Supreme Court Judgments — 2022

The Supreme Court held that the transaction value of sales to independent parties can be used as a benchmark for related party transactions when readily available. However, this transposition must be done reasonably and with due application of mind.

The Supreme Court held that Section 45(4) of the Income Tax Act, 1961, as amended by the Finance Act, 1987, is applicable. The object of introducing Section 45(4) and omitting Section 2(47)(ii) was to prevent assessees from avoiding capital gains tax by revaluing and distributing assets at the time of dissolution or otherwise. The Court found that the revaluation of assets by Rs. 17.34 crores and crediting this amount to the partners' capital accounts, particularly when new partners with small capital contributions received substantial credits, constituted a 'transfer' falling under the 'otherwise' category of Section 45(4). This is because the credit to capital accounts effectively amounted to a distribution of assets, extinguishing the firm's rights in those assets in favour of the partners. The Court distinguished the case of Commissioner of Income Tax, West Bengal v. Hind Construction Ltd., (1972) 4 SCC 460, as it was decided prior to the amendment of Section 45(4) and the inclusion of the word 'otherwise'. The Court agreed with the Bombay High Court's decision in Commissioner of Income Tax v. A.N. Naik Associates and Ors. The AO's addition of Rs. 17,34,86,772/- as short-term capital gain under Section 45(4) was restored. The appeals were allowed.

The Supreme Court held that the revaluation of assets of the partnership firm and crediting the revalued amount to the partners' capital accounts, particularly in the context of new partners being inducted with significant credits and some partners withdrawing amounts, constitutes a 'transfer' under Section 45(4) of the Income Tax Act, 1961. The Court emphasized that the insertion of the word 'otherwise' in Section 45(4) by the Finance Act, 1987, w.e.f. April 1, 1988, brought within its sweep transfers of capital assets even when the firm is in existence and assets are transferred to partners, thereby extending the scope beyond dissolution. The Court found that the decision in CIT vs. Hind Construction Ltd. was pre-amendment and therefore not applicable to interpret the amended Section 45(4). The Court agreed with the Bombay High Court's view in CIT vs. A.N. Naik Associates and Ors. Consequently, the impugned judgment of the High Court and the order of the ITAT were quashed and set aside, and the order of the Assessing Officer was restored. No issue was expressly left undecided.

The Supreme Court held that the assessee manufactured polyurethane foam, which is listed in the Eleventh Schedule, and therefore is not eligible for deduction under Section 80-IB. The High Court's decision was upheld.

The Supreme Court held that the Supplementary Commission earned by travel agents falls within the ambit of 'commission' under Section 194H, as a principal-agent relationship, as defined under Section 182 of the Contract Act, was established through the Passenger Sales Agency Agreements. The Court found that the entire transaction, including the supplementary commission, was part of the package of activities undertaken pursuant to the agreement, and the airlines' lack of control over the actual fare did not absolve them of their liability. The Court ruled that the airlines were liable for TDS on the supplementary commission. However, given that the travel agents had already paid income tax on this supplementary commission, further recovery of the TDS shortfall from the airlines was not permissible. Nevertheless, interest under Section 201(1A) could be levied from the date of default until the date of payment of income tax by the travel agents. The Court also quashed the penalty proceedings under Section 271C, finding that the airlines had reasonable cause for non-deduction due to the nascent and arguable legal issue, thus fulfilling the criteria under Section 273B.

The tribunal and the High Court correctly held that SBI was in default for not deducting TDS. The LTC exemption under Section 10(5) is only for travel within India, and the inclusion of foreign travel or non-shortest routes violates the statutory provisions.

The Supreme Court clarified that the judgment's conclusions apply to the assessment years already decided. For future assessment years not before the court, the authorities should apply the declared law based on the facts of each year.

The Tribunal erred in applying the extended period of limitation and imposing penalties as the dispute primarily involved interpretation of statutory provisions. The Supreme Court reversed the Tribunal's view on the applicability of Section 65(86b) of the Finance Act, 1994.

