Rewind 2022 | Top 22 Rulings of the Year 2022 | Tax & Corporate Laws

The year 2022 was marked by many significant corporate and tax cases that had a major impact on the business and financial world. This article reviews the top 22 case laws of the year reported on taxmann.com. All these reported case laws contain a three-line digest and headnotes, which are drafted and reviewed by a team of professionals. We focus on bringing the issue involved and ratio decidendi to the fore and integrating it with all connected records so that you can have a holistic view of a judgment.

Some notable cases we reported include the Supreme Court’s decision on the taxability of Charitable Trusts, keeping the validity of FCRA 2020 amendments, upholding the constitutional validity of ‘twin conditions’ under PMLA and more.

Here is a rewind of 2022 with a summary of the top 22 cases reported on taxmann.com in the year 2022.

1. Supreme Court upheld the validity of Section 148 notices issued after 31-03-21 under old provisions

Income-tax | UOI v. Ashish Agarwal [2022] 138 taxmann.com 64/286 Taxman 183/444 ITR 1 (SC)

Revenue had preferred an appeal before the Supreme Court against the order of High Courts wherein several reassessment notices issued under old provisions of Section 148 were quashed. The notices were set aside on the ground that the same was bad in law in view of the amendment made by the Finance Act, 2021.

The Supreme Court has held that the respective High Courts had rightly held that the benefit of new provisions should be made available if reassessment notice under Section 148 was issued on or after 01-04-2021. The Supreme Court was in complete agreement with the view taken by the various High Courts in holding so.

The court further held that these judgments would result in no reassessment proceedings at all. Thus some leeway must be shown in that regard which the High Courts could have done so. The revenue could not be made remediless, and the object and purpose of reassessment proceedings could not be frustrated.

Accordingly, the Supreme Court has proposed to modify the judgments and orders passed by the respective High Courts as under:

(a) Section 148 notices issued by the Assessing Officers shall be deemed to be treated as show­cause notices in terms of Section 148A(b);

(b) The Assessing Officers shall, within 30 days from 04-05-2022, provide the information and material relied upon so that the assessees can reply to the notices within two weeks thereafter;

(c) The requirement of conducting any enquiry with the prior approval of the specified authority under Section 148A(a) be dispensed with as a one­time measure vis­à­vis those notices which have been issued under the old provisions from 01-04-2021 till date, including those which have been quashed by the High Courts;

(d) Thereafter, the Assessing Officers shall pass an order in terms of Section 148A(d) after following the due procedure as required under Section 148A(b) in respect of each of the concerned assessees;

(e) All the defences available to the assessee under Section 149, available under the Finance Act, 2021 and in law, and whatever rights are available to the AO are kept open and shall continue to be available.

The Supreme Court has said that this order will strike a balance between the rights of the revenue and the respective assessees. The revenue may not suffer due to the bonafide belief of the AOs in issuing approximately 90,000 notices, as ultimately it is the public exchequer which would suffer.

This order of the Supreme Court shall apply to pan India. Accordingly, all orders passed by different High Courts, wherein reassessment notices issued after 01-04-2021 were set aside, shall be governed by the present order and shall stand modified to the aforesaid extent.

The Supreme Court has passed this order exercising the powers under Article 142 of the Constitution of India to avoid any further appeals on the very issue by challenging similar judgments and orders.

2. SC upheld Gujarat HC judgment of Mohit Minerals’ wherein GST on ocean freight was held as ultra vires

GST | UOI v. Mohit Minerals (P.) Ltd. [2022] 138 taxmann.com 331/92 GST 101 (SC)

The assessee had challenged the IGST levy on the reverse charge basis on the Ocean Freight in respect of the import of goods under CIF contracts for which it was already paying the IGST at the time of import with the value of imported coal under the Customs laws. The Gujarat High Court held that the IGST levy on ocean freight is ultra-vires the levy provisions of the IGST Act. Against the said order, the Government filed the appeal before the Apex Court.

The Apex Court has observed that the ocean freight from a foreign location to the customs station in India in CIF import contracts has sufficient territorial nexus for levying IGST under reverse charge. On an interpretation of Sections 5(3) and 5(4) of the IGST Act, read with Section 2(93) of the CGST Act, it is clear that the importer can be classified as the ‘recipient’ of the services. On this interpretation, the validity of the notifications levying GST under RCM on ocean freight has to be upheld.

The Apex Court held that there is no legal fiction or power to bifurcate the composite supply into the supply of goods and supply of services and to levy reverse charge GST on the supply of services component under section 5(4) of the IGST Act. Given this, the GST on the reverse charge basis can’t be levied on ocean freight in CIF contracts as it is part of ‘composite supply’ attracting Section 2(30) and Section 8 of the CGST Act.

In view of the above, it was held that the impugned notifications are validly issued under Sections 5(3) and 5(4) of the IGST Act, but it would be in violation of Section 8 of the CGST Act and the overall scheme of the GST legislation as no such power can be noticed with respect to interpreting a composite supply of goods and services as two segregable supply of goods and supply of services.

3. SC upholds constitutional validity of 2020 amendments made to FCRA; credits Parliament for timely corrective actions

FCRA | Noel Harper v. UOI [2022] 137 taxmann.com 130 (SC)

In the instant case, the petitions were filed under Article 32 of the Constitution of India, assailing the constitutional validity of the amendments to the provisions of the Foreign Contribution (Regulation) Act, 2010 vide the Foreign Contribution (Regulation) Amendment Act, 2020.

The case of the petitioner was that Sections 7, 12(1A), 12A, and 17(1), were manifestly arbitrary, unreasonable, and impinging upon the fundamental rights guaranteed to the petitioners under Articles 14, 19, and 21 of the Constitution.

The Amendments are summarised hereunder:

(a) Amendment to Section 7: The amendment prohibited the NGO that has received foreign funds from transferring the funds to other NGOs in India, even when the receiving NGO itself has FCRA registration.

(b) Insertion of Section 12(1A): This provision envisaged that every person who makes an application under Section 12(1) is obliged/required to open an FCRA account in the manner specified in Section 17 and mention details of such account in his application.

(c) Insertion of Section 12A: This provision mandated that the person concerned who seeks prior permission or prior approval under Section 11 or makes an application for the grant of a certificate under Section 12, or renewal of a certificate under Section 16, to provide an identification document, the Aadhaar number of all its office bearers or Directors or other key functionaries.

