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Source: Allahabad High Court

Why in News?

Justice Piyush Agrawal observed that the Burden of Proof to prove a claim for a tax concession is on assesee in the original proceedings and department in reassessment proceedings.

• Allahabad High Court gave this observation in the case of M/S Amrit Steels v. Commissioner Commercial Tax.

What is the Background of M/S Amrit Steels v. Commissioner Commercial Tax Case?

• The revisionist made central sale to one M/s Yash Traders, Rajasthan and claimed concession rate.
• The said claim was stated to be covered by 23 invoices to the tune of Rs. 2,11,47,201/-.
• The Assessing Authority, at the time of framing the assessment order, sought a verification to which a 2 report was submitted that only one transaction having bill no. 45 for a sum of Rs. 2,75,094/. has been disclosed by the purchasing dealer.
• On getting the said information, the Assessing Authority, while passing the assessment order accepted the one sale made to the said party & granted concession but imposed higher rate of tax on other 22 sales.
• Aggrieved against the said order, the applicant preferred appeals up to the Tribunal, which has been dismissed.
• Hence, a revision was preferred before the HC.

What were the Court’s Observations?

• The Allahabad HC stated that “When the reassessment proceedings are being initiated, the burden is shifted to the Revenue, but in the original proceeding, the onus is upon the dealer to discharge beyond doubt the claim so made”.
• The court further said that “The onus is upon the dealer to prove its case beyond doubt when the dealer is claiming concession rate of tax. The said onus has not been discharged by the revisionist”.

What is Concession on Tax?

• About:
  • A tax concession typically refers to a reduction, allowance, or exemption granted by a government in the amount of taxes that an individual or business entity is required to pay.
  • These concessions are often implemented to achieve specific policy objectives, stimulate economic activity, or provide relief to certain groups or industries.
• Burden of Proof (BOP):
  • The burden of proving a claim for a tax concession typically rests with the taxpayer.
  • When a taxpayer asserts a claim for a tax benefit or concession, it is their responsibility to provide sufficient evidence and documentation to support that claim.
  • This principle is in line with the general legal principle that the person making a claim has the burden of proving it.
• Shifting of BOP:
  • The burden of proving that the claim for a tax concession is wrong shifts upon the revenue department in reassessment proceedings only when the assesee or taxpayer proves his claim in original proceedings.

What are the Landmark Cases Involved in the Case?

• M/s I.T.C. Ltd. v. Commissioner of Central Excise, New Delhi and another (2004):
  • The Supreme Court held that “The Assessing Authority is competent to scrutinize the certificate to find out the contents to be genuine and he is competent to inquire about the contents of the certificate to satisfy himself that the goods purchased are verifiable and once the truth of declaration on verification was not found to be correct, the benefit cannot be granted.”
• Star Paper Mills Limited v. Commissioner of Sales Tax (1991):
  • The Allahabad HC observed a matter where the onus of proving claim for concession can be shifted to the revenue department.

Source: Supreme Court

Why in News?

Justices CT Ravikumar and PV Sanjay Kumar emphasized upon the liability of overseer of company under Section 141 of the Negotiable Instrument Act, 1881 (NI Act) in case of cheque dishonor by the concerned company.

• Supreme Court gave this observation in the case of Siby Thomas v. Somany Ceramics Ltd.

What is the Background of Siby Thomas v. Somany Ceramics Ltd Case?

• A Partner of a Partnership firm was held liable for cheque dishonor under Section 138 of the NI Act only because he was the partner of that firm.
• He prayed before the Punjab & Haryana High Court to quash the complaint under Section 138 of the NI Act against him contending that he was not involved in the conduct of company directly, however the HC dismissed his plea.
• Hence, he appealed before the SC to quash the complaint against him.

What were the Court’s Observations?

• The SC stated that “Only that person who, at the time the offence was committed, was in charge of and was responsible to the company for the conduct of the business of the company, as well as the company alone shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished.”
• The court further said that it is not averred anywhere in the complaint that the appellant was in charge of the conduct of the business of the company at the relevant time when the offence was committed.
  • The upshot of the aforesaid discussion is that the averments in the complaint filed by the respondent are not sufficient to satisfy the mandatory requirements under Section 141(1) of the NI Act.
• Hence, the SC allowed the appeal.

What is Section 141 of NI Act?

• About:
  • Section 141 of NI Act establishes the principle of vicarious liability.
    • Vicarious liability is a legal concept that holds one party responsible for the actions of another.
• According to this section, if an offence under the NI Act is committed by a company, every person who, at the time of the offence, was in charge of and responsible for the conduct of the business of the company, as well as the company itself, shall be deemed to be guilty of the offence.
• This provision states that individuals associated with the company can be held liable for the company's actions.
• Scope:
  • Section 141 applies to various offences under the NI Act, such as dishonor of cheques.
  • It is important to note that the liability of individuals arises only if the offence is committed by a company.
  • The section does not apply to individuals who commit offences in their personal capacity.
• Proof of Liability:
  • Establishing liability under Section 141of NI Act requires proving that the individual was actively involved in the conduct of the company's business and had a role in the commission of the offence.
  • Mere designation or being a nominal head may not be sufficient.
  • The prosecution must demonstrate a direct link between the individual's role and the commission of the offence.
  • The prosecution has to prove that the offence has been committed with consent or connivance or due to the neglect of the person.