The Supreme Court held that for exemption under Section 10(23C), all objects of the institution must relate to education, and profit-making activities are not permissible. It also ruled that compliance with state laws requiring registration of charitable institutions is mandatory.

The Supreme Court clarified the interpretation of Section 2(15) and its proviso, establishing a general test for determining if an entity's activities fall within the ambit of trade, commerce, or business. It held that statutory corporations and authorities, among others, must be examined against this test to ascertain if their income is derived from such activities, potentially disentitling them to exemptions.

The Supreme Court held that the principal purpose of the MVAC is to produce chilled water, even though it has a secondary heating capability. Therefore, it cannot be classified as a heat pump for concessional tariff benefits.

The Supreme Court held that Rule 21 of Part H of Schedule III of the Wealth Tax Act, 1957, permits the valuation of property even when the right to transfer is forbidden or restricted. However, it clarified that the valuation must account for the restrictions and limitations attached to the property, rather than ignoring them. The purpose is to value the property as it would be sold in the open market on the valuation date, taking into consideration its inherent restrictions. The Court found that the Revenue's appeal was to be dismissed. The assessee's appeal was dismissed as not pressed. The operative direction was the dismissal of the Revenue's appeal.

The Supreme Court held that equity shares in a lock-in period are not 'quoted shares' as defined by sub-rule (9) of Rule 2 of Part A of Schedule III of the Wealth Tax Act, 1957. The Court reasoned that such shares are not quoted on a recognized stock exchange with regularity from time to time, and quotations cannot be based on current transactions made in the ordinary course of business. The possibility of private transfer among promoters does not satisfy the conditions for being considered 'quoted shares'. Consequently, these shares must be valued as 'unquoted shares' in accordance with Rule 11 of Part C of Schedule III of the Wealth Tax Act, 1957. This valuation must account for the restrictions attached to the shares, as per Rule 21 of Part H of Schedule III of the Wealth Tax Act, 1957, which permits valuation but does not allow for disregarding such restrictions. The Court clarified that the explanation to Rule 2(9) of Part A, Schedule III of the Wealth Tax Act, 1957, does not delegate the authority to determine whether a share is quoted or unquoted to the stock exchange; this remains a matter for examination by the authorities. The appeals by the Revenue were dismissed. The assessee's ground of appeal was not pressed and was dismissed as such.

The Supreme Court held that employee contributions to provident and ESI funds, if deposited after the due date, are not deductible. The court emphasized that Section 36(1)(va) requires such deposits to be made on or before the due date for deductibility, and Section 43B does not override this condition for employee contributions.

The Supreme Court held that fraud vitiates everything, making the forged DEPB licenses void ab initio. Consequently, the Department was justified in invoking the extended period of limitation to demand customs duty. The buyer's knowledge of the fraud is relevant for penalty, not duty liability.

The Supreme Court held that while the Central Sales Tax Appellate Authority did not err in not issuing a direction for adjustment prior to the insertion of Section 22(1B) of the Central Sales Tax Act, 1956, the State of Andhra Pradesh cannot retain the central sales tax paid by the appellant on the transactions in question. In line with the spirit of Section 22(1B), the Court directed the State of Andhra Pradesh to transfer the amount of central sales tax deposited by the appellant to the State of Jharkhand, subject to the appellant providing proof of the tax paid. The State of Jharkhand was directed to adjust this amount against the central sales tax liability of the appellant on these inter-state sales. This exercise was to be completed within three months. The appeal was disposed of in these terms.

