Speed money is undisclosed income indeed, says court
October, 03rd 2006
Improper payments or speed money is a common phenomenon and, practically unavoidable facet of Indian business. However, Income of Tax Appellate Tribunal (ITAT) has adjudged such payments to be treated as undisclosed income. Assessee company Ganges Lines Pvt Ltd is acts as agents of foreign shipping companies. During a search operation, it was found that the company had been paying speed money to various government officials and public authorities, accounted in accounts under heads like miscellaneous, expenses, sundry expenses. Foreign travel expenses of its directors were also held to be personal in nature and accordingly, the same was also treated as undisclosed income.
The CIT(A) upheld the speed money payment as undisclosed income of the assessee company. But he deleted the addition of foreign travel expenses from the computation of undisclosed income. When the case reached ITAT, it observed that speed money payments were accounted for by the assessee under normal heads of expenses like sundry expenses, miscellaneous expenses. Also, the real nature and character of those payments of speed money was brought to the notice in the course of search. Therefore, debiting those expenses in the books of account and claiming as expenses and reflecting in the statements accompanying regular returns does not exonerate the assessee from the lapse of undisclosed. Hence the said addition is confirmed.
The foreign travel expenses of the director were already available in regular books of account and scrutinised by the AO. Also, no fresh materials were collected in the course of search operations for the same. Thus, foreign travel expenses could not be treated as part of undisclosed income.
Various Exports promotion schemes under the EXIM Policy have generated a lot of legal disputes. Apex court settled one such dispute where it held that duty-free import licenses are transferable. Denial of permission from Directorate General of Foreign Trade (DGFT) for transferability of advance licenses for export after fulfillment of stipulated obligations was the cause of the case.
Petitioner (Baraka Overseas Traders) had obtained three advance licenses for export of Fresh Frozen Sea foods including Shrimps and PUDs from the Regional Office of DGFT in Hyderabad under EXIM Policy of 1997-2002. Against all the three advance licenses, the appellant filed three separate applications for an endorsement of transferability, which the DGFT refused.
Under the Scheme for Duty Exemption Endorsement in the EXIM POLICY for the year 1997 - 2002, the advance licenses carry certain export obligations, and for certain goods the standard input and output norms (SION) for import and export for the grant of the duty-free licenses have been fixed, while for some other goods the norms have not been fixed.
The petitioner had applied for licenses under the no norms category and the said licenses were granted by the Licensing Committee. The HC observed that norms did exist for the export product Frozen Marine Products/Frozen Meat packed in packing material made out of LDPE/HDPE/PP Card Board other than Ivory Board, and hence the appellant should have applied in the norms category and not the no norms category.
However, the apex court observed that there is no dispute about whether the advance licenses were issued under the norms category or no norms category, in either case the said licenses were transferable under the EXIM POLICY 1997-2002. The only difference between the norms category and no norms category as per clause 7.4 of the Duty Exemption Scheme is that where the SION norms have been published the application is to be given to the Licensing Authority, and where they have not been published the application is to be given to the committee which functions as a recommending authority to the licensing authority. The Supreme Court held that the view taken by the high court as well as the DGFT was clearly erroneous in law. If a license is granted to someone certain rights accrue to the licence holder, and deprivation of such right without a hearing is violation of natural justice, said the court.