Blog # 8. Digest - June (Coming Soon)



Blog # 7. What is Strict Liability ?

The principle of strict liability evolved in the case of Rylands v Fletcher. In the year 1868, the principle of strict liability states that any person who keeps hazardous substances on his premises will be held responsible if such substances escape the premises and causes any damage. Going into the facts of the case, F had a mill on his land, and to power the mill, F built a reservoir on his land. Due to some accident, the water from the reservoir flooded the coal mines owned by R. Subsequently, R filed a suit against F. The Court held that the defendant built the reservoir at his risk, and in course of it, if any accident happens then the defendant will be liable for the accident and escape of the material.
Going by the principle laid in this case, it can be said that if a person brings on his land and keeps some dangerous thing, and such a thing is likely to cause some damage if it escapes then such person will be answerable for the damaged caused. The person from whose property such substance escaped will be held accountable even when he hasn’t been negligent in keeping the substance in his premises. The liability is imposed on him not because there is any negligence on his part, but the substance kept on his premises is hazardous and dangerous. Based on this judicial pronouncement, the concept of strict liability came into being. There are some essential conditions which should be fulfilled to categorize a liability under the head of strict liability.
Essentials of Strict Liability
Dangerous Substances: The defendant will be held strictly liable only if a “dangerous” substances escapes from his premises.
For the purpose of imposing strict liability, a dangerous substance can be defined as any substance which will cause some mischief or harm if it escapes. Things like explosives, toxic gasses, electricity, etc. can be termed as dangerous things.
Escape: One more essential condition to make the defendant strictly liable is that the material should escape from the premises and shouldn’t be within the reach of the defendant after its escape.
For instance, the defendant has some poisonous plant on his property. Leaves from the plant enter the property of the plaintiff and is eaten by his cattle, who as a result die. The defendant will be liable for the loss. But on the other hand, if the cattle belonging to the plaintiff enter the premises of the defendant and eats the poisonous leaves and die, the defendant would not be liable. In the judicial pronouncement of Reads v. Lyons & Co.  it was held that if there is no escape, the defendant cannot be held liable.
Non-natural Use: To constitute a strict liability, there should be a non-natural use of the land. In the case of Rylands v. Fletcher, the water collected in the reservoir was considered to be a non-natural use of the land. Storage of water for domestic use is considered to be natural use. But storing water for the purpose of energizing a mill was considered non-natural by the Court. When the term “non-natural” is to be considered, it should be kept in mind that there must be some special use which increases the danger to others. Supply of cooking gas through the pipeline, electric wiring in a house, etc. is considered to be the natural use of land. For instance, if the defendant lights up a fire in his fireplace and a spark escapes and causes a fire, the defendant will not be held liable as it was a natural use of the land.
These three condition needs to be satisfied simultaneously to constitute a strict liability.
Exception to the Rule of Strict Liability
There are certain exceptions to the rule of strict liability, which are-
Plaintiff’s Fault: If the plaintiff is at fault and any damage is caused, the defendant wouldn’t be held liable, as the plaintiff himself came in contact with the dangerous thing.
In the judicial pronouncement of Ponting v Noakes, the plaintiff’s horse died after it entered the property of the defendant and ate some poisonous leaves. The Court held that it was a wrongful intrusion, and the defendant was not to be held strictly liable for such loss.
Act of God: The phrase “act of God” can be defined as an event which is beyond the control of any human agency. Such acts happen exclusively due to natural reasons and cannot be prevented even while exercising caution and foresight. The defendant wouldn’t be liable for the loss if the dangerous substance escaped because of some unforeseen and natural event which couldn’t have been controlled in any manner.
Act of the Third Party: The rule also doesn’t apply when the damage is caused due to the act of a third party. The third party means that the person is neither the servant of the defendant, nor the defendant has any contract with them or control over their work. But where the acts of the third party can be foreseen, the defendant must take due care. Otherwise, he will be held responsible.
For instance, in the case of Box v Jubb, where the reservoir of the defendant overflowed because a third party emptied his drain through the defendant’s reservoir, the Court held that the defendant wouldn’t be liable.
Consent of the Plaintiff: This exception follows the principle of violenti non fit injuria.
For instance, if A and B are neighbors, and they share the same water source which is situated on the land of A, and if the water escapes and causes damage to B, he can’t claim damages, as A wouldn’t be liable for the damage.
Absolute Liability
The rule of absolute liability, in simple words, can be defined as the rule of strict liability minus the exceptions. In India, the rule of absolute liability evolved in the case of MC Mehta v Union of India. This is one of the most landmark judgment which relates to the concept of absolute liability.
The facts of the case are that some oleum gas leaked in a particular area in Delhi from industry. Due to the leakage, many people were affected. The Apex Court then evolved the rule of absolute liability on the rule of strict liability and stated that the defendant would be liable for the damage caused without considering the exceptions to the strict liability rule.
According to the rule of absolute liability, if any person is engaged in an inherently dangerous or hazardous activity, and if any harm is caused to any person due to any accident which occurred during carrying out such inherently dangerous and hazardous activity, then the person who is carrying out such activity will be held absolutely liable. The exception to the strict liability rule also wouldn’t be considered. The rule laid down in the case of MC Mehta v UOI was also followed by the Supreme Court while deciding the case of Bhopal Gas Tragedy case. To ensure that victims of such accidents get quick relief through insurance, the Indian Legislature passed the Public Liability Insurance Act in the year 1991.
The Public Liability Insurance Act, 1991
This act was introduced with the aim of providing immediate relief to people who are victims of accidents in which handling of hazardous substances is involved. The main focus of the Act is to create a public liability insurance fund which can be used to compensate the victims.
The Act states that any person who is carrying out inherently dangerous or hazardous activities should have insurances and policies in place where he will be insured against liability to provide compensation to the victims in case any accident takes place, and some injury occurs. This liability is based on the principle of “no fault liability” or in other words, the rule of strict liability and absolute liability. Inherently dangerous or hazardous substance covers under its scope any mixture, preparation or substance which because of its properties can cause serious harm to human beings, animals, plants, property or the environment. If any substance is inherently dangerous or hazardous due to its handling also, then also the absolute liability of the defendant arises.
Concluding Remarks
The rule of strict liability and absolute liability can be seen as exceptions. A person is made liable only when he is at fault. But the principle governing these two rules is that a person can be made liable even without his fault. This is known as the principle of “no fault liability.” Under these rules, the liable person may not have done the act, but he’ll still be responsible for the damage caused due to the acts. In the case of strict liability, there are some exceptions where the defendant wouldn’t be made liable. But in the case of absolute liability, no exceptions are provided to the defendant. The defendant will be made liable under the strict liability rule no matter what.
Source : Legal Desire
Author: Anugya Gupta, Team Member- Legal Desire

