Supreme Court says.

The decisions of the Supreme Court are of utmost importance. They become the law of the land and must be respected and followed by all citizens of the country. Here are some of the reasons why Supreme Court decisions are so important:

Direct Tax:

• The Supreme Court is the highest court in the land. Its decisions are final and cannot be appealed to any other court.
• The Supreme Court has the power of judicial review. This means that it can strike down laws that it finds to be unconstitutional.
• The Supreme Court's decisions set precedents. This means that lower courts are bound by the Supreme Court's decisions in similar cases.

In the past three months, the Honorable Court has issued several rulings on tax matters. The following are extracts from a few of the most important rulings:

• In the case of SAP Labs India Private Limited the Supreme Court decided about a problem that has been heavily debated in India regarding how comparable companies are chosen for transfer pricing. Some High Courts previously believed that this was simply a matter of fact-finding, not a substantial legal question. However, the Supreme Court's recent order overturned this idea and stated that the arm's length price must follow the guidelines outlined in Chapter X of the Income-tax Act and its associated rules. Any deviation from these guidelines may be considered "perverse" and subject to review by the High Courts. The Supreme Court has sent the matter back to the respective High Courts to examine whether the guidelines were followed and whether the findings of the Hon'ble ITAT were reasonable. The High Courts have nine months to determine each case, and they are free to investigate whether the Act and its rules were followed in determining the arm's length price.
• In the case of Gujarat State Disaster Management Authority v. CIT, the Supreme Court of India held that grants received by a trust for a specific purpose cannot be treated as income of the trust. This means that such grants can be used for the specific purpose for which they were received and cannot be taxed as income.
• The Supreme court in the case of US Technologies held that the way the section on penalty on TDS is coded is that deals with situation where taxpayer has not collected whole or any part of TDS. Where whole or part of TDS is not collected, only in such instances penalty will become leviable.  However, the law on penalty on TDS does not state, what will happen where taxpayer has collected the TDS on time but failed to remit the same to Government within time.    
• Expenditure incurred on illegal business will not be allowed as deduction u/s 37, rules Supreme Court in Prakash Chand Lunia 2023. Supreme Court holds Piara Singhs judgment is not correct. Even business loss or penalties from illegal business will not be allowed as deduction. Loss from Penalty or confiscation will not be allowed as deduction as they are not incidental to any business. From AY 2013-14, any addition made where assessee fails to explain source of funds, not record transaction in books etc will be subject to 60% tax and will not be allowed any deduction of expenses or set off losses. Sec 115BBE. 
• SC has said in the case of Abhisar buildwell that even 153C assessment will not sustain if incriminating material is not found in course of 132.   
• Hon' Supreme Court holds in case of DN Singh that  No tax is to be paid by thief on stolen goods u/s 69A of the Income tax Act. This is because the thief is not the owner of goods, though he may be in possession of the goods. The words "owner" and "possession" are two different things. The Court holds Tax department can charge thieves to tax under some other section but not 69A. 69A is a situation where a person is found owner of valuable goods which is not recorded in books of accounts.The Court holds that: The full rights of an owner as set out therein may again be reiterated as:

(i)             The power of enjoyment which includes the power to destroy.

(ii)           The right to possession which includes the right to exclude others.

(iii)         The power to alienate inter vivos or to charge as security.

(iv)          The power to bequeath the property.

The thief has no such powers

• The Hon’ble Apex Court in the case of CIT vs Reliance Petroproducts (P.) Ltd., 322 ITR 158 (SC) has held that mere making of a claim which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars of income. The penalty levied by the AO u/s 271(1)(c) deleted.

Indirect Tax:

·       Supreme Court in the case of E Com Gill requires purchasers to prove actual movement of goods to claim GST credit.   

·       Supreme Court in the case of Suzlon energy holds import of customized Designs and Drawings on paper was liable to service tax.

·       Supreme Courtin the case of UOI v. Sony India Private Limited confirmed the decision of Telangana High Court that there is no time limit for amendment in Bill of Entry. Further, it is also confirmed that to claim refund of Customs duties wrongly paid, amendment of BE under Section 149 is also an alternative route as against filing of appeal. 

·       In the case of K.B. Tea. The SC judges differ on invocation of doctrine of legitimate expectation with respect to sales tax incentive.

·       The Supreme Courts in the case of Tata Motors adopts 'look through' approach in a warranty replacement arrangment between the manufacturer-dealer-customer. When the dealer replaces the warranty goods for customer FOC and gets compensation from the manufacturer via credit note, the transaction between the dealer and customer constitutes taxable sale.

Critical observations.

(i)             Over-riding the privity doctrine to find the real content of the arrangement.

(ii)           Credit Notes need not necessarily be an adjustment of the original invoice - it may indicate an independent sale transaction.

(iii)         Important to identify whether dealer acts as 'service provider' or 're-seller' when providing warranty on behalf of the manufacturer [rate differential is likely to exist between goods and services and so is the valuation]

 

·       The apex court in the case of Edelweiss held that no service tax is leviable on corporate guarantee issued to the group companies.

These are just a few of the important rulings issued by the Honorable Court in the past three months. These rulings have a significant impact on taxpayers and tax practitioners. It is important to be aware of these rulings and to understand their implications.