Goods and Services Tax

Direct reference to Supreme court u/s 257 in case of divergence of opinion amongst High court. – Income Tax – 1408/CBDT – Dated:- 21-7-1981 – INSTRUCTION NO. 1408/CBDT Dated: July 21, 1981 Attention is invited to the Boards instruction No.1020 (F.No.277/15/75- ITJ) dated 5th November, 1976 whereby the Commissioners were directed that while scrutinising the orders of the appellate Tribunal for filing reference application u/s.256(1) they should instruct the Departmental Representatives to request the Tribunal to make a direct reference to the supreme court u/s.257 if there are conflicting decisions of two or more High Courts on any particular question of law. Further even in a reference sought by the assessee the Departmental Representatives

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1922 Act the ITO cannot bring to charge an item of income falling under clause b in such reassessment proceedings initiated beyond the period of four years under clause(a). According to the court a notice of reassessment cannot be issued after the period of 4 years in respect of items of income falling under clause(b) and the ITO cannot assume jurisdiction indirectly by issuing a notice purporting to be under clause(a). As against this view, Andhra Pradesh High court in the case of Pulavarthi Visvanadham and recently in the case of subakaran Gangabhishan dissented from Madras and Bombay view and held that once the assessment was reopened validly no distinction could be made between items falling under clause(a) and those falling under clau

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1958 (9) TMI 99 – MADRAS HIGH COURT – AIR 1960 Mad 137, (1960) IIMLJ 1 – Dated:- 3-9-1958 – Rajagopalan And B Ayyar, JJ. JUDGMENT Rajagopalan, (1) Both the assessee and the Department were aggrieved, each with a part of the order of the Appellate Tribunal. On applications presented by them the Tribunal made a consolidated reference under S. 66(1) of the Income-tax Act and submitted three questions for the determination of this court. (2) The questions arose out of the assessment proceedings for the assessment years 1949-50 and 1950-51. (3) The second of the question, which is easiest answered, ran: "Whether the dividends of ₹ 36,820 and ₹ 32,603 received in the previous years for assessment years 1949-50 and 1950-51 from Plantation Companies whose main business was agriculture can be said to include any agricultural income exempt under S. 4(3) of the Income-tax Act." The issue is no longer res integra and it is concluded by the decision of the Supreme Court in

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agreement. In 1945-1946 the assessee company held such managing agencies for sixteen Plantation Companies. Tallier Estate Ltd. was one of such Plantation Companies, and the agreement between that company and the assessee was in 1937 (Annexure A). In 1945 Tallier Estate sold its plantation, which was in India, and, the company subsequently went into liquidation. On 24-7-1945 Tallier Estates passed a special resolution which ran: "That the Liquidator be authorised to pay the Secretaries and Agents, Pierce Leslie and Co., Ltd., London, 4500 by way of compensation for loss of office." In accordance with that resolution the assessee received ₹ 60,000, in the year of account which ended on 30-6-1946. That was treated as a trading receipt by the department for the purpose of assessment to income-tax, excess profits tax and business profits tax. When the assessee appealed to the Tribunal it purported to apply the principles laid down by this court in Commr. of Income-tax and Ex

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h v. Commr. of Income-tax, B. and O., 1943-11 ITR 513: (AIR 1943 PC 153), is a word of the broadest connotation and difficult and perhaps impossible to define in any precise general formula. Lord Macmillan said in Van Dan Berghs Ltd. v. Clark, (1935) 19 Tax Cas 390, that though in general the distinction between an income and a capital receipt was well recognised and easily applied, cases did arise where the item lay on the border line and the problem had to be solved on the particular facts of each case. No infallible criterion or test can be or has been laid down and the decided cases are only helpful in that they indicate the kind of consideration which may relevantly be borne in mind in approaching the problem." The learned Chief Justice observed further at p. 915 (of ITR): (at p. 495 of AIR): "The assessee before us is a company carrying on a business and it received the sum in question in connection with that business. We have, therefore, to ask ourselves as to what is

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of its apparent capital assets. (7b) The relevant facts in as set out in the headnote were as follows: "The assessee (South India Pictures Ltd.) which carried on the business of distribution of films entered into three agreements for advancing monies to certain motion picture producers towards the production of three films and acquiring the rights of distribution thereof. The agreements, inter alia, provided that the assessee would advance certain sums of money in instalments for the production of the firms, the assessee acquiring the sole right to distribute the films for a period of five years from the date of release of each film. The assessee was to pay itself from the money realised by the distribution of the films its commission and the amount advanced to the producers and to pay the balance to the producers. The assessee had a charge by way of security on the negative and positive copies of the films for amounts due on account of advance. If the producers failed to deliver