(d) Amendment to Section 17: Section 17(1) mandated the opening of an “FCRA Account” in the New Delhi Main Branch of the State Bank of India, 11, Sansad Marg, New Delhi and receiving of foreign contributions only in that bank account.

Upholding the constitutional validity of the FCRA 2020 Amendments, the Supreme Court held that Sections 7, 12(1A), 12A and 17 of the 2010 Act are intra vires the Constitution and the Principal Act (FCRA, 2010). The Supreme Court credited the Parliament for having taken recourse to corrective dispensation for eradicating the mischief, which any sovereign country can ill-afford.

The court said that merely because the registered association has been compelled to open an FCRA account in the designated bank at the centralised location for receipt/inflow of foreign contributions from foreign sources, it does not follow that such a requirement would be manifestly arbitrary or unreasonable.

It is only a one-time exercise to be complied with for availing the permission accorded by the Central Government under the Act to be a certified association or person given permission to receive foreign contribution as a precondition. Therefore, Sections 12(1A) and 17 are not violative of Articles 14, 19 and 21 of the Constitution.

The amended Section 7 of FCRA postulates complete prohibition on the transfer of foreign contributions to other persons, not even to a person having a certificate of registration under the Act. In other words, a person who is registered and granted a certificate or has obtained prior permission under the Act to receive a foreign contribution will henceforth be required to utilise the amount “itself” and not through any other person.

The legislative intent is to introduce strict dispensation qua the recipient of foreign contribution to utilise the same “itself” for the purposes for which it has been permitted as per the certificate of registration or permission granted under the Act by the Central Government.

The court held that Section 12A to be read down and construed as permitting the key functionaries/office bearers of the applicant (associations/NGOs) who are Indian nationals to produce Indian Passport for the purpose of their identification, and foreign nationals functionaries are allowed to produce their Passports for the same purpose. That shall be regarded as substantial compliance with the mandate in Section 12A concerning identification.

4. Power of attorney executed with assignment deed under SARFAESI Act wasn’t liable for separate stamp duty: SC

Stamp Act| Asset Reconstruction Co. (India) Ltd. v. Chief Controlling Revenue Authority [2022] 138 taxmann.com 37/172 SCL 340 (SC)

The Supreme Court held that where a deed of assignment had already been charged to stamp duty under Article 20(a), the draft of Power of Attorney contained in a deed of assignment was not liable to stamp duty under article 45(f) of Schedule 1 of Gujrat Stamp Act.

In the instant case, the Oriental Bank of Commerce (OBC) assigned a debt in favour of the appellant – an Asset Reconstruction Company (ARC).

With the assignment deed, the bank also executed an irrevocable Power of Attorney (PoA) in favour of the company, empowering the assignee, as an agent of the bank, to sell any immovable property. The assignment deed was registered with the Sub-Registrar, and the stamp duty was paid on it.

However, the Office of Accountant General raised an objection on the ground that the assignment deed contained a reference to a (PoA) and, therefore, it is chargeable to stamp duty under the Bombay Stamp Act, 1958. Thereafter, the Stamp Duty Collector referred the matter to the Chief Controlling Revenue Authority, who, in turn, issued a notice to the appellant.

After considering the reply submitted by the appellant, the Chief Controlling Revenue Authority passed an order setting aside the adjudication order and directed recovery of the deficit stamp duty.

On the submission of the application, the Chief Controlling Revenue Authority referred to two questions for the opinion of the court:

(a) Whether the objection raised by the accountant general proper or not?

(b) Is the appellant liable to pay the stamp duty as per the Bombay Stamp Act or not?

Accordingly, the Gujarat High Court held that separate stamp duty has to be paid on the PoA as well. Further, the High Court relied on Article 45(f) of Schedule-I to the Bombay Stamp Act, 1958, which makes a PoA given for consideration and contains an authority to sell any immovable property chargeable to stamp duty. The ARC approached the Supreme Court against the full bench verdict.

On appeal, the Supreme Court held that the reasoning of the High Court could not be accepted as for invoking Article 45(f) of Schedule I to the Bombay Stamp Act, 1958, two conditions have to be satisfied, i.e. the PoA should have been given for consideration and authorisation to sell any immovable property should flow out of the instrument.

In the present case, the consideration was paid by the ARC to the bank for the acquisition of the financial assets. Further, the authorisation to sell any immovable property didn’t flow out of the PoA but instead flowed out of the provisions of the SARFAESI Act.

The court observed that the High Court overlooked the fact that there was no independent instrument of PoA and that the power of sale of a secured asset flowed out of the provisions of the SARFAESI Act, 2002 and not out of an independent instrument of PoA.

The court noted that under the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, sub-section (1A) was inserted in Section 5 of the SARFAESI Act, exempting any document executed by any bank in favour of ARC from stamp duty. Though the amendment was not applicable to this particular case, the court said that it had taken note of the amendment to show how far the Parliament has gone.

The court also observed that once a single instrument has been charged under a correct charging provision of the statute, the Revenue Authority cannot split the instrument into two because of the reduction in the stamp duty facilitated by a notification issued by the Government. Accordingly, the appeal was to be allowed, and the demand for stamp duty on PoA was to be set aside.

5. CCI has jurisdiction over anti-competitive aspects of the lottery business: SC

Competition Act | CCI v. State of Mizoram [2022] 134 taxmann.com 199/170 SCL 624 (SC)

The Supreme Court held that if in the tendering process of lotteries, there is an element of anti-competition which require investigation by the Competition Commission of India (CCI), the same cannot be prevented on the ground that lottery business is ‘res extra commercium’ (things outside of commercial intercourse).

The State of Mizoram had issued an Expression of Interest (EoI) inviting bids for the appointment of lottery distributors and selling agents for State lotteries regulated by the Mizoram Lotteries (Regulation) Rules, 2011 framed under the Lotteries (Regulation) Act, 1998.

The EoI was for the appointment of lottery distributors/selling agents to organise, promote, conduct, and market the Mizoram State Lottery through both conventional paper type and online systems. The EoI specified that the minimum rate fixed by the Government of India is Rs.5 lakhs per draw for Bumper and Rs.10,000 per draw for others, and bids less than these rates would be summarily rejected. Five bids were received in pursuance of the EoI, of which four were accepted.