Blog # 6. Evidentiary Value of Statement made before The Income Tax Authourities


In the year 2003-04,The Finance Minister mentioned in his budget speech about the confiscatory statement during the search and survey made by the Income Tax Authorities as under :

“That one of his priorities concerning search and survey operations is that no confessions shall be obtained during search proceedings. Judicial opinion also is that admissions recorded during survey operations are invalid. Yet, this is being freely done”.

The Board of direct taxes issued instruction to theAll Chief Commissioners of Income Tax, (Cadre Contra) & All Directors General of Income Tax Inv. vide letter   F. No. 286/2/2003-IT (Inv) dated 10.03.2003 in   regard of confiscatory statement in the course of search and seizer as under:

“Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, on confessions during the course of search & seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income Tax Departments. Similarly, while recording statement during the course of search it seizures and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely.
Further, in respect of pending assessment proceedings also, assessing officers should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders”.


The Income Tax Authorities use   statement as a tool against assessee to tax him or in other words penalize the assessee during the assessment proceeding, survey and raid conducting at the assessee’s premises. It means my statement used against me, whether it is law full?   During assessment, assessing Officer called the debtor, creditor, loaner and other persons related to the business or any other person reflected in the books of account and asked him to get statement against the profit declare by assessee or to prove entries in the books of account of assessee, which gives effect to assessee’s income or loss as declared by him . Generally, authorities cross their jurisdiction to show extra enthusiasm due to any constrain at the back of assessee made inquiry or obtain statement to use against the assessee along with or without corroborative evidence. Whether it is lawful or permits natural justice or allowed Income Tax Act, 1961, the Indian Evidence Act, 1872, any other lawful agreement or the legal pronouncements. Answer is big NO because any information, material collected by assessing officer, he must completely discharges his duty towards assessee after providing opportunity of “confronting such statement/evidence and examining it as provided under evidence Act, 1872 otherwise their action will not give desired result and failed to sustain at appellate stage.