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ertainly be regarded as having been so paid or received in the ordinary course of its business and therefore a trading disbursement or trading receipt… In fact in the accounting year the assessee had distribution rights in respect of eleven films including these three. These three agreements would have come to an end on the expiration of the period of five years from the respective dates of release of the films and had only a part of the period to run, a fact which may also be relevantly borne in mind. The cancellation of these agreements must have left the assessee free, if it so chose, to secure other films which could be distributed in the place of these films and which might have brought in better box office collections. In the language of Lord Hanworth M. R. in Short Bros. Ltd. v. Commissioner of Inland Revenue, (1927) 12 Tax Cas 955, the sum paid to the assessee was not truly compensation for not carrying on its business but was a sum paid in the ordinary course of business to

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sessee's business of distribution of films proceeded apace notwithstanding the cancellation of these three agreements." (9) After pointing out that what the South India Pictures Ltd. entered into were composite agreements, and that even under the financing part of the agreements the South India Pictures Ltd. did not acquire any capital assets, the learned Chief Justice proceeded to observe at pp. 918-9 (of ITR): (at p. 497 of AIR): "Assuming that to start with the films constituted capital assets the entire capital outlay had been recovered and the security had been extinguished and that part of the agreements which constituted financing agreements had been fully worked out and had come to an end and the three films ceased to be capital assets and the assessee was holding the films only under that part of the agreements which constituted the distributing agency agreements which only were subsisting. In the premises the amount received by the assessee was only so received

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he assessee, taking up managing agency along with secretaryship to the Plantation company and other trading rights was part of the assessee's normal trading activities. The assessee dealt with among other things, the export of tea produced in India, and obtaining managing agencies and other rights from the Plantation companies certainly facilitated that trade in tea. The managing agencies the assessee obtained were liable to termination, in which event the assessee received the compensation it was entitled to by agreement. We should point out that the agreement (Annexure A) was not a contract for securing simpliciter the managing agency, for Tallier estates. It was a composite agreement securing other rights as well to the assessee, which helped it in its trading activities in tea. The assessee was in a position to obtain such contracts with Plantation companies because of its large experience in handling tea for export and also in managing plantations in India. Even confining ours

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it was a trading receipt. (11) Mr. Rama Rao Sahib, learned counsel for the department, referred us also to Anglo French Exploration Co. Ltd. v. Clayson, 1956-30 ITR 309, Lord Evershed M. R. said at page 316: "If the matter were res integra, I think that there is much to be said for the simple view that a sum of money received in consideration for the giving up or destruction of an agreement under which you look to earn an annual sum if capital and not income; for in such case the sum received might be described fairly as the capitalised equivalent at the present time of income prospects." (12) After pointing out that the real question for determination was whether it was a profit or gain arising from the trade of the recipient within the terms of Sch. D. the learned Master of the Rolls proceeded. "And the matter is not in any case res integra. The line of cases to which we have had our attention directed starting from the well known trilogy: Inland Revenue Commrs. v. Ne

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ract in no sense affected the 'profit making apparatus' of the company which retained its offices and staff, in Johannesburg exactly as before." The case of the assessee before us was certainly analogous to that the Court of Appeal had to consider in 1956-30 ITR (Sup.) 309. (13) In our opinion, in the circumstances in which the assessee company carried on its trading operations the amount of ₹ 60,000 constituted a trading receipt received in the usual course of its business activities. (14) We answer the first question in the affirmative and against the assessee. (15) The third question ran: "Whether the credit balances in the capital profits accounts, profit and loss account and business profits tax post war refund suspense account form part of the 'reserve' of the assessee within the meaning of rule 2(1) of Sch. II of the Business Profits Tax Act ?" The relevant chargeable accounting periods for the assessment to business profits tax were: (1) 1-4