The Supreme Court held that the classification of the 'Guide Car' under Chapter sub-heading 8603.00, as determined in the supplier's case, is final and binding on the purchaser. The Court rejected the appellant's contention that the 'Guide Car' is a 'component' of the Coke Oven Battery. Analyzing the definition of 'component' from various judgments, the Court found that a 'Guide Car', used for transporting hot coke after processing, is a distinct equipment and not an integral part necessary for the constitution of the Coke Oven Battery. Therefore, the appellant is not entitled to Modvat credit on 'Guide Cars' as components. The demand of Rs. 45,86,664/- was rightly confirmed. However, the Court quashed and set aside the penalty of Rs. 1,00,000/-, finding that the appellant had a bonafide belief that the goods might fall under Chapter sub-heading 8428.90 or be considered a component, thus negating suppression or mala fide intention. The appeal regarding the Modvat credit was dismissed, but allowed to the extent of quashing the penalty.

The Supreme Court held that the NCLAT erred in concluding that Section 53 of the IBC overrides Section 48 of the GVAT Act. The Court found that Section 48 of the GVAT Act is not contrary to or inconsistent with Section 53 or any other provision of the IBC. Under Section 53(1)(b)(ii) of the IBC, debts owed to a secured creditor, which includes the State under the GVAT Act, rank equally with other specified debts. The Court clarified that the State is a secured creditor under the GVAT Act, and the definition of a secured creditor in the IBC includes those in whose favour a security interest is created by operation of law, without excluding government authorities. Furthermore, the Court held that delay in filing a claim cannot be the sole ground for rejecting it. The impugned orders of the NCLAT and NCLT were set aside, and the Resolution Plan approved by the Committee of Creditors was also set aside, with the Resolution Professional directed to consider a fresh Resolution Plan that makes provisions for the dues of statutory creditors like the appellant.

The Supreme Court held that the NCLAT could not suo motu conduct a judicial review of the NCLT's decision regarding the sale of assets. The commercial decisions of the liquidator, supported by stakeholders, are not open to such review.

The Supreme Court held that the IBC would prevail over the Customs Act to the extent that once a moratorium is imposed under Section 14 or 33(5) of the IBC, the Customs Authority's jurisdiction is limited to assessing and determining the quantum of customs duty and other levies. The authority does not possess the power to initiate recovery of dues through sale or confiscation as provided under the Customs Act. Following such assessment, the Customs Authority must submit its claims for customs dues as an operational debt, adhering strictly to the procedures and timelines stipulated in the IBC, before the adjudicating authority. The Court also noted that the IRP/RP/liquidator can secure the goods from the Customs Authority to be dealt with appropriately under the IBC. The NCLAT's interpretation of deemed transfer of title under Section 72 of the Customs Act was found to be in conflict with the IBC's moratorium and principles of natural justice. The appeal was allowed, and the NCLAT's order was set aside.

The Supreme Court held that if an expenditure falls under specific deduction sections like Section 36(1)(vii) but is excluded by an explanation, it cannot be claimed under the general deduction section (Section 37). The assessee's claim for bad debt deduction was disallowed.

The Supreme Court held that the services rendered by the assessee, primarily involving installation, erection, and commissioning of machinery, constituted 'works contract' and not services as a consulting engineer. Therefore, the assessee was not liable to pay service tax on these activities.

The Supreme Court held that the appellate jurisdiction of the High Court is determined by the location of the Assessing Officer who passed the assessment order, and this jurisdiction is not affected by subsequent administrative transfers of the case under Section 127 of the Income Tax Act.

The Tribunal had previously allowed the assessee's appeal, holding that pre-packaged software sold on a medium like a CD should be treated as goods, not services. The Supreme Court agreed with this reasoning.

The Supreme Court held that service tax was not leviable on composite works contracts prior to the introduction of Section 65(105)(zzzza) by the Finance Act, 2007. The Court affirmed its earlier decision in Commissioner, Central Excise and Customs, Kerala Vs. Larsen and Toubro Limited (2016) 1 SCC 170, stating that the Finance Act, 1994, prior to the 2007 amendment, did not contain the necessary charge or machinery for levying service tax on indivisible works contracts. The amendment by the Finance Act, 2007, was not clarificatory but introduced the levy for the service component of such contracts. The Court found the Revenue's contention for re-consideration of the Larsen and Toubro judgment to be incorrect. Consequently, the appeals filed by the assessees were allowed, except for Civil Appeal No. 6792 of 2010, which was dismissed. The reasoning is that the levy was introduced only from June 1, 2007, and prior to that, there was no specific taxable service defined as 'works contract' under the Act.