Selected distributors/selling agents were required to furnish Rs. 5 crores each for paper and online lottery as security, a sum of Rs. 1 crore each as advance payment of the sale proceeds, and a sum of Rs. 1 crore each towards the prize pool.

The Respondent. No. 4 made a complaint to the CCI under Sections 3 and 4, read with Section 19(1)(a) of the Competition Act, alleging that the State of Mizoram abused its dominant position as administrator of State lotteries by requiring distributors to furnish exorbitant sums of money towards security, advance payment, and prize pool even before the lotteries were held.

The respondent alleged that the bidders had cartelised and entered into an agreement that had an appreciable adverse effect on competition in the lottery business in Mizoram. There was bid-rigging and a collusive bidding process which violated Section 3(1) read with Section 3(3) of the Competition Act and caused grave financial loss to the State of Mizoram.
The CCI’s Director General (DG) found prima facie evidence of cartelization and big rigging against the bidder companies, but the DG dropped the case against State.

The State of Mizoram moved to the High Court by filing a writ petition challenging the adverse remarks made against it by the CCI. The High Court, by an interim order, halted the CCI final orders. The High Court held that lotteries could not be considered to be trade and commerce within the meaning of Articles 301-303 of the Constitution of India. The High Court also observed that the lottery tickets have no value in and of themselves. The right covered by a lottery ticket is nothing but an actionable claim. Therefore, it was excluded from the definition of ‘goods’ under the Sale of Goods Act, 1930 and other tax statutes. Lastly, the High Court opined that lotteries, being akin to gambling activities, came under the purview of the doctrine of res extra commercium. Consequently, the CCI did not have jurisdiction to entertain the complaint. The CCI moved to the Supreme Court against the order.

The Supreme Court observed that though lotteries are state-regulated, the CCI has jurisdiction over the anti-competitive aspects of the lottery business, like bid-rigging in tendering process for the appointment of selling agents and distributors. The CCI can order a probe into any perceived bid rigging in the appointment of selling agents & distributors of lotteries.

Lotteries may be a regulated commodities and may even be res extra commercium. That would not take away the aspect of something which is anti-competition in the context of the business related to lotteries.

“We must take note of the expansive definition of ‘Service’ under Section 2(u) of the Competition Act. It means “service of any description”, which is to be made available to potential users.”

Said Court.

The purchaser of a lottery ticket is a potential user, and a service is being made available by the selling agents in the context of the Competition Act. Suffice for us to say the inclusive mentioning does not inhibit the larger expansive definition.

The lottery business can continue to be regulated by the Regulation Act. However, if in the tendering process there is an element of anti-competition which would require investigation by the CCI, that cannot be prevented under the pretext of the lottery business being res extra commercium (thing beyond trade/commerce), more so when the State Government decides to deal in lotteries.

6. ‘Solely’ in Section 10(23C)(vi) means ‘exclusively’; Profit-oriented institutions can’t claim exemption: SC

Income-tax | New Noble Educational Society v. Chief CIT [2022] 143 taxmann.com 276/448 ITR 594 (SC)

The subject matter of appeal in the instant case was the rejection of the appellant’s claim for registration as an institution/trust set up for the charitable purpose of education under the Income-tax Act. The Andhra Pradesh High Court held that the appellant was not created ‘solely’ for the purpose of education. It had other objects, which means that it ceased to be an institution existing ‘solely’ for educational purposes.

The appellant relied upon the ruling of American Hotel and Lodging Association, Educational Institute v. CBDT [2008] 170 Taxman 306/301 ITR 86 (SC) and Queen’s Education Society v. CIT [2015] 55 taxmann.com 255/231 Taxman 286/372 ITR 699 (SC). It was submitted that the test for determination was whether the ‘principal’ or ‘main’ activity was education or not. Whether some profits were incidentally earned?

The Supreme Court held that the interpretation adopted in the judgments of American Hotel and Queens Education Society regarding the meaning of the expression ‘solely’ are erroneous.

These decisions did not explore the true meaning of the expression ‘solely’ in the context of educational institutions. The word “Solely” in Section 10(23C)(vi) means only/exclusively and not primarily.

The requirement of the charitable institution, society or trust, etc., to ‘solely’ engage itself in education or educational activities and not engage in any activity of profit means that such institutions cannot have objects unrelated to education. In other words, all objects of society, trust, etc., must relate to imparting education or be with educational activities.

Where the objective of the institution appears to be profit-oriented, such institutions would not be entitled to approval under Section 10(23C). At the same time, where surplus accrues in a given year or set of years per se, it is not a bar, provided such surplus is generated in the course of providing education or educational activities.

The seventh proviso to Section 10(23C) and Section 11(4A) refer to profits that may be ‘incidentally’ generated or earned by the charitable institution. The same applies only to those institutions which impart education or are engaged in activities connected to education.

The reference to ‘business’ and ‘profits’ in the seventh proviso to Section 10(23C) and Section 11(4A) merely means that the profits of a business which is ‘incidental’ to the educational activity. In relation to education, it is the sale of textbooks, providing school bus facilities, hostel facilities, etc.

Thus, a trust, university or other institution imparting education should necessarily have all its objects aimed at imparting or facilitating education. Regarding the plain and unambiguous terms of the statute and the substantive provisions which deal with exemption, there cannot be any other interpretation.

7. Apex Court interprets the definition of ‘Charitable Purpose’ used in Section 2(15) for tax exemption

Income-tax | Astt. CIT (Exemptions) v. Ahmedabad Urban Development Authority [2022] 143 taxmann.com 278 (SC)

The primary question before the Supreme Court was the correct interpretation of the proviso to Section 2(15), which defines ‘Charitable purpose’.

The Supreme Court has clarified that an assessee advancing general public utility cannot engage itself in any trade, commerce, or business or provide service in relation thereto for any consideration.

However, in the course of achieving the object of General Public Utility (GPU), the concerned organisation can carry on trade, commerce, or business or provide services in relation thereto for consideration, provided that:

(a) The activities of trade, commerce, or business are connected to the achievement of its objects of GPU; and

(b) The receipt from such business or commercial activity or service in relation thereto does not exceed the quantified limit of 20% of total receipts of the previous year.

