[No.220]

Supreme Court

• Commissioner of Income Tax, Bangalore v. Infosys Technologies Ltd.

The Respondent-assessee, a public limited IT company, created a trust to implement Employees Stock Option Scheme ("ESOP") and allotted 7,50,000 warrants at Re. 1/- each to the Trust. Each warrants entitled the holder to apply for and be allotted one equity share of the face value of Rs. 10/- each for total consideration of Rs. 100/-. The Trust was to hold the warrant and transfer the same to the employees of the company under the Terms and Conditions of the scheme governing ESOP. Under the ESOP Scheme, every warrant had to be retained for a minimum period of 1 year. At the end of that period, the employee was entitled to elect and obtain shares allotted to him on payment of the balance Rs. 99. The allotted shares were subject to a lock in period. During the lock in period, the custody of shares remained with the Trust and was non-transferable. The employee had to continue to be in service for five years. If he resigned or if his services be terminated for any reason, he lost his right under the scheme and the shares were to be re-transferred to the Trust for Rs. 100 per share. Intimation was also given to BSE that 734500 equity shares were non-transferable and would not constitute good delivery. The AO held that the total amount paid by the employees consequent to the exercise of option was Rs. 6.64 crores whereas the market value of those shares was Rs. 171 crores. He held that the "perquisite value" was the difference between the market value and the price paid by the employees for exercise of the option. He, therefore, treated Rs. 165 crores as "perquisite value" on which TDS was charged at 30 per cent. The Respondent-assessee appealed to the Tribunal, which took the view that the right granted to the employee for participating in the scheme was not a "perquisite" under Section 17(2)(iii), which was confirmed by the High Court. Hence, the present civil appeals were filed by the Department. The present court held that warrant is a right without obligation to buy. "Perquisite" cannot be said to accrue at the time when warrants were granted. Further, as the shares had no realisable value, hence, there was no cash in flow to the employees on account of mere exercise of options. Also, when the options were exercised, it was not possible for the employees to foresee the future market value of the shares. Benefit was only a notional benefit whose value was unascertainable. The department had erred in treating Rs. 165 crores as perquisite value being the difference in the market value of shares on the date of exercise of option and the total amount paid by the employees consequent upon exercise of the options. In the absence of legislative mandate a potential benefit could not be considered as "income" of the employee(s) chargeable under the head "salaries". The Assessing Officer and the CIT(A) had erred in treating the Respondent as defaulter for not deducting TDS under Section 192. The appeals were, accordingly, dismissed.

• Chief Engineer, Hydel Project and Ors. v. Ravinder Nath and Ors.

The Respondents were engaged on work-charged basis till the completion of the Project. Their services were terminated after the completion of the project. The Respondents filed a Civil Suit before the Senior Sub Judge, for the relief of declaration to the effect that the Orders of their termination/retrenchment from service were illegal contending that the action was based on pick and choose policy and was discriminatory and amounted to victimization. The Trial Court came to the conclusion that the Defendants-Appellants had not observed the principle of last come first go in making the retrenchments and passed a decree in favour of the Plaintiffs. On appeal, the Appellate Court confirmed the findings of the Trial Court and dismissed the appeal. The High Court dismissed the Second Appeal. The Appellants have filed the present appeal to question the correctness of the Judgment of the High Court in confirming the Judgment passed by the Additional District Judge and Senior Sub Judge, basically on the ground that there was a complete lack of jurisdiction in the Civil Courts since the issues squarely fell within the ambit of the Industrial Disputes Act, 1947. The Appellants contended that the remedy for Respondents-workmen, who were workmen under the Industrial Disputes Act, lies with the authorities thereunder and not with the Civil Court. The present court held that the respondents had averred breach of Section 25G of the Industrial Dispute Act as they had alleged that the employer had shown discriminatory attitude The dispute and the main issue fell squarely under the premise of Industrial Disputes Act. Where Certified Standing Orders were applicable and where the breach thereof was complained of, such issues fell in the exclusive area of the machinery provided by the Industrial Disputes Act and as such the civil Court's jurisdiction was specifically barred. Hence, once the original decree itself has been held to be without jurisdiction and hit by the doctrine of coram non judice, there would be no question of upholding the same merely on the ground that the objection to the jurisdiction was not taken at the initial, First Appellate or the Second Appellate stage. Thus, the Civil Court had no jurisdiction to deal with the suit. Accordingly, impugned judgments were set aside and appeal was allowed.

High Courts

Gujarat

• Percept Picture Company Pvt. Ltd. v. Shree Karma Production Pvt. Ltd. and Anr.