The Income Tax Authorities are vested with two type powers administrative and Qusi Judicial powers at a time. Therefore, they must make distinction  between two, which and where to use. We should discuss herewith qusi- judicial powers of an assessing Officer,where he effect  assessee’s interest adversely; assessing officer must perform qusi- judicial authority function. He must act within the frame work of law , natural justice and judicial pronouncement. AO is not only a tax collector but also a quasi judicial authority. In this capacity, he (AO) is duty bound to allow such claim which assessee is otherwise entitled to have and has not claimed the same. (In this connection, reliance was placed by ITAT on SC ruling.

 Mahalaxmi Sugar Mills 160 ITR 920, DHC
The Full Bench of the Delhi High Court was considering a case of reopening u/s 147 within 4 years from the end of the assessment year. The Court held that when a regular order of assessment is passed in terms of section 143 (3) of the Act, a presumption can be raised that such an order has been passed on application of mind. It was held that if it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving premium to an authority exercising quasijudicial function to take benefit of its own wrong.

In CIT vs. Kelvinator of India Ltd. 256 ITR 1(Delhi)
When Assessing Officer perform administrative duties, he is duty bund with the bosses’ directions and circulars. Assessing Officer does not require to apply his mind and he is duty bound to follow direction given by the high up. Applicability of such directions should be judicious and try to trace scope of unwarranted harassment. 
The Income tax Act, 1961 empower the assessing officer to take statement as provided under Section 132 Sub Section (4) of Income Tax Act,1961:
The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.
 1[Explanation.—For the removal of doubts, it is hereby declared that the examination of any person under this sub-section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.]
During raid, survey or assessment, Income Tax Officials obtain   “Statement” from the assessee his agent or other people available in the premises, is it required under the law? But it become procedure to strengthen the use of available material irrespective of Hon’able Finance Minister was willing to curb this procedure after considering legal pronouncements. The statement furnish during survey is more confessional statement then admission because it penalize the assessee by way of tax and penalty.
Section 131(1) empower the assessing officer with the powers vested in a court under the Code of Civil Procedure,95 of 1908 in connection discovery and inspection etc. The section 2(17)(d) the Code of Civil Procedure,1908 discussed about powers of officer of  court to administer oath along with other judicial power. The discussion about statement, admission and confession are used as a tool of evidence therefore, without discussing The Indian Evidence Act, 1872 it could not be completed. The relevant section’s headline about the admissibility of statement is as under:
17. Admission defined
18. Admission- by party to proceeding or his agent
19. Admissions by persons whose position must be proved as against party to suit
20. Admissions by persons expressly referred to by party to suit
21. Proof of admissions against persons making them, and by or on their behalf
22. When oral admissions as to contents of documents are relevant
23. Admission in civil cases relevant
24. Confession caused by inducement, threat or promise when irrelevant in criminal proceedings.
25. Confession to police officer not to be proved
26. Confession by accused while in custody of police not to be proved against him
27. How much of information received from accused may be proved
28. Confession made after removal of impression caused by inducement, threat or promise, relevant If such a confession as is referred to in section 24 is made after the impression caused by any such inducement, threat or promise has, in the opinion of the Court, been fully removed, it is relevant.
29. Confession otherwise relevant not to become irrelevant because of promise of secrecy, etc.
30. Consideration of proved confession affecting person making it and others jointly under trial for same offence
31. Admissions are not conclusive proof of the matters admitted but they may operate as estoppels under the provisions hereinafter contained.
32. Cases in which statement of relevant fact by person who is dead or cannot be found, etc, is relevant
33. Relevancy of certain evidence for proving, in subsequent proceeding, the truth of facts therein stated
34. Entries in books of account when relevant
35. Relevancy of entry in public record made in performance of duty
36. Relevancy of statements in maps, charts and plans
37. Relevancy of statement as to fact of public nature, contained in certain acts or notifications
38. Relevancy of statements as to any law contained in law-books
39. What evidence to be given when statement forms part of conversation, document, book or series of letters or papersWhen any statement of which evidence is given forms part of a longer statement, or of a conversation or part of an isolated document, or is contained in a document which forms part of a book, or of connected series of letters or papers, evidence shall be given of so much and no more of the statement, conversation, document, books, or series of letters or papers as the Court considers necessary in that particular case to the full understanding of the nature and effect of the statement, and of the circumstances under which it was made.
Statement means anything stated in writing or orally to communicate in any matter. The admission or confession is two words with the more or less gravity but used in different sense. Admission is admissible under section 21 of Evidence Act as proof against persons making by and on their behalf. Admission is generally made in civil matters. The admission can be accepted or rejected or the part of the admission can be accepted. All the admissions are not confession.
         
