[LEGAL DIGEST ]

UTTAR PRADESH TOLD TO

REOPEN CASES OF UNITS
USING HIGH SPEED DIESEL
The Supreme Court has asked the Uttar Pradesh
trade tax authorities to reopen the cases of more
than 130 industrial units in the state which had been
issued show cause notices asking them to explain
why concessional rates for high speed diesel (HSD)
given to them should not be withdrawn. The Allahabad
high court had quashed the show cause notices to
Vam Organic Chemicals Ltd and a large number
of other units which have been getting concessional
rates from oil companies. The beneficial rates were
given to them under the central sales tax law and
the UP trade tax law. However, the state government
took a decision later that those who have been
using HSD for generating electricity should not be
given the beneficial rates. When the high court set
aside the show cause notices, the government
appealed to the Supreme Court. It stated that the high
court had not gone into certain aspects of the
dispute, like the discretion granted on the assessing
authority for bestowing concessions. Stressing the
discretion of the assessing authority, it remitted the
cases for fresh decision.

Bylaws of co-ops crucial in

income tax liability
The answer to the question whether a member of a
primary cooperative society will automatically become
a member of the apex society will determine the income
tax liability of the apex body, the Supreme Court stated
in the case, Commissioner of Income Tax vs Rajasthan
Rajya Bunker Samiti. In this case, Samiti, the apex body
was the assessee. It provided raw materials like yarn to
primary societies of weavers who manufactured cloth.
The apex society claimed tax concessions under
Section 80P(2) of the Income Tax Act on the ground
that it was a cottage industry. It denied that it was
engaged in the collective disposal of labour of its
members under the provision. The revenue department
contended that the weavers are not the members of the
apex society. They are members of the primary
societies. The Supreme Court stated that an answer to
the problem lies in the bye-laws of the societies. These
were not examined by the authorities. While rejecting
the claim of the authorities for tax claims in the relevant
years, the court asked them to examine, in future, the
actual position according to the bye-laws of the
cooperative societies.

Case of rollover
premium charge
The Supreme Court set aside the judgement of
the Gujarat high court in the case, Asst CIT vs
Elecon Engineering Co Ltd, involving the nature
of roll-over premium charge incurred by the company
as also the scope and applicability of Section 43A of
the Income Tax Act. The company procured foreign
currency loan for expansion of its business. Repayment
was in instalments. It took forward contract with
a bank for the delivery of foreign currency on
stipulated dates. The balance value of the contract,
after deducting the amount withdrawn towards
repayment, was rolled over for a further period
up to the date of the next instalment. The autho-
rities disallowed the roll over premium charges
paid by the assessee in respect of foreign exchange
forward contracts to the bank on the ground that the
said charges were incurred in connection with the
purchase of a capital asset, hence it was not admissible
for deduction under Section 36(1)(iii). The high
court took the view that the roll over premium charges
were in the nature of interest or committal charges,
hence, they were allowable. The Supreme Court
rejected this view.

Central Warehousing
Corporation pulled up
The Delhi high court and the Bombay high court have
severely criticised the Central Warehousing
Corporation (CWC) for the manner in dealing with a
consignment of plant and machinery imported by
Appollo Paper Mills Ltd for setting up an industry in
Gujarat or Himachal Pradesh. The goods could not be
released due to a strike by stevedores in Navi Mumbai.
The mills protested against the exorbitant charges
demanded by CWC as demurrage. Moreover, when the
mills moved the Bombay high court, it did not file a
reply for seven years. It provoked the high court to
remark that the “total negligence of CWC officials and
their conduct in taking the matter so casually is highly
deplorable”. Further, CWC did not follow the method
prescribed by the high court for calculating the
demurrage. This led to an appeal to the Supreme
Court and then to a writ petition in the Delhi high
court. The latter indicted CWC for not following the
Bombay high court orders and causing delays. Allowing
the appeal of the mill, it remarked: “CWC’s inaction
has resulted in severely prejudicing not only the mill
but CWC itself. The adverse remarks of the Bombay
high court obviously did not spur them to act any
quicker.”

Where to file cheque bouncing case

The Delhi high court last week ruled in a cheque
bouncing case that a complaint under the Negotiable
Instruments Act should be filed in the court where
the drawee bank is situated. In this case, Swastik
Sales Corporation vs Advanced Medical Optics, the
cheques were issued by Swastik in Mumbai on a bank
there and was dishonoured there. The notice of demand
was issued in Delhi. Following that the complaint was
filed in Delhi. Swastik moved the high court for
quashing the complaint arguing that the Delhi court
had no jurisdiction to prosecute the case. The high
court, relying on Supreme Court decisions, agreed
with Swastik.

Pickets to check spurious liquor

To check manufacture of spurious liquor in parts of the
city, the Delhi High Court has directed the police to set
up special pickets to keep a watch on people indulging
in its sale and distribution.