Charging of any amount towards consideration for such an activity (advancing general public utility), which is on a cost-basis or nominally above cost, cannot be considered to be “trade, commerce, or business” or any services in relation thereto.

Only when the charges are significantly above the cost incurred by the assessee, they would fall within the mischief of “cess, or fee, or any other consideration” towards “trade, commerce or business”.

Further, Section 11(4A) must be interpreted harmoniously with Section 2(15), with which there is no conflict. Carrying out activity in the nature of trade, commerce or business, or service in relation to such activities should be conducted in the course of achieving the GPU object, and the income, profit, or surplus or gains must, therefore, be incidental.

The requirement in Section 11(4A) of maintaining separate books of account is also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to Section 2(15) has not been breached.

The assessing authorities must, every year, scrutinise the record to discern whether the nature of the assessee’s activities amounts to “trade, commerce or business” based on its receipts and income (i.e., whether the amounts charged are on a cost-basis or significantly higher).

When it is found that they are in the nature of “trade, commerce or business”, then it must be examined whether the quantified limit (as amended from time to time) in the proviso to Section 2(15) has been breached, thus disentitling them to exemption.

8. Inherited property of an issueless and heirless female Hindu dying intestate goes back to the source: SC

Hindu Succession Act | Arunachala Gounder v. Ponnusamy [2022] 134 taxmann.com 232 (SC)

In this landmark ruling, the Supreme Court held that if a female Hindu dies intestate without leaving any issue, then the property inherited by her from her father or mother would go to the heirs of her father. In contrast, the property inherited by her from her husband or father-in-law would go to the heirs of the husband.

The property in question was admittedly the self-acquired property of MarappaGounder (deceased). The property was purchased through a court auction sale by Mr MarappaGounder on 15-12-1938. After his death, the property was inherited by his sole surviving daughter KupayeeAmmal. Later on, KupayeeAmmal also died issueless in 1967. The appellant raised two questions before the court.

(a) Whether the late Gounder’s sole surviving daughter KupayeeAmmal could inherit the same by inheritance, and the property shall not devolve by survivorship to the father’s brother’s son. This question arose because MarappaGounder died before the commencement of the Hindu Succession Act, 1956.

(b) The next question was regarding the order of succession after the death of the daughter, which was after the enactment of the Hindu Succession Act, 1956.

The Supreme Court held that

“if a property of a male Hindu dying intestate is a self-acquired property or obtained in the partition of a co-parcenery or a family property, the same would devolve by inheritance and not by survivorship, and a daughter of such a male Hindu would be entitled to inherit such property in preference to other collaterals.”

The court held that this right is well recognised under the old customary Hindu Law and by various judicial pronouncements. Therefore the property was rightly inherited by KupayeeAmmal (daughter).

As far as the question regarding the order of succession after the death of KupayeeAmmal is concerned, the court held that Section 15 and 16 of the Indian Succession Act, 1956 clearly defines the order of succession after the death of a female.

The court held that if a female Hindu dies intestate without leaving any issue, then the property inherited by her from her father or mother would go to the heirs of her father. In contrast, the property inherited from her husband or father-in-law would go to the heirs of the husband.

In case a female Hindu dies, leaving behind her husband or any issue, then Section 15(1)(a) comes into operation. The properties left behind by her, including the properties which she inherited from her parents, devolve simultaneously upon her husband and her issues as provided in Section 15(1)(a) of the Act.

The primary aim of the legislature in enacting Section 15(2) is to ensure that the inherited property of a female Hindu dying issueless and intestate go back to the source. Section 15(1)(d) provides that failing all heirs of the female specified in Entries (a)-(c), but not until then, and all her property, howsoever acquired, will devolve upon the heirs of the father.

The devolution upon the heirs of the father shall be in the same order if a female Hindu dies intestate without leaving any issue. The property inherited by her from her father or mother would go to the heirs of her father. Whereas the property inherited from her husband or father-in-law would go to the heirs of the husband according to the same rules as would have applied if the property had belonged to the father and he had died intestate in respect thereof immediately after her death.

9. SC directed GSTN to open the portal for filing TRAN-1 for all taxpayers

GST | Union of India v. Filco Trade Centre (P.) Ltd. [2022] 142 taxmann.com 535/92 GST 860 (SC)

The revenue filed SLP before the Supreme Court as various High Courts had allowed writ petitions filed by the registered taxpayers seeking directions to avail Transitional Credit beyond the statutory time limit.

The Apex Court has issued the following Tran-1 directions:

(a) GSTN to open the common portal for all assesses to claim transitional credit for 60 days, preferably from 01-09-2022 till 30-10-2022;

(b) All assesses can claim the benefit whether they have filed a writ or not;

(c) GSTN to make sure there are no technical glitches during this time;

(d) The concerned officers are given 90 days after that to verify the claim of credit on merits and pass an appropriate order. Also, the opportunity of hearing is to be granted;

(e) Thereafter, credit to reflect in Electronic Credit Ledger; and

(f) If required, the GST Council may issue directions to field officers.

Thereafter, the revenue requested the Supreme Court to provide an extension of one month to open GSTN Portal. The Supreme Court has extended the time for opening the GST Common Portal for a further period of four weeks. The court directed GSTN to open the common portal for filing of concerned forms for availing Transitional Credit through TRAN-1 and TRAN-2 from 01-10-2022.

10. The Supreme Court upheld the constitutional vires of amended Section 45 and other Sections of PMLA

PMLA | Vijay Madanlal Choudhary. v. Union of India [2022] 140 taxmann.com 610 (SC)

In this case, the Supreme Court upheld the constitutional validity of ‘twin conditions’ for bail under amended Section 45 of the Prevention of Money Laundering Act, 2002.

The petitioners had challenged the validity and interpretation of certain provisions of the Prevention of Money Laundering Act, 2002 and the procedure followed by the Enforcement Directorate while investigating offences under the PMLA.

One of those challenges was also presented earlier before the Supreme Court in the matter of “Nikesh Tarachand Shah v. UOI” [2017] 87 taxmann.com 257/[2018] 145 SCL 96, whereby the petitioners had challenged the constitutional validity of Section 45(1) of the PMLA to the extent that it imposed two additional conditions for granting bail to a person accused of a crime under Part A of Schedule of PMLA.

Questions raised before the court

(a) Whether the 2018 amendment to the bail conditions under the PMLA constitutional?

