• DIRECT TAXATION

River Garden Retirement Home v. Franchise Tax Bd

California Court of Appeal, Fourth Circuit (Decided on 15.07.2010)

Deduction - Claimed refund - Assessee-company, operated retirement home - Received dividends in 1999 and 2000 - Deducted 80 per cent of the dividends on its California tax returns and claimed deduction for tax years 1999 and 2000 - Franchise Tax Board (FTB) disallowed deductions - Issued notices of proposed assessment for additional tax for the two years at issue in this case - Also imposed an amnesty penalty under California's tax amnesty program - Whether in the light of facts and circumstances of the case, Assessee was entitled for refund? - Section 24402 Revenue and Taxation Code.

Held, contrary to River Garden's assertions on appeal, we conclude, among related points, that Section 24402 cannot be saved by severance of the offending language or by reformation. Moreover, the FTB proceeded with proper authority to remedy the commerce clause violation infecting Section 24402, and the remedy of disallowing the dividends received deductions for the years at issue did not defy the due process prohibition against excessively retroactive tax increases. As well, the FTB's decision to recoup the deductions for those years did not run afoul of article XIII A, Section 3 of the California Constitution requiring a two-thirds vote of the Legislature to enact revenue increasing tax laws.

On the amnesty front, we hold that the deficiency assessments for tax years 1999 and 2000 were "due and payable" within the meaning of section 19777.5, thereby empowering the FTB to assess amnesty penalties for those years. Additionally, Section 19777.5 does not operate retroactively, and therefore imposition of the amnesty penalty does not raise due process concerns. Finally, there is no statute of limitations bar to imposing the amnesty penalty for the 1999 tax year. Accordingly, we affirm the judgment in its entirety.

Bluetooth sig inc v. United States

United States Court of Appeals, Ninth Circuit (Decided on 08.07.2010)

Exemption - Assessee-company applied for an exemption under I.R.C. § 501(c)(6), which exempts business leagues from taxation - IRS denied the application, stating that their primary purpose and activity is to promote a single brand of inter-connection technology, rather than the improvement of business conditions of one or more lines of business - Assessee responded by paying the assessed tax and penalties for 2000, 2001, and 2002 and then filing administrative refund requests for those years -Thereafter, sued in the Western District of Washington - The district court granted summary judgment for the United States - Hence present Appeal.- Whether an association which owns and markets a wireless networking protocol and trademark is entitled to exemption from federal income tax as a business league? - 28 U.S.C. § 1346(a) and I.R.C. § 7422.

Held, the existence of a business league is a mixed question of law and fact. For an organisation to achieve business league status, the requirements as stated in Treasury Regulation § 1.501(c)(6) must be met. Section 1.501(c)(6) requires a business league to be an association (1) of persons having a common business interest; (2) whose purpose is to promote the common business interest; (3) not organised for profit; (4) that does not engage in a business ordinarily conducted for profit; (5) whose activities are directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons; (6) of the same general class as a chamber of commerce or a board of trade. After perusal of facts of the case the court agreed with the district court that SIG engages in a business of the sort ordinarily engaged in for profit. It also agreed that it provides non-incidental services for particular members. Accordingly, The Court observed that the District Court properly held that SIG is not entitled to exemption from taxation under I.R.C. § 501(c)(6) in granting summary judgment to the United States.

• SECURITIES LAWS

Morrison EtAl. v. National Australia Bank Ltd. EtAl.

US Supreme Court (Decided on 24.06.2010)

Securities Fraud - Jurisdiction - Respondent- Bank purchased respondent HomeSide Lending, a company carrying on business of servicing mortgages - Respondent - Bank had to write down the value of HomeSide's assets, causing its share prices to fall - Petitioners who purchased National's shares before the write-downs, sued respondents in Federal District Court alleging manipulation Respondents moved to dismiss for lack of subject-matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1) and for failure to state a claim under Rule 12(b)(6). The District Court granted the former motion, finding no jurisdiction because the domestic acts were, at most, a link in a securities fraud that concluded abroad. The Second Circuit affirmed - Whether the District Court had jurisdiction in the matter? - §§10(b) and 20(a) of the Securities and Exchange Act of 1934 and SEC Rule 10b.

Held, the Second Circuit erred in considering §10(b)'s extraterritorial reach to raise a question of subject-matter jurisdiction, thus allowing dismissal under Rule 12(b)(1). The District Court had jurisdiction under 15 U.S.C. §78aa to adjudicate the §10(b) question. However, it is unnecessary to remand in view of that error because the same analysis justifies dismissal under Rule 12(b)(6).

Section 10(b) does not provide a cause of action to foreign plaintiffs suing foreign and American defendants for misconduct in connection with securities traded on foreign exchanges.

• CONTRACT LAWS

Los Angeles Unified School District v. Great American Insurance Company

Supreme Court of California. (Filed on. 12.07.2010)

Contract dispute - Public entity - Breach of warranty claim - Whether a public entity can be liable on a breach of warranty claim based on an unintentional misrepresentation or nondisclosure of material facts?

Held, a contractor need not prove an affirmative fraudulent intent to conceal. Rather—with the qualifications stated below—a public entity may be required to provide extra compensation if it knew, but failed to disclose, material facts that would affect the contractor's bid or performance. Because public entities do not insure contractors against their own negligence, relief for nondisclosure is appropriate only when (1) the contractor submitted its bid or undertook to perform without material information that affected performance costs; (2) the public entity was in possession of the information and was aware the contractor had no knowledge of, nor any reason to obtain, such information; (3) any contract specifications or other information furnished by the public entity to the contractor misled the contractor or did not put it on notice to inquire; and (4) the public entity failed to provide the relevant information.