Confession is made by an accused before the authority during his custody. It is used in criminal matters made by an accused to acknowledge guilt. All confessions are admission for the evidence purpose. A confession and admission must be weighing on the whole, either to accept or reject completely during the course of evidence.
The admission made by a counsel is binding upon the client because he engage a counsel to conduct his case, it is presumed, he authorized him to make binding admission before the Court during the conduct of case. The admission by a council on a fact is not admissible as per evidence Act, 1872 but presentation of law is admissible. The admission of question of law , fact or mixed question of law and facts  are arguable in appeal and it is not binding upon the client.
Here is relevant case law for judicial analysis of Confession/admission:

Bansal High Carbons (P)Ltd. 2009) 223 CTR 179 (Del).
No addition can be made only on the basis of admission in statement u/s. 132(4), however, any expenses deduction or allowance claimed under the Act which is found to be false and admitted so by the assessee can be added as undisclosed income. As the AO has failed to bring any evidence in support of the addition, the additions were deleted

Contech Transport Services (P) Ltd.  2009) 19 DTR 191(Mum)(Trib).
There was reassessment on basis of statements made by certain individuals. Assessee was not given opportunity to cross examine those individuals.

Sanjeev Kumar Jain (2009) 310 ITR 178 (P&H)
Statement made in the course of search and seizure was retracted only after issue of summons, addition cannot be made merely on the basis of statement.

CIT vs. K. Bhuvanendra and others (2008) 303 ITR 235 (Mad.)
Adition of undisclosed income could not be made in the hands of assessee solely on the basis of statement of its tax consultant, more so when the statement was not voluntary statement and has been retracted. Statement made by a third person at the time of survey or search of another concern could not be relied upon as he is not the controlling person of that concern and no corroborative evidence was found in that search.
First Global Stock Broking (P) Ltd. vs. ACIT (2008) 4 DTR 172 (Mum.)
Where oral evidence of any party is sought to be used against an assessee ,it is necessary that information relating to such statement or the copy of deposition should be furnished to the assess with opportunity to cross examination the deponent ,if required by the assessee .if it is not done ,it is violation of principle of natural justice. Hence order will be bad in law

CIT v Ashwani Gupta ( 2010 ) 322 ITR 396 ( Delhi
Abid Malik  Vs UOI, (2009TIOL272HC Del-FEMA)
Retracted confession can be a piece of corroborative evidence and not as the sole evidence on the basis which conviction can be ordered – Once confessional statement is retracted, burden is on the prosecution to prove that the statement was voluntary


Abdul Qaymme Vs CIT (1990) 184 ITR 404
An admission or acquiescence cannot be foundation of assessment when income is returned under an erroneous or misconception of law. it is always open to assessee to demonstrate and satisfy the authority concerned that a particular income is not taxable in his hands and it was returned under an erroneous impression of law.

CIT Vs  M/s Dhingra Metal Works (2010TIOL693HC Del-IT)
From a reading of Section 133A, it is apparent that it does not mandate that any statement recorded u/s 133A of the Act would have evidentiary value. In the High Court’s view, for a statement to have evidentiary value, the survey officer should have been authorised to administer oath and to record sworn statement. This would also be apparent from Section 132(4) of the Act. From the perusal of section 132(4), it is apparent that while Section 132(4) of the Act specifically authorizes an officer to examine a person on oath, Section 133A does not permit the same;
2. Moreover, the word ‘may’ used in Section 133A(3)(iii) of the Act clarifies beyond doubt that the material collected and the statement recorded during the survey is not a conclusive piece of evidence by itself;
3. In any event, it is settled law that though an admission is extremely important piece of evidence, it cannot be said to be conclusive and it is open to the person who has made the admission to show that it is incorrect;
 CIT vs. Uttamchand Jain 320 ITR 554 (Bom),
 it was held the retracted confession can be relied only there is independent and cogent evidence to corroborate the statement.

Paul Mathews 263 ITR 101 (Ker)
and
Kader Khan 300 ITR 157 (Mad)
For a statement to have evidentiary value, the survey officer should have been authorised to administer oath and to record sworn statement as under s.132 (4). While s. 132(4) specifically authorizes an officer to examine a person on oath, s. 133A does not permit the same.