Respondent/Plaintiff instituted Civil Suit against appellant/defendant for infringement of copyright in respect of Plaintiff's artistic work "Bal Hanuman". Suit was instituted four days prior to release of film "Return of Hanuman" by appellant/defendant. Trial Court granted ex-parte ad-interim injunction in favour of the respondent/plaintiff without issuing notice to Defendants, restraining appellant/defendant from infringing plaintiff's copyright in artistic work "Bal Hanuman" and from exhibiting, distributing, broadcasting, screening film titled "Hanuman Returns" or "Return of Hanuman" and also from using plaintiff's character of "Bal Hanuman". Hence, Appellant filed appeal against impugned order. Appellant contended that plaintiff had knowledge of the film being made by appellant as advertisements were widely, openly and extensively appeared in newspapers since August 2007. Plaintiff waited till December 2007 and instituted suit 4 days prior to release of film. Held, for grant of ex-parte interim relief "no notice" and "no reasons" cannot go together. Before passing any Adverse Order against anyone, at least, an opportunity of being heard ought to be given. Judge must make all endevour or attempts to make it possible, to give an opportunity of being heard. If a Judge is of the opinion that object of grant of injunction would be defeated by delay, then only, by recording reasons therefore, an exception can be followed. In the present case, no satisfaction has been arrived at by the trial court that object of grant of injunction would be defeated by delay, which is sine qua non, for operating an exception i.e., proviso of Rule 3 of Order XXXIX. Impugned Order quashed and set aside. Appeal allowed.

Bombay

• M/s. Wasp Pump Private Limited, Thane v. Union of India, through the Secretary, Ministry of Finance Department of Revenue, North Block, New Delhi, Customs, Excise & Service Tax Appellate Tribunal, Mumbai, Commissioner of Central Excise) (Appeals), Bandra (East), Mumbai and Deputy Commissioner (Adj.) of Central Excise, Thane-II Division, Mumbai

Petitioner, a manufacturer of Centrifugal Pumps, also manufacture goods which are inputs for the pumps and used in the manufacture of the pumps. Demand of duty on the CI castings, parts of Centrifugal Pumps, for the amount specified therein. Held, under Notification, in operation from the year 1986, exempts parts of power driven pumps primarily designed for handling water, which includes centrifugal pumps. This has to be read with Condition No. 51 considering that the goods were used for captive consumption within the factory. Apex Court noted that the power pump as well as parts thereof which were used for manufacturing of pumps have been exempted from levying of Excise duty since 1978. Therefore,even if the Petitioners had not drawn the attention of the Respondent No. 4 to the said Notifications, a duty was cast on Respondent No. 4 to consider the said Notifications as were relevant for the purpose of assessment. Ignoring relevant documents would also result in error of law. Impugned order quashed and matter remitted back to the Respondent No. 4 to consider afresh the assessment of duty bearing in mind the Notifications issued from time to time.

SEBI

• Removal of Initial Issue Expenses

SEBI Board in a recent meeting has decided that Henceforth, there will not be any provision of charging initial issue expense and amortization of the same as Currently close-ended schemes are permitted to charge initial issue expenses and not charge entry load. It is also decided by the SEBI that all mutual fund schemes shall now meet the sales, marketing and other such expenses connected with sales and distribution of schemes from the entry load. These decisions aimed to bring in more transparency and clarity to the investors in terms of the expenses charged to them in closed-end schemes. These decisions would be applicable to all mutual fund schemes launched after the date of the circular and necessary amendments to SEBI (Mutual Funds) Regulations, 1996 in this regard would follow.

PIB

• Law Commission Submits Report on Succession Act

Law Commission of India submitted its 204th Report on the Hindu Succession Act, 1956 to the Government. The said Report was presented to the Union Law Minister Dr. Hans Raj Bhardwaj on 5th February, 2008 in his office by Chairman of the Commission, Dr. Justice AR. Lakshmanan, former Supreme Court Judge. By the 2005 Amendment Act, four categories of heirs which were hitherto placed in Class II were elevated to Class I heirs, While adding these categories to Class I, the corresponding entries in class II were not deleted. There was thus overlapping between class I and class II. In respect of these categories, the Commission has recommended that these four (4) categories should be deleted from class II heirs. The Commission has also suggested that the daughter's son's son and son's daughter's son should also be added in Class I.

At the same time Commission has also suggested revision of Class I heirs as Class I heirs list in the Schedule present, in the opinion of the Commission, quite a complex and cumbersome reading that is not amenable to easy understanding. It is noted by the Commission that whereas mother of Hindu coparcenary has been included in Class I heirs but father finds mention in Class II heirs category. It has been suggested that father should be placed alongwith mother in Class I and both together should take one share. Accordingly, the Commission has examined the Class I heirs list and recommended its revision in a simplified form.

