SUPREME COURT JUDGEMENTS

SOME IMPORTANT DIRECT TAXES UPDATE :

BOMBAY SALES TAX, 1959 :

Circulars

By issuing Circular No. 8T dated 25^th June, 2001, the Commissioner of Sales Tax as clarified the rate of tax applicable on sales of various scraps. This circular narrates the applicability of taxes to scrap in detail.

Notification Under Central Sales Tax Act, 1956

Changes in section 14 of the Central Sales Tax Act, 1956. Accordingly now 2 more items are added to the list of Declared goods. The said items are as follows :

CORPORATE LAWS :

1. DISQUALIFICATION OF SPECIAL DIRECTORS 32 SCL (St.) 4 :

Special directors appointment under u/s. 16(4) to the Sick Industrial Company (Special Provisions) Act, 1985 shall not be diswualified by virtue of section 274 (1)(g) of the Companies Act, 1956.

2. AMENDMENTS TO SECURITIES CONTRACT (REGULATION) RULES, 1957

1. 10% of the securities be offered to the public for subscription through advertisement in newspaper.
2. Minimum 20 lac securities should be offered to public (excluding reservation, firm allotment and promoters contribution).
3. The size of the offer to the public should be minimum Rs. 100 crores.
4. Issue should be only through book building with minimum 60% of issue size to be allocated to qualified institutional buyers.

1. AMENDMENTS TO NBFC REGULATIONS

1. Accounting for repossessed assets
2. Impact of TDs on computation of amount of public deposits for determination of SLR
3. Requirements on auditors to include violations of RBI Act / Directions in his report to the shareholders of the company
4. Conversions of NBFCs from the category of "Deposits taking companies" to "Non-deposit taking companies"
5. Change in name of a credit rating company
6. Change in name of the city of Calcutta to Kolkata
7. Shifting of Regional office of DNBC from Lucknow to Kanpur
8. Extension of jurisdiction of Regional Office to newly created states

SOME IMPORTANT JUDGEMENTS UPDATE :

1. Ship Scrap Traders & Others vs. CIT & others (163 CTR 489) (Bom)

Activity of ship-breaking amounts to manufacture or production of things or articles within the meaning of section 80HHA and 80-I.

2. Kalyani Exports & Investment (P) Ltd. Vs. Dy. CIT (72 TTJ 341) (Pune)(TM) :

Assessee was held entitled to opt for fair market value as on 1^st April, 1981, as cost of acquisition in respect of original shares purchased before 1^st April, 1981, and was further entitled to substitute the said cost by indexed cost of acquisition by taking assessment year 1981-82 as base year even though the shares were held as stock-in-trade on the said statutory date and were converted into capital asset later on.

3. Karnataka Ginning & Pressing Factory vs. Jt. CIT (72 TTJ 307) (Mumbai).

   Temporary advances received by the assessee in cash in the course of the business and for the purpose of the business are regarded neither loans nor deposits within the meaning of section 269SS and hence no penalty under section 271D was exigible.

Polishing and cutting of raw diamond not manufacture or production of an article or thing for section 80-I

The Supreme Court held that in the absence of any material to show that polished diamond was a new article or thing - the result of manufacture or production subjecting raw uncut diamonds to a process of cutting and polishing, which yeilds the polished diamond, could not be considered as manufacture or production of an article or thing, for the purposes of availing of deduction under section 80-I. The order of the High Court was set aside. [CIT v. Gem India Manufacturing Co.(2001) 249 ITR 307 (SC)]

HIGH COURTS

Deductions

Certificate of Chartered Accountant / proof of claim under Chapter VI can be filed subsequent to filing of return of income

The Karnataka High Court relying on CBDT Circular No.669 dated 25 October 1993 held that non-filing of the proof of certificate of the Chartered Accountant with the original return was not fatal to the claim made by the assessee and held that the proof could be furnished later along with the rectification application,. [ITO v.Smt Mandira D Vakharia (2001) 167 CTR 224 (Kar)]

Business expenditure

Interest on unpaid municipal rates, not in the nature of penalty, hence deductible under section 37

The Calcutta High Court has held that the interest which is payable on unpaid municipal rates is not in the nature of penalty. Such interest payment is clearly deductible under the provisions of section 37, which provides for deduction of expenditure (not in the nature of capital), laid out or expended wholly and exclusively for the purpose of the business. The High Court further held that, such interest payment would not fall within the ambit of section 43B, even if the assessee were following the mercantile system. . [CIT v. E.L.Properties (P.) Ltd. (2001) 166 CTR 485 (Cal.)]

Income from house property

Where the main object was to let out property or portion thereof, income therefrom would be rental income

The Calcutta High Court held that merely because income was attached to any immovable property, it could not be held as income from house property. If the main intention of the assessee was to let out the property or any portion thereof, the income could be considered as rental income or income from house property whereas if the primary object was to exploit the immovable property by way of complex commercial activities, then it should be construed as business income.. [CIT v. Shambhu Investments Private Limited (2001) 249 ITR 47 (Cal.)]

Purchase of immovable property by Central Government

Appropriate Authority cannot go into legal infirmity in agreement

The Delhi High Court held that the only right which section 269UD conferred on the
Appropriate Authority was to make an order purchasing the property at an amount equal to the amount of apparent consideration. The Appropriate Authority could not adjudicate upon the legality of the proposed transaction as Section 269UC(4) merely provided that in case there was a defect in the statement in Form 37-I, the Appropriate Authority should intimate the parties concerned about the defect and give them an opportunity to rectify the same within the specified time

Interest on undisbursed salaries, not an allowable deduction under section 36(1)(iii)

The DelhHigh Court held that the interest paid by the assessee company to its directors on undisbursed salaries would not constitute interest on capital borrowed and would not be allowed as a deduction under section 36(1)(iii). . [CIT v. Saraswati Chemicals & Allied Industries (P.) Ltd. (2001) 167 CTR 150 (Del.)]