Online subscription income can be treated as business income: ITAT

The Income Tax Appellate Tribunal (ITAT) recently held that income from online subscription services can be treated as business income and not be taxed as royalty or fee for technical services in all cases.

ITAT Mumbai Bench said that for any service to fall in the category of technical/ managerial service, human intervention is a pre-requisite. The Tribunal further added that even fees for technical services or royalty could not be made applicable to all situations where a database was being made available on subscription fees basis.

ITAT observed, “the assessee has collated data from various journals and articles and put them in a structured manner in the database to make it more user friendly and beneficial to the users/customers who want to access the database. The assessee has neither employed any technical/skilled person to provide any managerial or technical service nor there is any direct interaction between the customer/user of the database and the employees of the assessee. The customer/user is allowed access to the online database through various search engines provided through internet connection. There is no material on record to demonstrate that while providing access to the database there is any human intervention. The assessee even does not alter or modify in any manner the articles collated and stored in the database. In the aforesaid view of the matter, the subscription fee received cannot be considered as a fee for technical services as well.”

ITAT further held that providing access to the database did not involve the transfer of any right to use any copyright to its customers/ subscribers.

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Winding up of companies fall within the exclusive jurisdiction of NCLT: NCLAT

The National Company Law Appellate Tribunal (NCLAT) reiterated that dispute relating to oppressional mismanagement and cases where winding up of companies may be required fall within the exclusive jurisdiction of National Company Law Tribunal and cannot be referred to arbitration.

Upholding the order of the National Company Law Board (Mumbai), the appellate body said, “…..On a plain reading of Section 242, it is manifestly clear that the facts should justify the making of a winding up order on just and equitable grounds. Admittedly, Arbitrator would have no jurisdiction to pass a winding up order on the ground that it is just and equitable which falls within the exclusive domain of the Tribunal under Section 271(e). That apart acts of non-service of notice of meetings, financial discrepancies and non-appointment of Directors being matters specifically dealt with under Companies Act and falling within the domain of the Tribunal to consider grant of relief under Section 242 of Companies Act render the dispute non-arbitrable…”

NCLAT further clarified that relief claimed needs to be looked into in every case to determine whether the same can be granted by an arbitrator before deciding whether a case could be referred to arbitration as generally a dispute arising out of breach of contractual obligations would be arbitrable.

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Arbitration clause has no existence in an unstamped agreement: SC

The Supreme Court of India recently held that an arbitration clause has no existence until the contract containing the arbitration clause is duly stamped.

“When an arbitration clause is contained “in a contract”, it is significant that the agreement only becomes a contract if it is enforceable by law. Under the Indian Stamp Act, an agreement does not become a contract, namely, that it is not enforceable in law, unless it is duly stamped”, the Court said.

The Court further laid down the following procedure, for cases where the contract is not sufficiently stamped:

1. While proceeding with the Section 11 application, the Court must impound the instrument, which is not adequately stamped.

2. The instrument must be handed over to the Authority under the Stamp Act. The Authority will then adjudicate the stamp duty and penalty (if any). The Authority need to expedite the adjudication as possible, preferably within a period of 45 days from the date on which the Authority receives the instrument.

3. After stamp duty and penalty (if any) are paid on the instrument, any of the parties can bring the instrument to the notice of the Court.

4. The Court will then proceed to expeditiously hear and dispose of the Section 11 application. This will also ensure that once a Section 11 application is allowed and an arbitrator is appointed, then the arbitrator can then proceed to decide the dispute within the time frame provided under section 29A of the Arbitration Act.

The Court clarified that an arbitration clause contained in an agreement does not have an independent existence. Therefore, it is not possible to bifurcate the arbitration clause contained in such an agreement or the underlying transaction so as to give it an independent existence. Hence, the Stamp Act applies to the agreement or transaction as a whole.

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Part sale consideration or stamp duty can’t be sole criteria to hold transaction as benami: SC

The Supreme Court of India recently reiterated that the payment of part sale consideration or stamp duty by another person cannot be the sole criteria to hold the sale transaction as benami.

After a review of plethora of case law, the Court said, “…….the payment of part sale consideration cannot be the sole criteria to hold the sale/transaction as benami. While considering a particular transaction as benami, the intention of the person who contributed the purchase money is determinative of the nature of transaction. The intention of the person, who contributed the purchase money, has to be decided on the basis of the surrounding circumstances; the relationship of the parties; the motives governing their action in bringing about the transaction and their subsequent conduct etc.”