Vinod Solanki vs. UOI Civil Appeal No. 7407 of 2008
arising out of SLP (C) No. 3537of 2008 dated 18th December, 2008  UOI (233) ELT 157 (S.C.))

(i)   The retracted statement must be substantially corroborated by other independent and cogent evidences, which would lend adequate assurance to the court that it may seek to rely thereupon;
(ii)    The initial burden to prove that the confession was voluntary in nature would be on the Department.
(iii)    The burden is on the prosecution to show that the confession is voluntary in nature and not obtained as an outcome of threat, etc. if the same is to be relied upon solely for the purpose of securing a conviction.
(iv)   With a view to arrive at a finding as regards the voluntary nature of statement or otherwise of a confession which has since been retracted, the Court must bear in mind the attending circumstances which would include the time of retraction, the nature thereof, the manner in which such retraction has been made and other relevant factors. Law does not say that the accused has to prove that retraction of confession made by him was because of threat, coercion, etc. but the requirement is that it may appear to the court as such.         
Hamish Engineering Industries (P ) Ltd v Dy. CIT
( 2010 ) 34 DTR ( Mumbai ) ( Trib ) 490.
Statements recorded   from third parties which have been relied upon by the AO for the purpose of assessment not having been provided to the assessee ,order of AO is bad in law to that extent , impugned order is set a side and the AO is directed to re do the assessment according to law by providing the said statement to the assessee as well as recorded satisfaction u/s 158BD.

Srinivas Naik (2009)117 ITD 201 (Bang)
In the absence of recovery of any incriminating material during the search conducted in the premises of the assessee group, the statement of third party could not be used against the assessee in proceedings under Chapter XIVB, especially when the statements were recorded behind the back of the   assessee. Hon’able Supreme Court of India, Different High Courts and Tribunal are having considerate view that in absence of corroborated evidence a confession/ admission by way of statement could not attain evidentry value in the eyes of law. It is settled that if the department willing to use statement, department has to prove it with other evidences and assessee is free to prove it contrary/against the department. In my opinion statement gives only clue to prepare or made up case against the assesee for example a cup of tea required raw tea, milk and sugar but without fire all these things cannot cocked good tea. Raw tea can leave its flavor, and colour but not aroma with fresh water and will take long time and will not provide tea satisfaction. In the same way statement is a helping verb, which required verb (corroborative evidence) to complete sentence. Statement can utilize by the clever assessee in his favour because statement is interpretable.

Blog # 5. Section 194-IA Vs. 195

Sec 194IA:
(1) Any person, being a transferee, responsible for paying (other than the person referred to in section 194LA) to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), shall, at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax thereon.
(2) No deduction under sub-section (1) shall be made where the consideration for the transfer of an immovable property is less than fifty lakh rupees.
(3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.
Sec 194-IA deals with TDS on sale of immovable property. Under this section TDS is to be deducted @1% at the time of credit of such sum to the account of the transferor or at the time of payment of such sum whichever is earlier on sale of immovable property.
The transferor or the seller contemplated in this section should be a resident of India. Therefore, this section only deals with sale of property by residents and TDS @1% is to be deducted on such sale by resident seller provided the consideration for sale of property exceeds Rs. 50 lacs.
Now let us examine relevant extracts of section 195 of the Income Tax Act’1961.
Sec 195:
Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force:
[Explanation 2.—For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has—
(i) a residence or place of business or business connection in India; or
(ii) any other presence in any manner whatsoever in India.]
(2) Where the person responsible for paying any such sum chargeable under this Act (other than salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the [Assessing] Officer to determine, [by general or special order], the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable.
[(3) Subject to rules made under sub-section (5), any person entitled to receive any interest or other sum on which income-tax has to be deducted under sub-section (1) may make an application in the prescribed form to the [Assessing] Officer for the grant of a certificate authorising him to receive such interest or other sum without deduction of tax under that sub-section, and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub-section (1).
(4) A certificate granted under sub-section (3) shall remain in force till the expiry of the period specified therein or, if it is cancelled by the [Assessing] Officer before the expiry of such period, till such cancellation…..
Section 195 talks about sums payable to a non-resident which are chargeable to tax in India under the Income Tax Act’1961.
When a Non-resident sells an Immovable property in India, Capital gains income may accrue on such sale to the Non-resident which is chargeable to tax in India. Therefore, the consideration from sale of property in India by a non-resident is chargeable to tax in India and is covered by Section 195 and therefore tax has to be deducted at the time of payment of such consideration.
Now the question arises as to the rate of deduction of tax. Sub-section (1) of section 195 prescribes that tax is to be deducted at the rates in force. Rates in force is the rate at which a particular type of income is taxable under the provisions of the Income Tax Act. For the purpose of sale by a non-resident of an immovable property, we will have to see the rates prescribed for taxation of capital gains. As per section 112, Long term capital gains on sale of a capital asset is to be taxed at the rate of 20%. Short-term capital gain on sale of a capital asset (except on sale of equity shares and equity oriented mutual funds) is to be taxed at the slab rates prescribed under the Finance Act applicable to the year of sale. Therefore, here we can draw the conclusion that the buyer/ transferee has to deduct tax on sale of immovable property by the non-resident at the slab rate prescribed in case property is sold within three years of its purchase and at the rate of 20% where property is sold after three years of its purchase i.e where LTCG accrues.
Section 90:
Now as per section 90 of the Income Tax Act’1961, the rates of taxation on taxable income of a non-resident will be as prescribed under the Income Tax Act’1961 or under the DTAA of India with the country of which the non-resident is a resident, whichever is more beneficial to the tax payer. Therefore, if the rates prescribed for taxation of capital gains in the DTAA are less than the 20% rate or the slab rate, then tax will be deducted at that rate. However, for availing the benefit of lower rate of deduction of tax under the DTAA, the non-resident transferor will have to furnish a Tax Residency Certificate to the payer indicating the tax residency of which he is a resident.

