the case of ADIT v. E-Funds IT Solution Inc [2017] 86 taxmann.com 240, the Supreme Court held that if an Indian subsidiary company only renders support services to enable the foreign company to render services to its clients abroad, this outsourcing work to India by foreign company would not give rise to its fixed place PE in India.

15. No deduction of TDS from ‘Tips’ collected and paid by the hotel:

In the case of EIH Ltd. v. Income-tax Officer [2017] 78 taxmann.com 242, the Delhi Tribunal held that when hotels collect the tips from the customers, they receive the amount in fiduciary capacity on behalf of the waiters. It does not come under preview of contract of employment between the hotels and the employees, therefore, hotels (employer) are not liable to deduct TDS under section 192 on the tips recovered from the customers. The current ruling follows the case of ITC Ltd. v. CIT [2016] 68 taxmann.com 323 (SC), wherein the Hon’ble Supreme Court held that ITC was not liable to deduct TDS under section 192 on the tips paid to employees collected from customers.

16. Imports under GST will be allowed after payment of IGST only:

In the case of Narendra Plastic (P.) Ltd. v. Union of India [2017] 85 taxmann.com 153 (Delhi), it was held that under GST regime, assesses will have to pay IGST for the imports even if it causes blockage of working capital. The High Court, however, allowed interim relief to the parties to import without payment of IGST to the extent of Advance Authorization Licenses valid till July 1, 2017.

17. Interim relief on reversal of 5/6^th of credit of CVD paid on import of gold bars:

In the case of Kundan Care Products Ltd. v. Union of India [2017] 84 taxmann.com 251 (Delhi), the Delhi HC had granted interim relief to the petitioners who challenged the Notification No. 22/2017-Central Tax which, inter alia, inserted Rule 44A in CGST Rules, 2017 requiring reversal of 5/6^th of accrued credit of CVD paid on importation of gold bars.

18. No cess payable on stock of coal when clean energy cess was paid:

In the case of Mohit Minerals (P.) Ltd. v. Union of India [2017] 84 taxmann.com 268, the Delhi High Court had granted interim relief from further payment of GST on the stock of coal on which assessee had already paid clean energy cess in terms of the Finance Act, 2010. It was not required to make any further payment of tax under GST (Compensation) Act, 2017.

19. Compensation still recoverable for the cheque dishonour even if jail sentence was undergone:

In the case of Kumaran vs. State of Kerala [2017] 81 taxmann.com 313 (SC), the Apex Court ruled that when for an offence committed under Section 138 of the Negotiable Instrument Act the defaulter was ordered to pay the compensation, and in default thereof, a jail sentence was prescribed, the defaulter underwent the sentence but compensation was still recoverable from him.

20.‘WhatsApp’ didn’t abuse its dominant position in relevant market for instant messaging:

In the case of Vinod Kumar Gupta, Chartered Accountant vs. WhatsApp Inc. [2017] 82 taxmann.com 272, the Competition Commission of India held that, even though ‘WhatsApp’ appears to be dominant in relevant market for instant messaging services using consumer communication apps through smartphones in India, allegations of predatory pricing had no substance and Whats App had not contravened any of provisions of section 4 of the Competition Act, 2002.

21.A director cannot be prosecuted for failing to lay financials in AGM if he had resigned prior to AGM:

In the case of D.B. Negandhi vs. Registrar of Companies [2017] 83 taxmann.com 318, the Apex Court ruled in favour of director and held that where a criminal complaint was filed against appellant in capacity of one of directors of company on account of their failure to lay before company its profit and loss account and balance sheet in AGM as was required under section 210 of 1956 Act, in view of fact that appellant had already resigned from said company prior to convening of AGM and Registrar of companies was duly informed in said regard, complaint in question deserved to be quashed.

22. Apex Court acquits the drawer in cheque bouncing case as advocates fee was based on % of compensation awarded by the Court:

In the instant case of B. Sunitha vs. State of Telangana [2017] 88 taxmann.com 250 (SC), the Apex Court held that an advocate cannot claim a fee contingent on results of litigation or agree to share proceeds thereof. Since liability of appellant was disputed, advocate had to independently prove to the contract and therefore, claim of fees by an advocate based on percentage of subject matter in litigation could not be a basis of complaint under section 138 of the Negotiable Instruments Act, 1881

23. A disqualified director allowed to file annual returns of Cos. other than defaulting companies:

In the case of Dr. Reddy’s Research Foundation vs. Ministry of Corporate Affairs [2017] 86 taxmann.com 236 (Andhra Pradesh and Telangana), the High Court ruled in favour of petitioner and directed the Ministry of Corporate Affairs to restore the disqualified director’s DIN for filing the financials and annual returns of companies other than defaulting companies. It was held that the restrictive provisions of disqualified directors has to be restricted only to defaulting companies and not other companies.

24. Advance payment to reality firm for booking a flat can’t be considered as debt for initiating insolvency process:

In the case of, Satish Mittal vs. Ozone Builders & Developers (P.) Ltd. [2017] 84 taxmann.com 18, the NCLT held that the appellant who had deposited advance amount for booking of plots with real – estate co. could not be considered as operational creditor even he had no right to file the application for initiation of the insolvency process against the real estate company as the debt had not arisen out of the provisions of goods and services.

25.Representation by BCCI under IPL Media Rights Agreement not to organize another domestic T20 would be anti – competitive:

In the case of Surinder Singh Barmi vs. Board of Control for Cricket in India [2017] 87 taxmann.com 336 (CCI), an information was filed against BCCI for abusing its dominant position. The Competition Commission of India found that representation and warranty given by BCCI in IPL Media Rights Agreement that it would not organize, sanction, recognize, or support during rights period another professional domestic Indian T20 competition that was competitive to league amounted to denial of market access for organization of professional domestic cricket leagues/events in India. The CCI held that BCCI enjoyed a dominant position in the market for organization of professional domestic cricket leagues/events in India and the said practice or conduct of BCCI was anti-competitive.

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