It is noted by the Commission that whereas mother of Hindu coparcenary has been included in Class I heirs but father finds mention in Class II heirs category. It has been suggested that father should be placed alongwith mother in Class I and both together should take one share. It is suggested by the Commission Class I heirs list in the Schedule present should be revised, in the opinion of the Commission, it is quite a complex and cumbersome reading that is not amenable to easy understanding.. Accordingly, the Commission has examined the Class I heirs list and recommended its revision in a simplified form.

• Amendment to Securities Contracts (Regulation) Rules Proposed

Government has proposed to amend the Securities Contracts (Regulation) Rules, 1957 (SCRR) for both initial and continuous listing requirements of companies in stock exchanges. The amendments proposed by the Ministry of Finance are:

i. It is proposed that standards for initial listing and continued listing may be prescribed in the SCR Rules.

ii. As the objective is same, the standards for initial and continuous listing may be uniform.

iii. It is proposed that a company to be listed and continue to be listed, it must have a public stake of 25%.

iv. The SCRR may speak in terms of allotment to public, not just public offer in view of the fact that public offer envisaged at initial listing is of no consequence unless the public are actually allotted shares

v. Currently, the word 'public' is not defined. If 'public' means 'non-promoters' and includes FIs, FIIs, MFs, employees, NRIs/OCBs, private corporate bodies, etc., the floating stock would be insignificant. A view needs to be taken on this.

vi. If public holding reduces below 25%, the promoters, management and company may be jointly and severally be liable to bring the public holding to 25% within 3 months, in the manner prescribed by SEBI. In the event of failure enforcement action, including delisting, may be taken.

vii. It is proposed that there should not be any discrimination between a Government company and non-Government company and power of the stock exchange to relax any of the conditions of listing with the prior approval of SEBI in respect of a Government company needs to be withdrawn. Similarly, the powers of SEBI to relax listing requirements may be withdrawn.

Cases

• LGM Vs. CAM

In property settlement proceedings interlocutory orders were made restraining the wife from dealing with real property pending division of the matrimonial assets. Contrary to those orders, the wife mortgaged real property, in which she had a half interest, to secure a loan and also sold a property. Arising out of those transactions the husband brought an application for contempt. The trial Judge found that the wife's actions constituted contempt. The wife was sentenced for a total period of six months' imprisonment. Second hearing by a Full Court on remission from the High Court from decision of Family Court Judge. Wife seeking that the orders for imprisonment be set aside, the husband's contempt application be dismissed and that the husband pay costs.The wife was ordered to pay the husband's costs of the contempt proceedings on an indemnity basis. There is no error in reasoning or conclusion concerning the limitations or shortcomings of the wife's endeavours to purge her contempts. Appeal directed to the sentence of imprisonment imposed on the wife cannot succeed.

• Black Vs. Black

Parties had short marriage of 18 months during which they entered into a financial agreement. Husband sought to have the financial agreement set aside on the basis that it did not comply with the statutory requirements for a binding financial agreement. The Trial Judge held that the financial agreement was binding. On appeal, it was held that the financial agreement did not meet the requirements of s 90G(1)(b) in that it failed to include a statement that the parties had received independent legal advice in relation to all matters set out in the then s 90G(1)(b); a strict interpretive approach and strict compliance requirements should be applied where legislation ousts the court's jurisdiction to make adjustive orders under s 79. The husband's appeal is therefore allowed. The agreement should be set aside and there should be a retrial in relation to the parties' competing applications for property settlement.

News

• To defeat LTTE Sri Lanka wants India's help

Tamil United Liberation Front (TULF) President has asked India's help to defeat LTTE and their demands for a separate homeland for Tamils in Sri Lanka. He also mentioned in his speech in London that all world leaders want the Sri Lankan government to start talks with the LTTE without realising the consequences. The only solution left, is based on a federal structure or to adopt the Indian model as suggested by him. Keeping all people living in their areas under their subjugation and talks with armed people will never help to solve the problem.

• For ban on cash scheme, Kabul protests

There was a protest mach by around 30,000 in Afghan against the temporary ban by the government on an international money-making scheme i.e. the Afghan version of the Internet-based Quest Net pyramid scheme.

The Afghan Quest Union head told the press that it is a scheme where people are encouraged to buy a product over the Internet to become a member for which the government had issued a licence two years back and withdrew it back last week to draw up a operating law.