(b) Does the Nikesh Tarachand Shah (supra) judgement lay down the correct proposition of law on bail conditions?

(c) Whether Section 8 provisions concerning the possession of the property under PMLA violate the right to property under Article 300A?

Section 45(1) before and after the 2018 amendment was as follows:

The two conditions under Section 45(1) were – (a) the Prosecutor is given an opportunity to oppose the bail application, and (b) there are reasonable grounds for believing that the accused is not guilty of such an offence and he is not likely to commit any offence while on bail.

Before the 2018 amendment, Section 45(1) only covered those offences which were punishable for a term of imprisonment of more than three years under Part A of the Schedule to PMLA. The Supreme Court declared such conditions unconstitutional, being violative of Articles 14 and 21 of the Constitution, as the conditions were restricted only to a particular class of offences and not to all offences under the Act.

However, post amendment, Section 45(1) talks about an ‘offence under this Act’ without specifying any particular offence.

Section 45 of the Act removes the presumption of innocence usually afforded to the accused persons under Criminal law. To be granted bail, the accused must prove prima facie that they were not guilty and satisfy the court that they will not commit any further offence. The petitioners argued that the amendment undermined the Judgement and re-established the original twin conditions. The provisions of Section 45 of PMLA impose stringent conditions of bail on a person accused of an offence under the Act.

The petitioners also challenged the validity of Section 8(4), which allows the Enforcement Directorate to take possession of the attached property at the stage of confirmation of provisional attachment made by the Adjudicating Authority. This deprivation of a person’s right to property is unconstitutional and violates Article 300A. Further, the period of attachment increased from 90 days to 365 days is also unreasonable.

Ruling

The reasons in Nikesh Tarachand Shah (supra) for declaring the twin conditions in Section 45(1) of the 2002 Act, as it stood at the relevant time, as unconstitutional in no way obliterated the provision from the statute book.It was open to the Parliament to cure the defect noted by this court to revive the same provision in the existing form.

The provision of Section 45 of the 2002 Act, as applicable post-amendment of 2018, is reasonable and has direct nexus with the purposes and objects sought to be achieved by the 2002 Act and does not suffer from the vice of arbitrariness or unreasonableness.

The challenge to the validity of Section 8(4) of the 2002 Act is also rejected subject to Section 8 being invoked and operated in accordance with the meaning assigned to it hereinabove.

11. State is a secured creditor for tax purposes under GVAT Act; Section 53 of IBC doesn’t override Section 48 of GVAT Act: SC

IBC | State Tax Officer v. Rainbow Papers Ltd. [2022] 142 taxmann.com 157/174 SCL 250 (SC)

In the landmark ruling, the Supreme Court held that the State is a secured creditor for tax purposes under GVAT Act, and Section 53 of IBC does not override Section 48 of the GVAT Act.

In the instant case, the following questions were placed before the Supreme Court:

(a) Is State a secured creditor under IBC for tax purposes under Gujarat VAT (GVAT Act)?

(b) Whether Section 53 of IBC overrides Section 48 of the Gujarat VAT (GVAT Act) or not?

The Apex Court held that the State is a secured creditor under the GVAT Act. Section 3(30) of the IBC defines the secured creditor as “a creditor in favour of whom security interest is created”.

The court further held that such security interest could be created by the operation of law. The definition of a secured creditor in the IBC does not exclude any Government or Governmental Authority. Therefore, the State will be treated as the secured creditor under IBC for tax purposes.

In view of the above, the Supreme Court concluded that State is a secured creditor for VAT under GVAT Act, and Section 53 of IBC doesnot override Section 48 of the GVAT Act.

With regard to the overriding effect of Section 53 of the IBC, it was held that Section 48 of the GVAT Act is not contrary to or inconsistent with Section 53 or any other provisions of the IBC. Section 53 of the IBC deals with the distributions of the asset. As per Section 53, proceeds from the sale of the liquidation assets shall be distributed in the order of priority and within such period as prescribed in the provision.

Under Section 53(1)(b)(ii), the debts owed to a secured creditor, which would include the State under the GVAT Act, shall rank equally with other specified debts, including debts on account of workman’s dues for 24 months preceding the liquidation commencement date.

The term “Secured Creditor”, as defined under the IBC, is comprehensive and wide enough to cover all types of security interests, namely, the right, title, interest or a claim to the property created in favour of or provided for a secured creditor by a transaction, which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person.

In view of the statutory charge in terms of Section 48 of the GVAT Act, the claim of the tax department of the State squarely falls within the definition of “Security Interest” under Section 3(31) of the IBC, and the State becomes a secured creditor under Section 3(30) of the Code.

12. The bar under Section 14 of IBC applies only to corporate debtors; Directors being natural persons continue to be liable for cheque bounce: SC

IBC | Narinder Garg v. Kotak Mahindra Bank Ltd. [2022] 137 taxmann.com 476/172 SCL 359 (SC)

In this case, the Supreme Court held that the bar on initiation of proceedings against the corporate debtor during the moratorium period under Section 14 of the IBC, would apply only to the corporate debtor and not against the directors of such corporate debtor.

In the instant case, writ petitions were filed seeking:

(a) Directions to quash the criminal complaints filed against the corporate debtors and its directors under Section 138 of the Negotiable Instruments Act, 1881 on the ground that the resolution plan was approved by the Committee of Creditors (CoC) under Section 30(4) of the IBC.

(b) Quashing the criminal complaint initiated after the order of moratorium passed by the NCLT, as it cannot proceed even if the old management and its director take over the corporate debtor.

The Supreme Court held that there is no bar under Section 14 of IBC for initiating or continuing a cheque bounce case against natural persons mentioned in Section 141 of the Negotiable Instruments Act during the period of moratorium. Section 14 only bars initiating or continuing a cheque bounce case against the corporate debtor during the moratorium period.

13. TDS under Section 194H should apply on additional sum charged by agents over and above the airfare: SC

Income-tax | Singapore Airlines Ltd. v. CIT [2022] 144 taxmann.com 221/449 ITR 203 (SC)

The Supreme Court has given a significant ruling on the applicability of Section 194H TDS on commission income. The court has held that Section 194H applies to the additional amount, over and above net airfare, charged by agents from customers.