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econd question which we have set out above. (17) The sums in question apparently represented the undistributed profits and were shown in the balance sheet partly as capital and partly as revenue receipts. During the arguments before us the learned counsel for the assessee limited the claim for abatement to the following amounts: .27857 (capital profits account) and .219 (profit and loss account) for the chargeable accounting periods 1 and 2 we have mentioned above; .9812-0-5 (capital profits account) and .30-7-4 (profit and loss account) for the chargeable accounting periods 3 and 4. In addition the assessee claimed abatement with reference to the chargeable accounting periods 2, 3 and 4 of another sum of .19236, which amount was shown in the balance sheets under the head excess profits tax post war Refund suspense account. (18) Did these amounts constitute reserves within the meaning of rule 2(1) for the relevant chargeable accounting periods is the question, which, as we have said, h

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lying unutilised and not specially set apart for any purpose on the crucial date did not constitute reserves within the meaning of Sch. II, rule 2(1)" on this basis of what was pointed out by this court at page 245 (of ITR): (at p. 327 of AIR) in 1957-32 ITR 237: (AIR 1958 Mad 326), what the Tribunal will have to decide in this case is whether, with reference to each of the sums we have mentioned above, any one possessed of the requisite authority indicated on or before the crucial dates, with reference to each of the chargeable accounting periods, the manner of disposal or the destination of the funds of the company which constituted its profits. Was any portion of the profits specifically set apart for any purpose on or before the crucial date and was it so set apart by one having the requisite authority? It was on an erroneous view of the law that the Tribunal upheld the claim of the assessee, and as we said there was no occasion at that stage to investigate the question at is

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1957 (3) TMI 59 – THE COURT OF APPEAL – [1958] 34 ITR 303 (CA) – – Dated:- 19-3-1957 – LORD GODDARD C.J., JENKINS and L. SELLERS JJ. JUDGMENT APPEAL from Vaisey J. [1956] 1 W.L.R. 1105; [1956] 3 All E.R. 52; 31 I.T.R. 624 This was an appeal by the taxpayer, John Young Sangster, from the decision of Vaisey J., who reversed the decision of the Commissioners for the Special Purposes of the Income Tax Acts, who had substantially reduced assessments made upon the taxpayer to income tax, Schedule D, for the years 1951-1952, 1952-1953, in respect of interest on a deposit account which he kept with the Colmore Row, Birmingham, branch of Barclays Bank. The case stated by the Commissioners for the Special Purposes of the Income Tax Acts, so far as relevant, provided: 1. At a meeting of the commissioners held on January 28, 1955, John Young Sangster (hereinafter called "the taxpayer") appealed against assessments made upon him to income-tax, Schedule D, for the years and in the amou

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they applied to the 1952-1953 assessment in the same manner as they applied to the 1951-1952 assessment. (2) The assessments under appeal were made upon the basis that the income in question had to be computed in accordance with the Finance Act, 1951, s. 21, which deals with cases where a person acquires a new source or an addition to any source of income chargeable under Case III of Schedule D. The provisions apply in relation to new sources or additions to sources of income acquired before April 6, 1951, only where income first arose therefrom on or after that date. (3) Cases where a person has acquired a new source or an addition to any source of such income and income first arose therefrom before that date are governed by the Finance Act, 1926, s. 30. (4) If the matter were governed by the Finance Act, 1951, s. 21, then subparagraph (a) of and the proviso to paragraph 2(1) of the Rules applicable to Case III of Schedule D to the Income Tax Act, 1918, would apply to interest upon t

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the taxpayer and the bank. Interest on deposit accounts was calculated on the principal on a day-to-day basis and was credited on half-yearly rest dates, June 20 and December 20 in each year. When it was so credited, the interest became principal and then (and not before) began itself to earn interest. It was not the practice to allow accruing interest to be withdrawn between the half-yearly rest dates, save that if an account was closed at any time interest was calculated up to the date of closure, credited and withdrawn as principal. The rate of interest varied from time to time. In 1951 the bank required 14 days' notice of withdrawals from deposit account; a depositor who wished to make a withdrawal without this notice could do so, but would lose 14 days' interest on the sum withdrawn. The taxpayer withdrew ? 253,000 on March 30, 1951, without giving the 14 days' notice, and 14 days' interest on this sum was deducted in calculating the interest credited on the follow

