The Supreme Court has dismissed a batch of appeals from the Commissioner of Income Tax, expressing the hope that the revenue department will implement its litigation policy with "a little more practically and a little more seriously".
The question involved in these appeals was whether the benefit of an entitlement to make duty-free imports of raw materials obtained by an assessee through advanced licences and duty entitlement pass book issued against export obligations, is income in the year in which the exports are made or in the year in which the imports are made.
The court ruled the income does not accrue in the year of export but in the year of import.
Excel Industries claimed deduction benefit, which was denied by the authorities on the ground that any benefit arising from a business is income. In this batch of cases, the court noted the authorities had accepted deductions in certain years, but in other years they took a contrary stand and moved the Bombay High Court and lost.
"That being so," said the Supreme Court, "the revenue authorities cannot be allowed to flip-flop on the issue and it ought to let the matter rest, rather than spend the tax payers' money in pursuing litigation of its own sake... There was no need for it to continue this litigation when it was quite clear that not only was it fruitless but also that it may not have added anything to the public coffers".
Wrong to penalise Himachal SEB
The Supreme Court has ruled it was not correct on the part of the Himachal Pradesh State Electricity Commission to impose a penalty on the state electricity board for not complying with the commission's directions on the rate fixed by it. The commission, while fixing the rate order, passed a series of other directions. The commission monitored their implementation and found the board wanting, leading to imposition of penalty in 2001. The board challenged the power of the commission to do so. Meanwhile, the new Electricity Act was passed in 2003 and the complexion of the commission's power changed. The Supreme Court stated the board had "substantially" complied with the commission's directions and, therefore, the penalty was not warranted. The commission shall hereafter proceed to take decisions under the new Act, the judgment said.
Lender to pay VAT on vehicles sold
The Calcutta High Court has dismissed a batch of writ petitions moved by Tata Motors Finance Ltd, ICICI Bank and Family Credit Ltd against the order of the West Bengal Taxation Tribunal, on the question of whether in respect of disposal of a vehicle for recovery of the loan, the lending firms are liable to pay tax as 'dealers' according to the West Bengal Value Added Tax Act. The tribunal had held they were dealers under the VAT Act, as the sales are in course of their business and such sales are effected in exercise of its statutory right under the Banking Companies Regulations Act. Non-banking finance companies were also held to be dealers under the circumstances. The lenders argued they were not owners and the borrowers were the owners of the vehicles sold. The firms also argued they were not agents of the borrowers. Rejecting their contentions, the court ruled that by hypothecation and getting the power of attorney from the borrowers, the lending firms have become agents. The judgment said: "When they are acting on the basis of power of attorney, it cannot lie in their mouth to say that they are not the agents of the borrowers."
Old Monk' wins over 'Tall Mom'
The Delhi High Court has passed a permanent injunction against AB Sugars Ltd on a petition by Mohan Meakin Ltd in a trademark dispute over the brand names of alcoholic drinks. Mohan Meakin alleged the rival distiller used labels deceptively similar to its reputed brand Old Monk. The offending trademark was 'Told Mom'. In the three-year litigation, AB Sugars had offered to change its brand name to 'Tall Mom', but this was not acceptable to Mohan, which led to the present suit. Mohan argued it was engaged in manufacturing and selling of vatted rum under the trademark 'Old Monk' since 1959; it had the largest selling rum brand in India; and that apart from the common law rights accruing in favour of Old Monk by virtue of long and continuous use, it also held proprietary rights over the trademark of Old Monk by virtue of 15 registrations. AB Sugars defended its stand, submitting that since its incorporation in 1997, it was one of the fastest-growing companies and had entered into alliance with M/s Ian Macleod Distillers Ltd, a leading Scotland-based Scotch company, for bottling of imported Scotch and had a vast distribution network in north India, owning about 3,000 retail outlets in Punjab, Uttarakhand, Uttar Pradesh and Haryana and having an IMFL (Indian-made foreign liquor) bottling capacity of 150,000 cases a month and country liquor production of 200,000 cases a month. Its label and colour scheme distinguished the product from Old Monk, it argued. The high court, however, ruled there was infringement of the trademark of Mohan Meakin.
Capital gains on offshore deals
The Delhi High Court has quashed the decision of the Authority for Advance Rulings (AAR) on a petition moved by Cairn UK Holding Ltd, a company registered in Scotland, and declared it would be entitled to the benefit of Section 112(1) of the Income Tax Act on sale of equity shares.
The question involved the rate of tax applicable/payable on the long-term capital gains earned. The company had transferred 43.6 million equity of Cairn India Limited to Petronas International Corporation Ltd, Malaysia, for a consideration of $241,426,379. That transaction was an off-market transaction, not through a stock exchange. It resulted in long-term capital gain of $85,584,251 in the hands of Cairn UK, after applying the benefit under Section 48 (1) of the Income Tax Act.
The question raised related to the rate of tax applicable. The assessee company argued it was liable to pay only 10 per cent on the capital gains, and not 20 per cent as claimed by the revenue authorities. AAR rejected the company's contention and ruled the lower rate under Section 112(1) was not applicable. Allowing the company's appeal, the high court stated the decision in this case has gone diametrically against the authority's own long-standing view in several other cases. This has brought about "an uncertainty in understanding the impact and the effect of the proviso to Section 112(1)," the judgment said, adding: "Certainty is integral to rule of law. Certainty and stability form the basis foundation of any fiscal laws."