The Supreme Court has refused to exempt the Bangalore Club from payment of income tax on the interest earned from fixed deposits kept with certain banks, which were corporate members of the club.
In this case, M/s Bangalore Club vs CIT, the apex court said that a faade of a club cannot be constructed over commercial transactions to avoid liability to tax. Such setups cannot be permitted to claim the double-benefit of mutuality, it added. For a receipt to be exempt on the principles of mutuality, the top court noted, three conditions have to be satisfied. Firstly, there must be a complete identity between the contributors and participators. Secondly, the actions of the participators and contributors must be in furtherance of the mandate of the association. Thirdly, there must be no scope of profiteering by the contributors from a fund they made, which could only be expended or returned to themselves.
The club had in the assessment years 1989-91 and 1993-2000 sought an exemption from payment of income tax on the interest earned on the FDs kept with certain banks on the basis of the doctrine of mutuality. However, it paid tax on the interest earned on FDs kept with non-member banks.
The assessing officer rejected the club's claim, holding that there was a lack of identity between the contributors and the participants of the fund, and hence treated the amount received by it as interest as taxable business income. On appeal, the Commissioner of Income Tax reversed the view and held that the doctrine of mutuality clearly applied to the assessee's case. However, on appeal by the revenue, the Income Tax Appellate Tribunal, affirmed the view taken by the CIT. But the Karnataka HC reversed the decision of the Tribunal and restored the order of the assessing officer.
Brand name and excise duty
The Supreme Court has rejected tax exemption claim of Australian brand Cookie Man, saying branded cookies sold loose from branded pouches cannot claim central excise exemption meant for small-scale units.
We are convinced that the cookies sold even without inscription of the brand name indicate a clear connection with the brand name in the course of assessee's business of manufacture and sale of cookies under the brand name Cookie Man, the apex court held. The assessee had claimed excise duty exemption on the ground that it sold its cookies in loose form at its branded retail outlets without packaging or a brand name. However, it paid duty on cookies sold in pouches and containers that bore the Cookie Man brand name and its logo at its outlets, which received all cookies in sealed pouches and containers. Both the commissioner and the Customs, Excise & Service Appellate Tribunal had ruled that excise exemption given to small-scale industries cannot be denied to the assessee for selling cookies that did not bear its brand or logo. On appeal by the revenue department, the Supreme Court reversed the finding and observed: The stores decision to sell some cookies without containers that are stamped with its brand or trade name does not change the brand of the cookies.
Law on liquor licence
The Supreme Court in the case of State of Bihar vs Nirmal Kumar has held that there should be no relaxation of rules in granting liquor licences as the trade is inherently noxious and pernicious.
Kumar was issued licence on June 5, 2006, but he deposited the annual licence fee as advance security in three installments, the last being on July 5. The Excise Superintendent alleged breach of the conditions of the licence and demanded the fee for the delayed period. While the excise commissioner refused to set aside the demand order, the Patna HC ruled in favour of the bidder. On appeal by the state government, the Supreme Court said that the bidder had availed the benefit of the licence being fully aware of the Bihar Excise (Settlement of Licences for retail sale of country/spiced country liquor) Rules 2004, notification and the terms incorporated in the licence. The Rules provide that he had to pay from the date of the settlement, i.e. June 5.
While quashing the Patna HC judgment and restoring the Excise Commissioners order, it said: There could not have been condonation of default. Such a concept is alien to the present nature of trade and a licencee cannot claim any benefit under the same as the whole thing is governed by Rules.