Article 19(1)(g): Levy of service-tax on Advocates is constitutional

Article 19(1)(g): Levy of service-tax on Advocates is constitutional:- A Writ Petition was filed to challenge the levy of service-tax on advocates. It was claimed that an advocate renders services which cannot be said to be commercial or business like. They cannot be equated with the service providers mentioned in the Finance Act 1994. It was also contended that advocacy is not a business but a profession and a noble one. An advocate is a part and parcel of the administration of justice and which is a sovereign or regal function and hence providing for a Service Tax on advocates would mean that their services will no longer be available or accessible to those seeking justice from a Court of law. That would defeat the constitutional guarantee of free, fair and impartial justice. HELD by the High Court dismissing the Petition: (i) The legislature has neither interfered with the role and function of an advocate nor has it made any inroad and interference in the constitutional guarantee of justice to all. The services provided to a individual client by a individual advocate continues to be exempted from the purview of the Finance Act and consequently Service Tax but when an individual advocate provides service or agrees to provide services to any business entity located in the taxable territory, then, he is included and liable to pay Service Tax. The classification between those who can afford professional legal services and are ready to pay the fees or charges demanded without seeking any reduction or concession and those who cannot pay legal fees but can at best bear meagre expenses has been made. This classification has a reasonable nexus with the object sought to be achieved. (ii) The economic realities are that even, legal services are rendered in an organized manner. When advocates group or organize themselves by making huge investments in acquiring immovable properties for professional work, heavy overheads, in the form of clerical and support staff, with facilities of cabins or rooms, then, legal services are rendered to organized groups or business entities predominantly. These persons can very well pay the fees and charges without any demur or complaint; (iii) What holds good for chartered accountants and architects must equally apply to other professionals such as advocates, and who too are well conscious of their status.

A Power of Attorney which does not enable enjoyment of property does not result in a "transfer". CBDT Circular No.495 dated 22.9.1987 reads more into s. 2(47)(vi)

Sec. 2(47)(vi):- A Power of Attorney which does not enable enjoyment of property does not result in a "transfer". CBDT Circular No.495 dated 22.9.1987 reads more into s. 2(47)(vi) than warranted (i) There is no transfer to or enabling enjoyment of property in favour of the assessee in any manner and therefore, sub-clause (vi) of Section 2(47) of the Income Tax Act does not get attracted. Clause 21 of the power of attorney, which has been already referred to supra, clearly reveals that no consideration was received from the power agent for appointing him as power of attorney. It also emphasised therein that the property right has not been handed over to the power agent. We are, therefore, unable to accept the plea of the Revenue that there was an element of transfer or enabling enjoyment in favour of the assessee. The letter of the land owner subsequently issued does not come to the aid of the Department. It is the duty of the power of attorney holder to deliver the amount received for the purpose of transfer of property. Therefore, no fault could be found on the part of the assessee. Assuming that he had delivered certain sum to the land owner, it is but the lawful duty of the power of attorney to deliver payment to the land owner. The sale to Dr.Meera Bai is also for the same value. Hence, nothing turns on the letter of the erstwhile owner, in favour of the Department. (ii) We, therefore, now proceed to analyse the meaning behind circular No.495 dated 22.9.1987. The interpretation of the circular as put forward by the Revenue, we are not in agreement. The provisions of sub-clause (vi) of Section 2(47) of the Income Tax Act make it clear that the transaction, which has the effect of transferring or enabling the enjoyment of immovable property alone would come within the ambit of transfer. The circular reads something more into the provision. We are not inclined to accept such an interpretation. The circular also states that the legal ownership would continue with the transferor; but the property rights if it is transferred by way of power of attorney would come within the ambit of sub-clause (vi) of Section 2(47) of the Income Tax Act. Assuming we accept the intention behind the circular, then there should be an element of transfer or enabling enjoyment of property right as stated in paragraph 11.2 of the circular by the power of attorney holder. (iii) We find no such recital in the power of attorney as extracted by the Tribunal and referred to by us. On the contrary, the terms of the power of attorney clearly show that property rights has not been transferred to the power of attorney holder and there is also no provision for enabling enjoyment. It is not the case of the Department that the power of attorney is sham. If they accept the power of attorney is valid, then the plea of capital gains at the hands of the assessee has no legs to stand.

Capital Gain Matter under Suraj Lamp and Industries (SC)

Section 2(47): Transfer takes place in year of execution of sale deed, handing over of possession & receipt of sale consideration & is not deferred to year of registration. Verdict in Suraj Lamp and Industries 340 ITR 1 (SC) explained The Tribunal had to consider whether capital gains are assessable in AY 2008-09, being the year when the sale deed was executed and possession handed over and most of the sale consideration was received or in AY 2009-10 when the sale deed was registered. Held by the Tribunal: The transaction relates to the date when the sale-deed was executed, sale consideration was paid and the possession was handed over but not on the date when the document was presented before the Registrar for registration of the sale-deed. Moreover, the issue whether the transaction would relate to the date when the assessee has received sale consideration, handed over the possession and executed sale agreement or the date when the sale agreement is presented before the concerned Registrar for registration of the document was not before the Apex Court in Suraj Lamp and Industries Pvt.Ltd. vs. State of Haryana (2012) 340 ITR 1 (SC). Also, the judgement in Suraj Lamp and Industries was delivered on 11.10.2011, but the sale agreement in the present case was executed on 31.03.2008. The Apex Court has observed that “It is also submitted that this decision should be made applicable prospectively to avoid hardship. We have merely drawn attention to and reiterated the well-settled legal position that SA/GPA/WILL transactions are not “transfers” or “sales” and that such transactions cannot be treated as completed transfers or conveyances. They can continue to be treated as existing agreement of sale. Nothing prevents affected parties from getting registered deeds of conveyance to complete their title. The said “SA/GPA/WILL transactions” may also be used to obtain specific performance or to defend possession under section 53A of the Transfer of Property Act. If they are entered before this day, they may be relied upon to apply for regularization of allotments/leases by development authorities. We make it clear that if the documents relating to “SA/GPA/WILL transactions” has been accepted acted upon by the DDA or other developmental authorities or by the Municipal or Revenue authorities to effect mutation, they need not be disturbed, merely on account of this decision.” In the case in hand, the agreement to sell dated 31/03/2008 had already been acted upon the parties by delivery possession and registering sale-deed. Therefore, for this reason also, the judgement of the Apex Court in the case of Suraj Lamp and Industries Pvt.Ltd. vs. State of Haryana and Another (supra), would not help the Revenue.