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s to which the appeal related should be computed in accordance with section 30 of the Finance Act, 1926. 7. It was contended on behalf of the Crown:- (1) That the taxpayer acquired a new source, or an addition to a source, of income chargeable under Case III of Schedule D on March 17, 1951. (2) That income first arose therefrom after April 6, 1951; that is to say, on June 20, 1951 when the interest was placed at the credit and disposal of the taxpayer. (3) That income tax for the years to which the appeal related was properly computed by reference to the provisions of section 21 of the Finance Act, 1951. The commissioners were referred, inter alia, to the following authorities: Cull v. Cowcher [1934] 18 T.C. 449; Simpson v. Executors of Bonner Maurcie [1929] 14 T.C. 580; 45 T.L.R. 581; St. Lucia Usines and Estates Co. v. St. Lucia (Colonial Treasurers) [1924] A.C. 508; Dewar v. Commissioners of Inland Revenue [1935] 2 K.B. 351; 19 T.C. 561; 51 T.L.R. 536; Apportionment Act, 1870. The c

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n March 17, 1951, income first arose therefrom on June 20, 1951. On April 26, 1955, we determined the appeal by adjusting the assessments to the following figures, which had been agreed between the parties to be correct upon the basis of our decision in principle: the 1951-1952 assessment we reduced to ? 53; the 1952-1953 assessment we reduced to ? 7,032." The inspector of taxes appealed to the court. On July 3, 1956, the appeal was allowed by Vaisey J. who held that the source or origin of the interest on the ? 2,000,000 was the deposit of the money coupled with the contract between the taxpayer and the bank; that it was not to be found in an existing contract but that a new contractual relationship resulted from and was brought into existence by the tender of that sum by the taxpayer and its acceptance by the bank on the date in question; that, accordingly, the taxpayer acquired a new source, or an addition to a source, of income chargeable under Case III of Schedule D on March

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t a contract is made with the bank under which, so long as the account continues in existence, interest will be paid on whatever balance there is to the credit of that account. In other words, there is one contract which continues to run throughout the existence of the deposit account. Contrary to the contention of the Crown, a new contrast is not entered into on every occasion on which the depositor pays a sum into that account. It is conceded that if the lodgment of the sum in question did constitute a new source, or an addition to a source, then the income therefrom first arose after April 5, 1951, and that for tax purposes it is to be computed in accordance with the provisions of section 21 of the Finance Act, 1951. The relationship between banker and customer is that of debtor and creditor: per Atkin L.J. in Joachimson v. Swiss Bank Corporation [1921] 3 K.B. 110, 126; 37 T.L.R. 534. That case concerned a current account, but the only differences between a current and a deposit acc

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new and separate source. That would cause very great practical difficulties. Roy Borneman Q.C. and Sir Reginald Hills for the Crown. There is a new contract every time a sum is accepted on deposit. Even if it be held that there is a single continuing contract throughout the existence of a deposit account, that of itself produces no income. It is the operation of that contract on the particular sums of money deposited that produces the income, where there is a contractual right to receive interest, and accordingly new deposits of money in a deposit account are new sources or additions to sources of income within Case III of Schedule D. Heyworth Talbot Q.C. replied. LORD GODDARD C.J. This is an appeal from a judgment of Vaisey J., who reversed the decision of the special commissioners, who adjusted certain assessments for the years 1951-1952 and 1952-1953 made upon Sangster in respect of certain interest which he received on a deposit account which he kept at Barclays Bank. Sangster, who

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ncipal. The rate of interest allowed varied from time to time." It happened that in 1951 a very large sum of money amounting to ?2,000,000 was paid into the deposit account, which even then had a substantial sum of money in it, and it is in respect of interest earned by this very largely increased amount of money paid in that this appeal arises. The point which the court has to decide is one which is exceedingly simple in statement. It is, what was the source of the income? The special commissioners held that the contract was the source of the income. Vaisey J. took a different view, and I think held that the source of income was the deposit of the money coupled with the contract I say at once that I cannot agree that where a deposit account is kept between a customer and a banker there is a new contract every time money is paid in; I think that it is one continuing contract, but the contract itself yields no income at all. The deposit of money would yield no income at all unless

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rms to repay it. As a general rule he does not pay interest on a current account, although bankers do at times agree to allow interest on a current account if a certain credit balance is maintained. We need not consider current amounts in this case at all. We are only concerned with deposit accounts under which money is paid in at 14 days' notice; that is to say, that the customer cannot withdraw the money without giving 14 days' notice, though he may be allowed to do so if he gives up interest. Interest at the current rate is allowed by the banker, and the current rate generally is regulated by the Bank rate. Sangster had been assessed under Case III of Schedule D in respect of this interest which he had been receiving, and I think that it is necessary in considering this matter to refer to section 21 of the Finance Act, 1951. [His Lordship read part of subsection (i) and continued:] It was argued in the present case that the source of income was the contract. I cannot agree w

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