The lack of control that the assessee has over the actual airfare charged by the agents over and above the net airfare cannot form the legal basis for the assessee to avoid its liability to deduct tax under Section 194H.

The assessee company is engaged in the business of air transport services. The business mechanism of the assessee involves booking tickets through travel agents. International Air Transport Association (IATA) sets the base fare for air tickets. However, the airlines may sell their tickets for a net fare lower than the base fare but not higher.

Travel agents act on behalf of airlines to market and sell tickets and are entitled to a commission on the basic fare of the ticket fixed by the IATA.

Further, airlines have no control over the actual fare at which the agents sell tickets, and the agents are at liberty to set a price lower than the base fare fixed by IATA but still higher than the net fare demanded by the airline.

The additional amount charged by travel agents over and above the net fare quoted by airlines was retained by the agents as their own income.

The issue before the Supreme Court was:

“Whether the amount retained by the agents, over and above the net fare of air tickets, were to be treated as commission for deduction of tax at source under Section 194H?”

The Supreme Court held that there is a distinction between a contract of agency and a contract of sale. A contract of sale is executed when the seller transfers the title of the goods to the buyer.

As per the agreement between the airline and the agent, the agent would sell the ticket as per the directions of the airline, and in case of any loss incurred by the agent, he would be indemnified by the airline.

There was no contract of sale between the assessee and the travel agent. The airline retains title over the travel tickets and is responsible for the actual services provided to the final consumer.

Further, as per the agreement, “all monies” collected by the agents on the sale of air tickets will be held by them in a fiduciary capacity. Accordingly, there was a contract of agency, and not a contract of sale.

Further, the arrangement between the purchaser of the ticket and the agent is merely a part of the agency agreement and not a separate agreement. The extra benefit gained by the agent on the sale of tickets is due to the agency agreement entered with the airline.

The lack of control that the airlines have over the actual fare charged by the travel agents over and above the net fare cannot form the legal basis for the assessee to avoid its liability to deduct tax under Section 194H.

Thus, these amounts were incidental to the transaction by which the air tickets were sold on behalf of airlines and were for the benefit of agents. Such incidental benefit must come under the ambit of the principal-agent relationship.

The commission under Section 194H includes any payment received directly or indirectly by the agent on behalf of the principal. It does not distinguish the payment based on the source of such receipt.

Therefore, the amount retained by the agents on the sale of air tickets was a supplementary commission, liable for tax deduction under Section 194H.

14. Jurisdiction of the High Court is determined by the situs of the AO who has passed the order: Supreme Court

Income-tax | Pr. CIT v. ABC Papers Ltd. [2022] 141 taxmann.com 332/289 Taxman 150/447 ITR 1 (SC)

In the instant case, the question that arose for consideration before Supreme Court was:

“Whether the jurisdiction of the High Court consequent upon administrative order of transfer of a ‘case’ under Section 127 from one Assessing authority to another Assessing Officer located in a different State.”

There were diversified views of different High Courts on this matter. The Delhi High Court in CIT v. Sahara India Financial Corporation Ltd. [2007] 162 Taxman 357/294 ITR 363 (Delhi) and Aar Bee Industries [2013] 36 taxmann.com 308/357 ITR 542 (Delhi)held that an administrative order of transfer of cases would also have the consequence of transferring the jurisdiction of the High Court.

The Supreme Court held that the reasoning adopted by the Delhi High Court in the Sahara case was based only on the meaning attributed to the expression ‘cases’ in the Explanation to Section 127(4). The Delhi High Court was of the view that ‘cases’ must include within its sweep not only the cases pending before the Authorities but also the proceedings before the ITAT as well as a High Court.

The power of transfer exercisable under Section 127 is relatable only to the jurisdiction of the Income Tax Authorities. It has no bearing on the ITAT, much less on a High Court. If this submission is accepted, it will mean that the executive has the power to determine the jurisdiction of a High Court. This can never be the intention of the Parliament.

The jurisdiction of a High Court stands on its own footing by virtue of Section 260A, read with Section 269. While interpreting a judicial remedy, a Constitutional Court should not adopt an approach where the identity of the appellate forum would be contingent upon or vacillates subject to the exercise of some other power. Such an interpretation will clearly be against the interest of justice.

The Supreme Court held that appeals against every decision of the ITAT should lie only before the High Court, within whose jurisdiction the Assessing Officer who passed the assessment order is situated.

Even if the case or cases of an assessee are transferred in the exercise of power under Section 127, the High Court within whose jurisdiction the Assessing Officer has passed the order shall continue to exercise the jurisdiction of the appeal. This principle is applicable even if the transfer is under Section 127 for the same assessment year.

15. State Laws have no application to NBFCs registered under RBI Act: SC

NBFC | Nedumpilli Finance Co. Ltd. v. State of Kerala [2022] 138 taxmann.com 191/172 SCL 365 (SC)

In this case, the Apex Court held that State Laws such as Kerala/Gujarat Money Lenders Act would not apply to NBFCs registered under RBI Act.

The question before the Apex Court

In the instant case, the question that arose before the Apex Court for consideration was whether NBFCs regulated by the Reserve Bank of India could also be regulated by State enactments such as Kerala Money Lenders Act, 1958 (“Kerala Act”) and Gujarat Money Lenders Act, 2011 (“Gujarat Act”).

The court held that one of the objects of the RBI Act, 1934 is

“to operate the currency and credit system of the country to its advantage”.

The court observed that the RBI Act provides a supervisory role for the RBI to oversee the functioning of NBFCs. From the time of their incorporation till the time of their closure, all activities of NBFCs come under the scanner of RBI.

Consequently, the single aspect of taking care of the interest of the borrowers sought to be achieved by the State enactments gets subsumed in the RBI Act itself.

The power to determine policy and issue directions, available under Section 45JA, can always be invoked by RBI.

The court highlighted that Section 45L(1)(b) confers power upon the RBI to give directions to NBFCs “relating to the conduct of business by them”. Therefore, the reasoning that RBI has no power in respect of such an important aspect may not be correct. The fact that RBI generally leaves it to the market forces to determine the rate of interest without any direct intervention is not something that the State of Kerala could take advantage of to step in and prescribe the maximum rate of interest chargeable by NBFCs on the loans advanced by them.

In view of the above, the Apex Court concluded that the Kerala Act and the Gujarat Act would have no application to NBFCs registered under the RBI Act and regulated by RBI.