The Supreme Court, noting a difference of opinion between judges, directed the matter to be placed before the Chief Justice for constitution of an appropriate bench. One judge held that the High Court erred in dismissing the writ petition and directed reconsideration of the TDS certificate application.

The Supreme Court held that the question of interest on duty was not addressed by any authority due to the peculiar facts and the Supreme Court's ruling on the CoD mechanism. Therefore, the matter was remitted for consideration of the interest aspect.

The Supreme Court held that the High Court was not justified in setting aside the search authorization. The Court reiterated that the sufficiency or adequacy of the reasons to believe recorded by the tax authorities are not justiciable issues in a writ petition.

The Supreme Court held that both conditions for claiming the benefit under Section 10B(8) – furnishing a declaration and filing it before the due date of the original return – are mandatory. The High Court's view that the time limit was directory was erroneous.

The tribunal held that 'anardana' should be classified under Heading 1209, as it is a dried product of a wild pomegranate not consumed as a fresh fruit, and is also recognized as a seed in trade parlance and import policy.

The Supreme Court held that the definition of 'Consulting Engineer' under Section 65(31) of the Finance Act, 1994, implicitly includes a 'body corporate' even before the 2005 amendment. Therefore, the company was liable for service tax.

The Supreme Court held that for claiming the benefit under Section 10B(8) of the Income Tax Act, 1961, the twin conditions of furnishing a declaration in writing to the assessing officer and furnishing it before the due date of filing the original return of income under Section 139(1) are mandatory and must be satisfied. The Court found that a revised return filed under Section 139(5) cannot be used to withdraw a claim and subsequently claim the carry forward or set-off of any loss. The revised return can only substitute the original return and cannot transform it into a return under Section 139(3) for availing such benefits. The Court reasoned that exemption provisions must be strictly and literally construed, unlike deduction provisions in Chapter VIA. The Court also noted that the withdrawal of the SLP in the Moser Baer case was due to low tax effect and did not preclude the revenue from arguing the issue. Consequently, the High Court's observation that the time limit for filing the declaration was directory was held to be erroneous. The orders of the High Court and ITAT were set aside, and it was held that the assessee is not entitled to the benefit under Section 10B(8) due to non-compliance with the mandatory twin conditions. The appeal was allowed.

The Supreme Court held that the amended provisions of Sections 147 to 151 of the Income Tax Act, 1961, introduced by the Finance Act, 2021, are procedural and benevolent, aimed at simplifying tax administration, easing compliance, and reducing litigation. The Court upheld the High Courts' view that the benefit of these new provisions should be available even for proceedings relating to past assessment years, provided the Section 148 notice was issued on or after April 1, 2021. However, instead of quashing the notices issued under the unamended provisions, the Court modified the High Courts' orders. It directed that these notices be deemed to have been issued under Section 148A of the substituted provisions. The Revenue was permitted to proceed with reassessment proceedings as per the substituted provisions, subject to compliance with all procedural requirements. The requirement of conducting an enquiry with prior approval under Section 148A(a) was dispensed with as a one-time measure for these notices. All defenses available to the assessees under the new provisions were preserved. The Court invoked Article 142 of the Constitution to apply this order PAN India, modifying all similar judgments of High Courts and governing pending petitions.

The Supreme Court held that the appeal before the High Court was maintainable because the Revenue was challenging the original penalty amount of Rs. 29,02,743, not the subsequently reduced penalty. The subsequent reduction did not oust the jurisdiction.

