Brief case: PSUs waste public money on litigation, says SC

A weekly selection of key court orders

“Public sector institutions should not enter into prolonged litigation and spend considerable sums of public money in cases which should have been adjusted by conciliatory and wise attitudes,” the Supreme Court has stated, pointing out that it has stated so several times earlier. The court made the observation in the judgment, Misra & Co vs Damodar Valley Corporation (DVC), in which an application for arbitration was moved in 1986, the award was made in 1991, and the court made it the rule of the court soon after. 

But, DVC did not pay the due amount and went on raising objections for several years. Narrating the delaying tactics of DVC, a public sector undertaking (PSU), the court stated that the contractor who built an administrative block for the corporation in 1983 deserved compensation for the delays in the execution of the arbitration decree.  The court granted six weeks’ time to the PSU to come up with a conciliatory proposal for paying the compensation.

Co-ops acting like banks get no tax relief 

The Supreme Court has ruled that only a cooperative society meant specifically for its members and providing credit facilities to its members can claim income tax benefit under Section 80P of the income tax Act. If the cooperative carries on banking business for the public at large and for all practical purposes acts like a cooperative bank governed by the banking regulations Act, it cannot claim the tax benefit, the court stated in its judgment, Citizen Cooperative Society Ltd vs CIT. Section 80P deals with deductions in income of cooperative societies.

Only primary agricultural and rural development banks can avail of the benefit, the court stated while rejecting the claim of the Citizen Cooperative. This cooperative widened its activities over the years to several states, starting from Andhra Pradesh. It got itself registered under the Multi-State Cooperative Societies Act.

The cooperative argued that it was not a co-op bank though it accepted money from its members. The authorities contended it was indulging in banking, violating co-op laws. The court rejected the stand of the cooperative and noted that it accepted deposits by creating a class called “nominal members” who deposited money, and the borrowers were not its members. It was a finance company and not a cooperative, the court said.

SC resolves doubts over Sebi provision

The Supreme Court last week cleared doubts over the forum to try offenders under the Securities and Exchange Board of India Act in view of two amendments to the Act and contrary views taken by the Bombay and Delhi high courts on the matter. A number of persons were to be tried before the metropolitan magistrate or judicial magistrate first class before 2002. 

Then an amendment was made to Section 26, transferring the jurisdiction to the sessions court. There was yet another amendment transferring such cases to a special court. The accused persons, committing alleged offences at different periods of time, moved the high court’s questioning the jurisdiction of the forum trying them. 

While the Delhi High Court committed all cases to the sessions court, the Bombay High Court set aside the sessions court judgment. The Sebi and all accused persons then moved the Supreme Court. In its judgment, Sebi vs Classic Credit Ltd, the apex court set aside the Bombay High Court view and upheld that of the Delhi High Court. But, all cases will now go to the special court after the 2014 amendment.

Staff returning from work ‘on duty’ 

The Supreme Court has quashed the Delhi High Court judgment in a case of compensation stating that even if a person was killed while returning from the place where he was sent on assignment, the death was “in the course of employment” and his dependents are entitled to compensation under the Employees’ Compensation Act. The commissioner under the Act and the high court had denied compensation on the ground that the employee met with a fatal road accident while returning after work and he was not at work. 

Reversing this view, the Supreme Court in the case, Daya Kishan vs Dynemech Systems, stated the deceased sales engineer was sent from Delhi to the Hero Honda factory in Haryana to conduct a filter test there. He met with the accident on the way back. The death occurred “in the course of and out of employment” because his presence on the road was incidental to his employment as a sales engineer. As he was sent to the factory to conduct the test, he was merely doing what was required of him as an employee, the judgment emphasised.

Allowing retrospective amendments

The Delhi High Court last week dismissed a batch of 15 petitions moved by several individuals, Sahara India Financial Corporation and Patanjali Ayurveda, challenging the constitutionality of the amendment to Section 142(2A) of the Income Tax Act in the Finance Act of 2013. They contended that by amending the provision, the revenue authorities have been conferred arbitrary powers. Earlier, the only ground on which special audit could be directed was ‘nature and complexity of the accounts of the assessee’. However, the amendment granted unguided and excessively wide powers on the assessing authorities who could act on their whims. 

For instance, in relation to the criteria ‘volume of accounts’, what is the volume of accounts may differ from one officer to another in the absence of any definition provided in the section. The revenue authorities argued that in matters of taxation, the legislature has wide discretion.

The high court accepted that view and observed that in fiscal matters even retrospective amendments can be made. It explained the provision was enacted to facilitate proper determination of tax liability, like when the officer needs to take the assistance of a chartered accountant to understand the assessee’s accounts. The provision is an important tool to curb tax evasion and balances it with the inconvenience that an assessee might face. 

Trade mark suit dismissed 

The Delhi High Court last week dismissed a trade mark suit seeking injunction, observing that the petitioner has not come before it with clean hands and suppressed some important facts. In this case, Kelwyn Door Cares vs Janson Enterprises, the first firm alleged that Janson had infringed its rights on the trade name ‘Closma’ for its hardware products. 

It was alleged that ‘Klazma’ was the name of Janson’s identical products. Janson denied there was any similarity between the two names and moreover the proceedings pending before the registrar of trade marks was concealed in the petition.  The court accepted this allegation. The court vacated an earlier order of injunction against Janson.