16. Person accused of fraud under Sec. 447 of Cos. Act 2013 has no right to bail if a charge sheet is filed within 60 days prescribed under Cr.PC

Companies Act | Serious Fraud Investigation Office v. Rahul Modi [2022] 135 taxmann.com 98/171 SCL 123 (SC)

In this ruling, the Supreme Court observed that an accused in a fraud case under Section 447 of the Companies Act, 2013 has no right to bail if a charge sheet is filed within 60 days limit prescribed under Section 167(2) of Cr.PC.

The directors of Adarsh Group of Companies and LLPs were accused of committing an offence under Section 447 of the Companies Act, 2013, Section 120-Bread with Sections 417, 418, 420, 406, 463, 467, 468, 471, 474 of the Indian Penal Code, 1860.

The undisputed facts are that the complaint under Section 439(2) of the Companies Act, 2013 was filed on 18-05-2019, before the expiry of the 60 days from the date of the remand. The applications filed for statutory bail were dismissed by the Special Court on 22-05-2019 on the ground that the charge sheet was filed before the expiry of 60 days.

The question before the Apex Court was whether an accused is entitled to statutory bail under Section 167(2), CrPC, on the ground that cognisance has not been taken before the expiry of 60 days or 90 days, as the case may be, from the date of remand?

The accused contended that an accused has a right to seek statutory bail under the proviso to Section 167(2) even after the charge sheet is filed till the court takes cognisance.

The Apex Court held that the indefeasible right of an accused to seek statutory bail under Section 167(2), CrPC arises only if the charge sheet has not been filed before the expiry of the statutory period.

“Reference to cognisance in Madar Sheikh case is in view of the fact situation where the application was filed after the charge-sheet was submitted and cognisance had been taken by the trial court.

Such reference cannot be construed as this court introducing an additional requirement of cognisance having to be taken within the period prescribed under proviso (a) to Section 167(2), CrPC, failing which the accused would be entitled to default bail, even after filing of the charge-sheet within the statutory period.

It is not necessary to repeat that in both Madar Sheikh (supra) and M. Ravindran (supra), this court expressed its view that non-filing of the chargesheet within the statutory period is the ground for availing the indefeasible right to claim bail under Section 167(2), CrPC. The conundrum relating to the custody of the accused after the expiry of 60 days has also been dealt with by this court.”

Court said.

17. CCI slaps penalty of Rs. 936.44 crores on Google for abuse of dominance in the market for licensable OS for smartphones

Competition Act | XYZ (Confidential) v. Alphabet Inc. [2022] 145 taxmann.com 43 (CCI)

In the instant case, the CCI imposed a penalty of Rs. 936.44 crores on Google for abusing its dominant position in the market for licensable operating systems for smartphones and in the market for app stores for Android devices in India.

The CCI found that Google had abused its dominant position in contravention of several provisions of the Competition Act, 2002 as under:

(a) Google was found to be in violation of the provisions of Section 4(2)(a)(i) of the Act by making access to the Play Store for app developers dependent on mandatory usage of the Google Play Billing System (GPBS) for paid apps and in-app purchases which constitute an imposition of an unfair condition on app developers.

(b) Google was found to be in violation of Section 4(2)(a)(i) and 4(2)(a)(ii) of the Act by following discriminatory practices by not using GPBS for its own applications, such as YouTube. This also amounts to an imposition of discriminatory conditions and pricing on other apps that are required to use the system.

(c) Google was found to be in violation of Section 4(2)(b)(ii) of the Act due to the mandatory imposition of the GPBS, which disrupts innovation incentives and limits the ability of payment processors and app developers to innovate and undertake technical development in the market for in-app payment processing services.

(d) The mandatory imposition of GPBS by Google has resulted in the denial of market access for payment aggregators and app developers, in violation of Section 4(2)(c) of the Act.

(e) The practices followed by Google resulted in leveraging its dominance in the market for licensable mobile operating systems and app stores for Android to protect its position in the downstream markets, in violation of Section 4(2)(e) of the Act.

(f) Google’s use of different methodologies to integrate its own UPI app with the Play Store compared to rival UPI apps resulted in the violation of Sections 4(2)(a)(ii), 4(2)(c) and 4(2)(e) of the Act.

The CCI observed that the prohibitions laid down in Section 4 of the Competition Act are straightforward, and any abuse of dominant position in terms of the imposition of unfair conditions, denial of market access, leveraging, imposition of supplementary obligations etc., is prohibited.

The CCI held that Google, after imposing unfair conditions and engaging in other conducts, could not take a plea that it lacked anti-competitive intent. The dominant undertakings are expected to comply with the provisions of the Act. Thus, the plea raised by Google was devoid of any merit, and the same was rejected.

Further, the CCI imposed a penalty of Rs. 936.44 crores upon Google for violating Section 4 of the Act and directed Google to deposit the penalty amount within 60 days of receiving this order.

Also, the CCI directed Google to cease and desist from indulging in anti-competitive practices that are in contravention of Section 4 of the Act.

18. Air India is not to be treated as ‘assessee-in-default’ for lesser deduction of tax if the payee furnishes Form 26A: ITAT

Income-tax | Air India Ltd. v. CIT [2022] 143 taxmann.com 52 (Mumbai-Trib.)

In an interesting Ruling, the Mumbai Tribunal has allowed the benefit of the proviso to Section 201(1) on lower deduction of tax at source (TDS). It should be noted that said proviso provides relief only when the assessee does not deduct tax or, after deduction, fail to pay same to the credit of Govt.

The assessee (Air India Ltd.) was in the business of transportation of passengers and cargo by air, mail, parcel, etc. Its wholly-owned subsidiary company (Air India Engineering Services Ltd (AIESL)) was approved by DGCA for aircraft repairs and maintenance.

During a survey, it was found that the assessee had paid a certain sum to AIESL for repairs/maintenance on which tax was deducted at source (TDS) at the rate of 2% under Section 194C.

The Assessing Officer concluded that the said services were in the nature of “fees for technical services” liable for TDS at the rate of 10% under Section 194J. Thus, he determined the amount of shortfall of TDS along with interest under Section 201(1A).