• Defences:

• • Individuals accused under Section 141 NI Act can prove that the offence was committed without their knowledge or that they exercised due diligence to prevent the commission of such an offence, they may escape liability.
  • However, the burden of proof lies on the accused to establish these defences.

What are the Landmark Cases Involved in the Case?

• Anita Malhotra v. Apparel Export Promotion Council & Anr. (2012):
  • The Supreme Court held that “The complaint should specifically spell out how and in what manner the Director was in charge of or was responsible to the accused company for conduct of its business”.
  • The court further said that mere bald statement that he or she was in charge of and was responsible to the company for conduct of its business is not sufficient.
• Ashok Shewakramani v. State Of Andhra Pradesh (2023):
  • The SC observed that “Merely because somebody is managing the affairs of the company, per se, he would not become in charge of the conduct of the business of the company or the person responsible to the company for the conduct of the business of the company”.

What is the Legal Provision Involved in the Case?

Section 141 of NI Act: Offences by companies —

• (1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:
• Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence:
• Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.
• (2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

Source: The Hindu

Why in News?

• The Supreme Court (SC) will hear the batch of petitions challenging the Electoral Bonds Scheme on October 31, 2023 in the matter of Association for Democratic Reforms and Anr. v. UoI.

What is the Background of the Electoral Bond Case?

• A donor can buy an electoral bond at specified banks and branches using electronic modes of payment and after having completed the KYC (Know Your Customer) requirements post the amendment made to Section 29C of the Representation of Peoples Act, 1951(RPA).
• Electoral bonds are available in various denominations, allowing purchasers to buy them for any amount in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, or Rs 1 crore. Notably, the bonds do not contain the name of the donor, ensuring the anonymity of the contributor.
• The validity of the Bond remains 15 days within which it has to be encashed by the payee.
• The face value of the bonds will be considered as voluntary contributions received by a qualified political party, and this will be taken into account for the purpose of claiming an exemption from Income-tax under Section 13A of the Income Tax Act, 1961.
• Thereafter came the Finance Act, 2017 which brought forward the provision of anonymous electoral bonds.
  • The Finance Act, 2017 introduced amendments in certain legislations including the Income Tax Act, 1961, RPA.
• The present petition/s are filed by political party Communist Party of India (Marxist), and NGOs Common Cause and Association for Democratic Reforms (ADR) challenging the scheme as “an obscure funding system which is unchecked by any authority”.
• The Court agreed to hear the petition on grounds:
  • Whether anonymous electoral bonds are in violation of citizens' rights?
  • Whether such a scheme is in violation of Article 14, Article 19 and Article 21?
• The matter will be taken by the SC for hearing on 31st October 2023.

What is an Electoral Bond?

• Electoral bonds are a financial instrument used for making political donations in India.
• They were introduced in 2017 as part of the Government's efforts to bring transparency and accountability to political funding.
• The primary objective of electoral bonds is to eliminate the use of cash for political donations and ensure that the funding of political parties is more transparent and legitimate.
• They have following characteristics:
  • Issuer: Electoral bonds are issued by authorized banks in India. State Bank of India (SBI) is the only authorized bank to issue these bonds.
  • Denominations: Electoral bonds are available in multiple denominations, typically ranging from as low as ₹1,000 to as high as ₹1 crore.
  • Purchaser: Any individual or entity, whether an Indian citizen or a corporate entity, can purchase electoral bonds from the designated bank.
  • Anonymity: One of the key features of electoral bonds is that they are bearer instruments. This means that the donor's identity is not mentioned on the bond, ensuring anonymity.
  • Usage: Electoral bonds can only be encashed by political parties that are registered under the Representation of the People Act, 1951.
  • Transparency: The government argued that electoral bonds would enhance transparency as the donor's information is known to the bank, even if it's not disclosed to the public. Regenerate
• Specimen of an Electoral Bond: 

What are the Constitutional Provisions Involved?

• Article 14, 19, 21 take an important position under the Constitution of India.
  • Also, the Supreme Court in the case of Maneka Gandhi v. Union of India (1978) held that a law depriving a person of ‘personal liberty’ does not only stand the test of Article 21 but also that of Article 14 and Article 19.
  • Article 14: Equality before law —The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India.
  • Article 19: Protection of certain rights regarding freedom of speech, etc.—

(1) All citizens shall have the right—

(a) to freedom of speech and expression;

(b) to assemble peaceably and without arms;

(c) to form associations or unions or co-operative societies;

(d) to move freely throughout the territory of India;

(e) to reside and settle in any part of the territory of India;

(g) to practise any profession, or to carry on any occupation, trade or business.

• • The above-mentioned rights are available subject to reasonable restrictions mentioned under Article 19(2) - (6).
• Article 21: Protection of life and personal liberty. —No person shall be deprived of his life or personal liberty except according to procedure established by law.