The Court also mentioned that merely because of the stamp duty at the time of the execution of the sale deed was purchased by a third party, by that itself it cannot be said that the sale deed was a benami transaction.

The Court also observed that the omission of the statutory presumption in 2016 that the transaction made in the name of the wife and children for their benefit cannot be termed as benami should not be applied retrospectively.

Posted in Banking Law, Company Law, Consumer Law, Contract Law, Evidence Law, Family Law, General Law, Real Estate, Registration & Stamp Law | Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

Guidance clarifying Federal controlled substances law issued: USCIS

USCIS has issued policy guidance in the USCIS Policy Manual to clarify that violations of federal controlled substance law, including violations involving marijuana, are generally a bar to establishing good moral character for naturalization, even where that conduct would not be an offense under state law.  The policy guidance also clarifies that an applicant who is involved in certain marijuana-related activities may lack good moral character if found to have violated federal law, even if such activity has been decriminalized under applicable state laws.

Since 1996, some states and the District of Columbia have enacted laws to decriminalize the manufacture, possession, distribution, and use of both medical and non-medical (recreational) marijuana in their respective jurisdictions. However, federal law classifies marijuana as a “Schedule I” controlled substance whose manufacture (which includes production, such as planting, cultivation, growing, or harvesting), distribution, dispensing, or possession may lead to immigration consequences.

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Parties should seek remedies under Arbitration Act: BHC

The Bombay High Court recently held that when remedies are available to a party seeking an injunction under the Arbitration and Conciliation Act, 1996 (“Act”), an anti-arbitration injunction cannot be obtained to circumvent provisions of the Act.

A three judge Bench reiterated that ruling of an arbitrator on jurisdiction can be challenged only under section 34 (setting aside the award) of the Act as a proper remedy.

The Court said, “On the ruling of Arbitrator on jurisdiction, no appeal is prescribed under Section 37(2)(a) of the Act. The only remedy prescribed is under Section 34 of the Act. We are therefore, of the view that there is no case made out to interfere in the present Appeal.”

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Review petition maintainable before High Court: SC

The Supreme Court of India clarified that a review petition is maintainable before the High Court seeking review of a judgment against which the special leave petition has already been dismissed by the Supreme Court in limine.

A Large (three) Bench of the Supreme Court was asked to clarify the legal position in view of the two judgements (each) by three judge Bench of the Supreme Court. Benches (two judge) of the Supreme Court have taken different paths on the interpretation of the above-mentioned two judgements.

The Court clarified as follows: –

(i) Where an appeal or revision is provided against an order passed by a court, tribunal or any other authority before superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law.

(ii) The jurisdiction conferred by Article 136 of the Constitution is divisible into two stages. The first stage is up to the disposal of prayer for special leave to file an appeal. The second stage commences if and when the leave to appeal is granted and the special leave petition is converted into an appeal.

(iii) The doctrine of merger is not a doctrine of universal or unlimited application. It will depend on the nature of jurisdiction exercised by the superior forum and the content or subject-matter of challenge laid or capable of being laid shall be determinative of the applicability of merger. The superior jurisdiction should be capable of reversing, modifying or affirming the order put in issue before it. Under Article 136 of the Constitution the Supreme Court may reverse, modify or affirm the judgment-decree or order appealed against while exercising its appellate jurisdiction and not while exercising the discretionary jurisdiction disposing of petition for special leave to appeal. The doctrine of merger can therefore be applied to the former and not to the latter.

(iv) An order refusing special leave to appeal may be a non-speaking order or a speaking one. In either case it does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in place of the order under challenge. All that it means is that the Court was not inclined to exercise its discretion so as to allow the appeal being filed.

(v) If the order refusing leave to appeal is a speaking order, i.e., gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of Article 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the court, tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the Apex Court of the country. But this does not amount to saying that the order of the court, tribunal or authority below has stood merged in the order of the Supreme Court rejecting the special leave petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties.

(vi) Once leave to appeal has been granted and appellate jurisdiction of Supreme Court has been invoked the order passed in appeal would attract the doctrine of merger; the order may be of reversal, modification or merely affirmation.

(vii) On an appeal having been preferred or a petition seeking leave to appeal having been converted into an appeal before the Supreme Court the jurisdiction of High Court to entertain a review petition is lost thereafter as provided by sub-rule (1) of Rule 1 of Order 47 CPC.”

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