The Tribunal held that as per the assessee’s contention, it should be given the benefit of proviso to Section 201(1) as AIESL had duly offered payments as its income. Proviso to Section 201(1) provides that the assessee shall not be treated as an ‘assessee-in-default’ if it complies with certain conditions, namely:

(a) The payee has furnished his return of income under Section 139;

(b) The payee has taken into account such sum for computing income;

(c) The payee has paid the tax due on the income declared by him in such return of income; and

(d) The payer furnishes a certificate to this effect from an accountant in Form 26A.

When the Tribunal pointed out that the assessee is required to furnish a certificate from an accountant to avail the benefit of the proviso, the assessee submitted that it should submit the same before the AO.

Accordingly, it was held that in the interest of natural justice, the contention of the assessee might be accepted. However, the assessee’s claim requires verification at the end of the AO. Thus, the order passed by CIT(A) was set aside and restored the matter before AO.

19. ITAT to apply the decision of a larger bench if there are conflicting decisions of non-jurisdictional High Courts: ITAT

Income-tax | Wockhardt Ltd. v. Dy. CIT [2022] 144 taxmann.com 27 (Mumbai-Trib.)

The issue before the Mumbai Tribunal was in what manner and to what extent the decisions of non-jurisdictional High Courts bind the lower judicial forums outside their jurisdiction.

The Mumbai Tribunal held that when there are conflicting decisions of non-jurisdictional High Courts and no decision of a jurisdictional High Court on an issue, the ITAT should not follow the rule to apply the favourable view to the assessee. It’s a conscious call that must be taken for the question of whether the non-jurisdictional High Court is required to be followed on the facts of a particular situation.

For Tribunal, it is a compulsion by law to follow a jurisdictional High Court decision. However, following a non-jurisdictional High Court is a call for judicial propriety. The decisions of the non-jurisdictional High Court are followed in letter and spirit if there is no contrary decision by the jurisdictional High Court.

Difficulties arise when there are conflicting views of the non-jurisdictional High Courts. Tribunal can’t choose the views of one of the High Courts based on its perceptions.

In the given case, there was one decision of the division bench consisting of two Hon’ble judges and another decision of a single judge bench consisting of only one Hon’ble judge.

The Tribunal has much simpler and more objective criteria readily available, which is the strength of the bench of the Hon’ble non-jurisdictional High Court which has rendered the judgment.

The plurality in the decision-making process makes the decisions of benches with a larger number of Hon’ble judges being placed on a higher pedestal than the decisions of the benches with fewer Hon’ble judges.

Between a division bench decision of a non-jurisdictional High Court and a single judge bench of a non-jurisdictional High Court, a simple objective criterion of choice is the division bench decision to be preferred over the single judge bench decision.

20. Pre-deposit of 10% of disputed tax can be paid from the credit available in Electronic Credit Ledger: Bombay HC

GST | Oasis Realty v. Union of India [2022] 143 taxmann.com 5/94 GST 560 (Bombay)

Section 107 of the CGST Act, 2017 requires mandatory pre-deposit before filing an appeal. According to revenue, the appellant can utilise the credit available only in the Electronic Cash Ledger. The question before the High Court was whether a taxpayer could pay the amount of pre-deposit of 10% of the disputed tax amount by utilising the credit available in the Electronic Credit Ledger.

The High Court noted that as per CBIC Circular F. No.CBIC-20001/2/2022-GST, dated 06-07-2022, any payment towards output tax, whether self-assessed in return or payable as a consequence of any proceeding instituted under the provisions of GST Laws, can be made by utilisation of the amount available in the electronic credit ledger of a registered person.

Since the CBIC has already clarified that a credit ledger can be used for payment of output tax payable under any proceedings, therefore it was held that the pre-deposit of 10% of disputed tax could be paid from the credit available in Electronic Credit Ledger.

21. Mandatory deduction of 1/3rdof total consideration towards the value of land is arbitrary: Gujarat HC

GST | Munjaal Manishbhai Bhatt v. Union of India [2022] 138 taxmann.com 117/92 GST 327 (Gujarat)

The applicant was a practising advocate. He entered into an agreement to purchase a bungalow. A separate and distinct consideration was agreed upon between the parties to the agreement for the sale of land and construction of a bungalow on the land. He received an invoice levying tax at the rate of 9% CGST and 9% SGST on the entire consideration payable for land and the construction of the bungalow after deducting 1/3rd of the value towards the land. It filed a writ petition to challenge the mandatory deduction of 1/3rd of total consideration towards the value of land as the sale of land is neither a supply of goods nor services.

The High Court observed that paragraph 2 of Notification No. 11/2017-Central Tax (Rate), dated 28-06-2017 provides for a mandatory fixed rate of deduction of 1/3rd of total consideration towards the value of the land. Such deeming fiction is not only contrary to the scheme of the GST Acts, but the mandatory uniform rate of deduction is discriminatory, arbitrary and violative of Article 14 of the Constitution of India. It was also observed that when a detailed statutory mechanism for determining value is available, the impugned deeming fiction can’t be justified on the basis that it is meant to curb avoidance of tax when in fact, such fiction is leading to arbitrary consequences. Thus, it was held that the mandatory deeming fiction for deduction of the value of land was liable to be quashed and set aside.

22. HC allowed the petitioner to amend GSTR-1 & rectify the mistake of the wrong GSTIN mentioned against invoices as no loss to revenue

GST | Mahalaxmi Infra Contract Ltd. v. Goods and Services Tax Council [2022] 144 taxmann.com 138 (Jharkhand)

The petitioner company was engaged in the business of mining. There was an error in GSTR-1 filed for January 2019 of inadvertently mentioning the GSTIN Number due to an employee’s mistake, and this error was noticed only during the settlement of accounts in 2021. The purchaser withheld payment in respect of the invoice as the invoice was not reflected in the GSTR-2A return for the said period. It filed a writ petition seeking relief by way of rectifying GSTR-1.

The High Court noted that the purchaser had reversed the entry of ITC wrongly availed based on entries in books of account since the invoice was not reflected in his GSTR-2A return for the said period. Moreover, the party whose GSTIN was wrongly mentioned had not availed ITC wrongly reflected in its GSTR-2A. Therefore, it was held that there was no loss of revenue to the Government and the interest of justice would be served if the petitioner would be allowed to make the necessary correction in GSTR-1. Thus, the petitioner was allowed to rectify its GSTR-1 within 8 weeks from the date of order.