The Hindu Business Line : Don't prevent the ICAI from doing its job

JUSTICE R. Jayasimha Babu's decision in the R. Ayyavoo case would have warmed the hearts of the Institute of Chartered Accountants of India. "We are rather surprised at the order under appeal by which the ICAI has been prevented from taking disciplinary proceedings against auditors whose alleged failure to perform their duties had resulted in loss of several millions of rupees to the Transport Corporation owned by the State."

Even before the Institute could get busy with disciplinary enquiry and so on, the CA had obtained a quash order. The judge spoke about the role of CAs and their responsibilities before wrapping up with a statement that underlined the importance of disciplinary mechanism:

"This Court, which is the ultimate guardian of the profession of the chartered accountants, in matters of their discipline, should not at the very threshold prevent the Council from enquiring into a complaint properly made by a responsible officer of the State Government."

Now, the ICAI can look at all those pending cases where this line of reasoning can readily be applied and work for a quick resolution of the same.

No quarrels

WHEN the assessing officer (AO) wanted to know about two credits in bank account of the assessee, the explanation was that they were received as gifts. Yet the AO, observing that the assessee could not establish "any relationship natural or man-made with the so-called donors", added the amounts to the total income of the assessee.

After meandering through appellate fora the R. S. Sibal case landed up at the Delhi High Court which observed thus: "There is no quarrel with the proposition that a mere identification of the donor and movement of the gift amount through banking channels is not sufficient to prove the genuineness of the gift and since the claim of the amount having been received as a gift is made by the assessee, onus lies on him not only to establish the identity of the donor but his capacity to make such a gift."

Any quarrels?

Potted plants

IN THE Sudisha Farm Nursery case, the Delhi ITAT laid down that income from the nursery would be agricultural income and so not liable to tax if the nursery is maintained by carrying out basic operations and subsequent operations in pots are carried out in continuation of basic operations.

Before you rush to fill up your sunshade with pots and claim all your income under the agri tag, pay attention to para 17 of the ruling: "However, if the nursery is maintained independently without resorting to basic operations on the land, then income from such nursery would be liable to be included in the total income. Similarly, where a part of the activity of a nursery involves purchases and sales of the plants then profits arising from such trading would also be assessable to tax."

Profit positive

IT IS elementary accounting that loss is negative profit, just as much as shrinkage is negative growth. The IPCA Laboratory case that was discussed by the apex court is important because, among other things, it dealt with the word `profit'.

Justice S. N. Variava observed, as regards Sec 80HHC: "The meaning of `profit' will depend on the context in which it is used. In Section 80HHC(1) it is admittedly used to indicate positive `profit' because the deduction will only be of a positive profit. Sub-section (3) provides how profits are to be worked out in computing total income. For purposes of such computation both profit and losses have to be taken into account... In our view, the term `profit' in Sec 80HHC both in sub-sections (1) and (3) means a positive profit worked out after taking into consideration the losses, if any."

It is perhaps a commentary on the language of our tax laws and interpretation thereof that litigants have doubts about concepts as basic as `profit'.

No seed, no fruit

GARLIC filled the rooms of CESTAT, Mumbai, in the Bhagwandas Bherumal & Co case recently. Facts are simple: The assessee had imported garlic thinking they are freely importable. After a few such imports, the Department smelt something odd and confiscated the cargo.

The Tribunal Member, Mr Gowri Shankar, had this to say: "It is not contended that the goods were imported for sowing or planting. Garlic is neither a seed nor a fruit. It may, perhaps, conform to the definition of the term `plant' contained in clause (ii) as including a part of a plant, whether living or dead... The liability to confiscation of the goods is not contingent upon any state of mind of the importer."

One wonders what happened to the confiscated stuff.

At poles

WHAT is a magnet? To know the meaning, read the Mumbai CESTAT's ruling in the Goodwill Electronics case: "A magnet is a piece of metal that has been magnetised and is therefore surrounded by a magnetic field." Interestingly, "the goods in question have been tested and found to be articles intended to become permanent magnets after magnetisation. This would clearly show that they have not been magnetised. Therefore, the hard ferrite imported cannot be considered as hard ferrite ring magnet."

Logic is so easily understandable, but it often happens that officials are not attracted by it.

Face off

FACE-TO-FACE cream of Dollar Co P Ltd was the subject matter of a case before the Bangalore CESTAT. After reading the company literature, the Department concluded that the product emphasised on "restoring natural smoothness and glossiness of the complexion" and so was `a preparation for care of skin' and not medicine.

The Tribunal observed that mere fact that some ingredients mentioned in Ayurvedic texts would not make a product a medicament. The case was remanded back to the original authority, giving an about-face to the issue.

*********

Tailpiece

Kmart of the US is suing nearly 500 local governments in bankruptcy court, claiming it paid too much in property taxes in 2001 and 2002. AccountingWeb reports that the chain is seeking $8.6 million in tax cuts that range from $627,000 in Detroit to $145 in Grayson County, Texas.

Local governments are annoyed. They call the recent move fraud, shotgun tactic, and so on. . But somebody drowning wouldn't mind clutching frail creepers too, would he?

Detaxification@thehindu.co.in

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