On what amount is the tax to be deducted?
After determining the rate of tax, now the question arises that on which amount is the tax to be deducted. The tax is to be deducted on income only i.e on the amount of capital gains arising to the non-resident out of the total consideration. But how will the payer determine the amount of capital gains arising to the non-resident transferee. The answer lies in sub-sections (2) & (3) of section 195. Under, the provisions of these sub-sections the payer or transferor/payee may make an application to the jurisdictional Assessing officer to determine the sum of capital gains on which tax is to be deducted. The application to the AO will be made in the prescribed form. The amount determined by the AO will be the amount on which tax is to be deducted. However, if no such application is made by the payer or the payee to determine the sum chargeable to tax, the tax will be deducted on the entire consideration for sale of immovable property.

Blog # 4. Husband Not liable for Cheque issed by wife in personal capacity

The Hon'ble Gujarat High Court, in Harshad Manubhai Malavaiya vs State Of Gujarat, held that husband is not liable for a cheque issued by the wife in her personal capacity.



In the instant matter, Justice JB Pardiwala examined the question whether the petitioner can be made vicariously liable under Section 138 for the cheque dishonoured which were issued by his wife in personal capacity.



Relying on the Supreme Court’s judgment in the matter of M/s Aparna A Shah vs M/s Sheth Developers Pvt Ltd  and considering the language used in Section 138 and taking note of background agreement pursuant to which a cheque is issued by more than one. this court held that it is only the “drawer” of the cheque who can be made liable for the penal action under the provisions of the NI Act.



The normal rule in the cases involving criminal liability is against vicarious liability. To put it clear, no one is to be held criminally liable for an act of another.



In the above judgment, the Supreme Court held that in case of issuance of cheque from joint accounts, a joint account holder cannot be prosecuted unless the cheque has been signed by each and every person, who is a joint account holder.



In other words, only the person who signs the cheque can be prosecuted for dishonour of cheque under Section 138 of the Negotiable Instruments Act....

Link to the Judgement

Blog # 3. Types of Writs issued by High Court (HC)

