Brief case: Small-scale unit that grows loses I-T benefit

A weekly selection of key court orders

The Supreme Court last week ruled that a small-scale industry cannot claim income tax benefits given to it earlier if it ceases to be one. Setting aside the judgment of the Karnataka High Court which held the opposite view, the court stated in the case of Ace Multi Axes Systems Ltd and other companies that an industry may be eligible once and given the benefit of deduction under Section 80 IB of the Income Tax Act but it cannot claim deduction for all the following years. It must fulfil all the conditions enumerated in the provision, such as the value of assets, use of power and number of employees, to claim the benefit in each year.  

The court thus allowed the appeals of the revenue authorities. The judgment explained, after examining the scheme in the law, that “there is no manner of doubt that incentive meant for small-scale industrial undertakings cannot be availed by those which do not continue as small-scale industrial undertakings during the relevant period. Needless to say, each assessment year is a different assessment year, except for block assessment”.  It held as wrong the high court view that  the object of the legislation was to encourage industrial expansion, which implied that incentive should remain applicable even when on account of industrial expansion, small-scale units do not retain their original character. 

MSME council can’t decide debt issue 

In a two-decade-old dispute between the lending bank, auction purchaser of a mortgaged property and the court commissioner, the Supreme Court last week ruled that the Micro, Small and Medium Enterprises Facilitation Council has no jurisdiction and it was the debt recovery tribunal (DRT) which will decide the issues. In this case, the tribunal and the appellate tribunal had passed orders but the court commissioner moved the Bombay High Court arguing they had no jurisdiction in the case, and it was the council which had jurisdiction. 

The high court agreed with it. Setting aside that ruling, the Supreme Court stated in the case, Bank of India vs Yadav Consultancy Services, that the DRTs are presided over by people with judicial experience. That was not the case with the council. Moreover, in this case, the parties had submitted to the earlier orders of the tribunals and therefore the commissioner could not have challenged their jurisdiction.

 ‘Forced to sign bounced cheque’ 

The Supreme Court has quashed proceedings against a woman who allegedly issued an invalid cheque to a lawyer because he acted against public policy and committed professional misconduct by demanding huge fees. He abused the process of law, the court stated while setting aside the Andhra Pradesh High Court judgment in the case, B Sunitha vs the State of Telangana. The woman alleged that the lawyer forced her to sign a cheque, despite her pleading there were no funds in the bank. She also argued that there was no legally enforceable debt for invoking the Negotiable Instruments Act. It was against the provisions of the Contract Act and the Advocates’ Fees Rules. The Supreme Court accepted her arguments and adversely commented on the conduct of lawyers who demanded high contingency fees and went on illegal strikes.

Long delay fatal to arbitration 

The Bombay High Court has ruled the long delay in invoking the arbitration clause might be construed as its abandonment. Though no limitation is prescribed under Section 45 of the Arbitration and Conciliation Act to make an application to refer parties to arbitration, inordinate delay or inaction on the part of a party would be a relevant factor to conclude that a party to the arbitration agreement had waived or abandoned the course. 

Such inaction would fall within the expression of “inoperative” mentioned in Section 45. An application for arbitration must be initiated within a reasonable time. A party who has no intention to invoke the arbitration agreement and has not exercised its rights under the arbitration agreement cannot compel the other party to refer its disputes to arbitration. In this case, Bottero SPA vs Euro Glass Ltd, there was a suit against a bank regarding a bank guarantee, but the arbitration clause was not invoked for several years. The court, therefore, did not refer the dispute to arbitration. 

Curbs on river sand trade in Tamil Nadu

Quoting physicist Stephen Hawking who warned that the earth would become a sizzling fireball within 600 years, the Madras High Court lamented that Tamil Nadu had to import river sand after mining the rivers dry within the state. It passed a 10-point order banning all sand mining/quarrying activities in the state within six months. 

New sand quarries/mines shall not open in the future. It directed the state to establish permanent check-posts to prevent illegal mining and transportation of sand. Action shall be taken against those who indulge in illegal mining and their transport vehicles may be confiscated. The government shall constitute a committee to ascertain the loss caused to it and take steps to recover the same from the companies, individuals, including the erring government servants, whose hand if found, be immediately suspended and prosecuted according to law. 

The series of orders were passed in the judgment for the case M R M Ramaiya Enterprises vs The District Collector. The firm requested the court to allow it to transport imported sand lying in Tuticorin port to its customers without the authorities insisting on a licence and other documents listed in the Minor Mineral Concession Rules. This petition resulted in the long judgment in which the central government’s mining, environment and finance ministries were made parties so that they can follow the court’s directions.  

Nestlé, Amul battle over trademark 

In the legal battle between the Nestlé group and Kaira District Cooperative Milk Producers Union, producers of the Amul brand, the Delhi High Court last week ordered status quo till the Intellectual Property Board decided the issues before it and a suit was disposed of. The dispute was over the use of “a+” as a suffix for the products. 

Nestle claimed that it had registered the trademark for milk and curd packets and had been using the mark ‘Nestle a+’ since 2011. But, the manufacturers of Amul products issued notice to Nestlé, claiming it had invented and used names such as Amul A+ and Calci+ for its milk-derived products like cheese slices. It further claimed prior usage from 2007.  The high court was not inclined to pass an injunction against Amul at the request of Nestlé as a status quo order would be sufficient. The judgment said it would protect both parties as well as consumers who would be confused by the A+ suffix for milk products.