It is in the nature of governments to make promises to attract industries to their region, like offering cheap land, electricity and tax exemptions. But such promises carry heavy responsibility. They are bound by the doctrine of promissory estoppel, devised by courts, which says that if the government offers incentives, and industries act upon them and invest their money, the government cannot resile from its promises and is bound by it. Investors who suffer losses can sue the government. Even if they do not suffer losses, the government is liable for the fault, the Supreme Court stated in its judgment last week, titled Manuelsons Hotels Ltd vs State of Kerala. The court emphasised that "it would be unconscionable on the part of the government to get away without fulfilling its promise." The case referred to concessions in building tax promised to new hotels in Kerala to promote tourism. A hotel was built relying on a government order of 1986 promising concessions. But after a few changes in law, the revenue department demanded full tax from the hotel. This was challenged in 1989 in the Kerala High Court. After protracted litigation over decades, the Supreme Court settled the matter partly in favour of the hotel. The court underlined that the law granted the government discretionary power to grant concessions, but if it does not exercise that power, it would be arbitrary and would be hit by the doctrine of promissory estoppel. Normally it is thought that arbitrary use of discretionary power with the government is illegal; but the court went ahead and ruled that failure to exercise it to keep up promises would also be illegal.
Power to seize borrower's assets
The Supreme Court has held that the magistrate who orders taking over of the mortgaged assets of a defaulting borrower under the Securitisation Act need not record his satisfaction for his order. In this case, Indian Bank vs S K Jeevanandan, the magistrate considered the essential details of the mortgage given by the bank and based on them issued warrant of possession. This was challenged by the borrower in the Madras High Court arguing that the magistrate did not record his satisfaction of the facts. The high court agreed with him. On appeal, the Supreme Court set aside the high court judgment and ordered the borrower to hand over possession of the asset to the bank.
Compensation must not be pittance
The Patna High Court tripled the compensation granted by the motor accident claims tribunal for the death of a youth, stating that the amount should be just and reasonable. "It should not be a bonanza nor a source of profit, but at the same time, it should not be a pittance." Furthermore, the tribunal must endeavour to put the dependants in the same position, as far as possible, as they have been before the death of the breadwinner. In this case, Rina Devi vs Reliance General Insurance Co, a youth on bike was crushed by a speeding truck. His wife, mother and daughter sought compensation. The tribunal granted Rs 10 lakh, but the high court raised it to Rs 29 lakh, observing that the high court's computation of loss was wrong. The interest on the amount was also raised from six per cent to nine per cent, citing the norm of Supreme Court judgments.
When DTAA prevails over I-T Act
The Delhi High Court has dismissed the appeal of the income tax authorities against the ruling of the income tax appellate tribunal holding that Herbalife International India was not liable to deduct tax at source for the administrative fee paid by it to Herbalife International America Inc. The tribunal was also right in holding that Section 40 (a) (i) of the Income Tax Act is discriminatory and therefore not applicable to the present case. The high court stated that as the income tax provision was discriminatory, it was not applicable in terms of Article 26 (3) of the Indo-US Double Taxation Avoidance Agreement. Discussing the law on treaties in the context of income tax, the court said that "the provisions of the DTAA would prevail over the Income Tax Act unless the Act is more beneficial to the assessee." The Indian company, a 100 per cent subsidiary of the US corporation, carries on business in herbal products for use in weight management, nutrition and personal care. Its contention was that there was only a cost sharing arrangement which was not in the nature of a fee being remitted overseas; and therefore it was not liable to deduct tax at source.
Adobe wins case against taxmen
In another such decision, the Delhi High Court last week quashed income tax orders and notices issued to software multinational Adobe Systems Inc in 2011for reopening assessments of previous years. The issue was whether its wholly owned subsidiary, Adobe India, could be considered as its Permanent Establishment (PE) with all consequences under the Indo-US DTAA. The US firm disputed that it has a PE in India. Moreover, since the income of Adobe India has been assessed at 'arm's length prices' no part of the foreign firm's income could be attributed to Adobe India even if it was assumed to be the PE. The taxmen's case was that the activities carried out by Adobe India are the core business activities of the US firm, and it was the PE. The court rejected these arguments.
Penalty for 'assault' on judicial time
The Bombay High Court has imposed penal costs on two groups in the Singhania family for dragging litigation over properties for 30 years despite entering into a family settlement in 1987. Directing them to deposit Rs 10 lakh each to the state legal aid authority, the judgment remarked that their conduct "smacks of utter dishonesty and self-centeredness. Using their money power, the Kanpur Group and the Bombay Group (all are leading industrialists) have for their selfish motives and greed only dragged on the litigation and consumed precious judicial time of this court and also of the Supreme Court." Narrating the long story, the court regretted "the infliction of the ordeal upon courts by parties presenting a case which was disingenuous or worse." Justifying the imposition of penalty, the judgment concluded that "it may be a valuable contribution to the cause of justice if such speculative and frivolous litigation are dealt with a tough hand. Substantial judicial time will be saved if such parties are saddled with substantial costs so that they would not continue the onslaught on precious judicial time."