Under Article 226 of Constitution, HC has power to issue such writs and orders as are necessary for administrative action and judicial or quasi-judicial action
A writ, direction or order may be issued by the High Court under Article 226 to a person or authority amenable to the Court’s jurisdiction either by residence or location within the State, even if the petitioner and other parties are from other States. This power can be exercised, under Article 226(2) of the Constitution, though the person or authority is outside the territories in relation to which the High Court has jurisdiction, provided the cause of action arises, wholly or in part, within such territories.Under Article 226 of the Constitution, the High Court has the power to issue not only writs of certiorari, prohibition and mandamus, but also other writs, directions and orders. In other words, even if the case is one in which a High Prerogative Writ proper as known in England cannot be issued, the Indian High Court has jurisdiction to issue such directions and orders as may be necessary to meet the ends of justice, in respect of administrative action and judicial or quasi-judicial action.Similar powers to issue writs, directions and orders are conferred on the Supreme Court under Article 32 of the Constitution, but they are restricted to the enforcement of fundamental rights.
The fact that an inappropriate writ has been asked for is not a ground for refusing to grant appropriate relief. Section 293 of this Act cannot override Article 32 or Article 226 of the Constitution, and therefore in appropriate cases writs, directions or orders under Article 32 or Article 226 may be issued even in respect of something “in good faith done or intended to be done under this Act”.
The question of constitutional validity or vires of a provision of the Act has been held by the Supreme Court to be foreign to the jurisdiction of authorities appointed under this Act. Therefore, such questions can be decided only in a suit or a writ petition.
In income-tax contexts
The High Court may issue a writ of prohibition to prohibit the income-tax authorities from acting in excess of their jurisdiction, or a writ of mandamus or an order under Article 226 of the Constitution to compel the income-tax authorities to perform their statutory duties or to refund moneys wrongfully recovered from the petitioner.
Further, the High Court may issue a writ of certiorari to quash quasi-judicial proceedings taken by the income-tax authorities without jurisdiction or in excess of jurisdiction, or to quash an order that is vitiated by an error apparent on the face of the record or which is passed in violation of the principles of natural justice, or to quash a summons or order that has been issued without application of mind. The Court will interfere by a writ if the action is mala fide or arbitrary or does not comply with the statutory requirements, or if the action amounts to merely an exercise in futility.
The remedy under Article 226 by way of judicial review is purely a discretion. Where the petitioner fails to avail of the effective statutory alternative remedy within the prescribed time due to his own fault, he cannot be permitted to seek remedy under Article 226 of the Constitution of India (A.V. Venkateswaran Collector of Customs v. Ramchand Sobhraj Wadhwani (AIR 1961 SC 1506)).
Court rulings
In Titaghur Paper Mills Co Ltd v. State of Orissa (2 SCC 433), a Bench of three judges of the apex Court held that where efficacious statutory alternative remedy is available in the statute by way of an appeal and second appeal under the Sales Tax Act, and the petitioner failed to avail of relief in the appeals, the writ petition is not maintainable in law.
In Collector of Central Excise v. Dunlop India Ltd (1 SCC 260), the Supreme Court held that Article 226 is not meant to short-circuit or circumvent statutory procedures. It is only where statutory remedies are entirely ill-suited to meet the demands of extraordinary situations, as for instance where the vires of the statute is in question or where private or public wrongs are inextricably linked and the prevention of public injury and the vindication of public justice require it, that recourse may be had to Article 226 of the Constitution. A writ will not ordinarily be issued by the Court where the impugned order, not patently erroneous, is made by an authority within his jurisdiction.
However, where the defect of jurisdiction is apparent on the face of the proceedings, or there is an abuse of power, a writ of prohibition or other appropriate writ or order will be issued despite some delay in filing the petition or the existence of an alternative remedy, e.g. the right of appeal.
Likewise, the existence of an alternative remedy is not an absolute bar to the issue of a writ of certiorari and a writ of mandamus would not be refused merely because the assessee could have filed a suit.
A writ of prohibition or mandamus may be issued to restrain recovery proceedings in pursuance of an assessment order made without or in excess of jurisdiction, even if such a plea as to jurisdiction was not raised in the assessment proceedings. Where an order is quashed by the Court for a reason other than want of fundamental jurisdiction, in appropriate cases the Court may direct the authority concerned to pass a fresh order.
Court review of order
The High Court is entitled to review its order passed in a writ petition. A second writ petition challenging the same order on different grounds would not normally be entertained. Dismissal of a writ petition by the High Court on merits — whether after contest, or without notice to the other side but by a speaking order — bars a petition to the Supreme Court under Article 32; the only remedy of the petitioner is to appeal against the order of dismissal.
If the Court rejects a writ petition at the admission stage or after issuing a rule nisi, it should record reasons for such rejection.
The Madras High Court held in Aditanar Educational Institution v. Assistant Director of Income-tax (297 I.T.R. 376) that the relief under Article 226 of the Constitution of India can be granted in spite of the availability of alternate remedy under the statute, only based on undisputed facts. When the High Court finds that factual disputes are involved, it would not be desirable to deal with them in a writ petition