The Supreme Court held that the ITAT was justified in entertaining the fresh claim and treating the exchange fluctuation loss as revenue expenditure. The High Court's reversal of the ITAT's decision was set aside.

The Supreme Court found the High Court's order to be non-speaking and unsustainable. Consequently, the Supreme Court quashed the High Court's order and remanded the matter back for a fresh decision.

The Supreme Court held that the conduct of the assessee, consistently representing itself as MRPL throughout the proceedings despite amalgamation, meant the assessment order was not a nullity. The court found the High Court's order unsustainable.

The Supreme Court allowed the appeal, directing the appellant to continue on bail under the same conditions as the ad-interim bail previously granted, which included a substantial deposit.

The Supreme Court held that a declaration made under the Income Declaration Scheme (IDS) by one entity does not grant immunity from taxation to a non-declarant entity. The High Court erred in quashing the reassessment notice on this ground.

The Supreme Court held that the High Court's dismissal of the writ petitions without providing reasoned orders was unsustainable. The matter was remanded to the High Court for fresh consideration.

The Supreme Court held that the High Court was not justified in disposing of the appeal with a one-paragraph order without discussing the issues. The matter was remitted back to the High Court for fresh consideration on its merits.

The Supreme Court held that the leasing of shops/land by Market Committees was not a mandatory statutory activity and thus not exempt from service tax. The Court found that the Market Committee Fund was not a government treasury, and the activity was discretionary, not obligatory.

The Supreme Court held that the incentives given by Apex to doctors were prohibited by law as the medical practitioners were forbidden from accepting them. Therefore, these expenses were not allowable as business expenditure under Section 37(1) of the Income Tax Act.

The Tribunal held that the services provided by the appellant were in the nature of contract labour, not job work, and therefore not eligible for the exemption. The Supreme Court agreed, finding the agreement to be a camouflage to avoid service tax.

The Supreme Court dismissed the appeal filed by the Commissioner of Customs. The dismissal was based on the decision of a three-Judge Bench in Canon India Private Limited vs Commissioner of Customs (AIR 2021 SC 16991). In that precedent, the Court held that an officer of the Directorate of Revenue Intelligence lacks jurisdiction to exercise functions entrusted to Customs Officers under the Customs Act, 1962, unless there is an entrustment under Section 6 of the Act. Consequently, proceedings initiated by the Additional Director General of DRI by issuing show cause notices were deemed invalid. Applying this principle, the Supreme Court found the show cause notice issued in the present case by the Additional Director General of DRI to be invalid due to lack of jurisdiction. The Court explicitly stated that it had not expressed any opinion on the merits of the CESTAT's judgment dated August 5, 2019, as the appeal was dismissed on the jurisdictional ground.

The Supreme Court held that the demand raised by the appellants against the respondent company for excise duty on the liquor lost in fire is authorised by law and was rightly raised as per the applicable provisions of the Act of 1910, the Excise Manual, and the Rules of 1969. The Court found that the fire incident could not be considered an event beyond human control and that the High Court erred in holding that no negligence could be imputed to the respondent company. The fact that the respondent company had taken insurance coverage only for the value of the liquor (and not for the excise duty thereupon) and subsequently received the insurance claim for the liquor's value was held to operate against the respondent and fortify the conclusion about their negligence. The Court reasoned that the liability to pay excise duty arose upon manufacture, and receiving insurance for the value of goods related back to the date of fire, deeming it an 'issue' from the warehouse for the purpose of the proviso to Section 29(e) of the Act of 1910. Failure to insure the risk of excise duty liability was also considered an act of negligence. The Court set aside the High Court's orders, dismissed the writ petition and the refund application, and allowed the appeal.

The Supreme Court held that gallonage fees, license fees, and shop rentals for FL-9 and FL-1 licenses fall under Section 40(a)(iib). However, surcharge on sales tax and turnover tax are not 'fees or charges' as contemplated by the section and therefore cannot be disallowed.