Tuesday, August 23, 2016

Church can furnish decree issued by bishop to establish creation of trust for sec. 12A registration

a) The assessee, a religious institution (Parish),was created under the conventional way by issuing a 'decree' under Cannon law by the concerned Bishop. It filed an application in Form No. 10A requesting for registration under section 12A.

b) The Commissioner denied registration stating that since the assessee had not produced copy of the instrument in support of creation of the trust, the objects and its activities as well as the existence of the trust could not be ascertained.

The Tribunal held as under:

1) A plain reading of rule 17A makes it clear that a religious or charitable organization can be an institution other than a 'trust'. The usage of the words 'charitable or religious trust or institution' in the first and second limb of rule 17A connotes that where the trust is created, or institution is established, under an instrument, the instrument in original, together with a copy thereof, have to be filed along with the prescribed Form No. 10A for registration.

Monday, August 22, 2016

Any dishonest act of CA isn’t a professional misconduct if it is done in Individual capacity

Chartered Accountant Act, 1949: Where a CA sold his shares but continued to receive dividends declared by the Company by cheating upon transferee, such activity could not be said done in relation to practice as CA as such act of dishonesty was done in individual capacity. Thus, disciplinary committee’s proposal to remove CA’s name from registers of members of ICAI for 6 months was to be set aside.


1) A Chartered Accountant sold his shares in November 1999 however, share transfer deed for transfer of shares was lodged on November 04, 2004. In the meantime, CA continued to receive dividend declared by company for 5 years.

2) The transferee made complaint about this conduct of CA before the Disciplinary Committee of the Institute of Chartered Accountants. The Disciplinary Committee found that the conduct of CA was wholly unworthy and amounted to professional misconduct.

On appeal the High Court held as under:

a) In the instant case the respondent was acting as an individual in his dealings with the complainant which were purely commercial. While selling the shares held by him the respondent was not acting as a Chartered Accountant. He was not discharging any function in relation to his practice as a Chartered Accountant.

Saturday, August 20, 2016

Updates on Income Declaration Scheme

Recently, the CBDT has amended Income Declaration Scheme (‘IDS’) Rules and it has also issued fi􀁺h set of FAQs on IDS.

Key takeaways from such changes are given here under:

1) The CBDT has amended the valuation rules to determine fair value of property declared under IDS on basis of stamp duty valuation.

2) Where loans, creditors, advances received, share capital, payables etc. are disclosed in the audited balance sheet but are fictitious in nature and cannot be directly linked to acquisition of a particular asset, then such fictitious liabilities can be disclosed under the IDS as such without linking the same with the investment in any specific asset.

3) The income declared under the IDS for an earlier assessment year can be taken into account to explain the related transactions of the subsequent assessment years in assessment proceedings pending before the Assessing Officer provided there is a nexus between the two.

Friday, August 19, 2016

'Loan processing fee' paid to bank would be treated as interest; not liable to sec. 194A TDS

a) The assessee-company was engaged in providing outdoor media advertising services to leading Indian and multinational brands. During the course of assessment, the AO observed that assessee had debited certain processing fees without deducting tax at source. The AO rejected the claim of the assessee as he was of the view that such payment was made for rendering managerial services and liable to TDS under Section 194J.

b) The assessee submitted that no tax was deductible under Section 194J on processing fee as it would fall within the exclusion provided in section 194A(3). The Commissioner (Appeals) decided the appeal in favour of the assessee. The aggrieved-revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) The definition of interest will include any service fee or any other charge in respect of money borrowed. Here, processing fee definitely falls within such definition and, therefore, it could not be reckoned as payment for rendering of any managerial services by the bank.

2) Despite such a payment to the Nationalized Bank falls within the ambit of 'interest' under section 2(28A), the TDS provisions under section 194A would not be applicable, because it falls within the exclusionary provisions as laid down in sub-section (3) of section 194A. Thus assessee was not required to deduct tax at source on such processing fee paid. – DY. CIT (TDS) v. Laqshya Media (P.) Ltd. [2016] 72 taxmann.com 119 (Mumbai - Trib.)

Wednesday, August 17, 2016

Time-limit for acknowledgment extended to 30 days for IDS declaration made in month of July, 16

The Principal Commissioner or Commissioner issues Form 2 to the declarant as an acknowledgment of income disclosed under Income Declaration Scheme (‘IDS’). He has to issue Form 2 within 15 days from the end of the month in which the declaration has been furnished. Hence, the acknowledgment in Form-2 for the declaration filed in the month of July, 2016 is required to be issued by 15th August, 2016.

Earlier declarants were required to pay taxes under IDS till November 30, 2016. However, the CBDT has notified the revised schedule for payment of taxes in three installments till September 30, 2017. Accordingly, necessary amendments to Form-2 as prescribed in the Rules are in the process of being made. In view of the above, the CBDT hereby extends the time for issuance of acknowledgment in Form-2 from 15 days to 30 days in respect of the declarations filed under the Scheme in the month of July, 2016.

Tuesday, August 16, 2016

Service tax levy on short-term accommodation in hotel is unconstitutional: Delhi HC

‘Federation of Hotels and Restaurants Association of India’ filed a writ before the Delhi High Court challenging the constitutional validity provision whereby, service tax is levied on supply of food items by restaurants having AC facility. It also challenged constitutional validity of provision, whereby service tax is levied on short-term accommodation by hotels. 
The Delhi High held as under:
I. It upheld the constitutional validity of service tax levy on foods items served in AC restaurants and made following observations:
- Rule 2C of the Service Tax (Determination of Value) Rules, 2006 enables the assessing authority to put a definite value to the service portion of the composite contract of supply of goods and services in an air-conditioned restaurant.
- Correspondingly there is an abatement for that portion which pertains to the supply of goods in the form of food and drink which would be amenable to sales tax or value added tax.
- It is to be kept in mind that the ready reckoner formula is useful where an assessee does not maintain accounts in a manner that will enable the assessing authority to clearly discern the value of the service portion of the composite contract. With the machinery provision for the levy and determination of service tax on the service portion clearly being spelt out in the Rules themselves, the legal requisites stand satisfied.

Saturday, August 13, 2016

Usage of second residential property as office won't lead to denial of sec. 54F relief

a) The assessee sold his Gurgaon Flat and earned long term capital gains. He invested the same in a residential property and claimed deduction under section 54F.

b) The AO disallowed such claim as he was of the view that property of assessee (located at New Delhi) was a second residential property. The AR was of the view that such property was only used by assessee for his own profession.

c) The DR submitted that such premises was undisputedly a residential house as per the municipal corporation and thus it will not change the character.

d) The CIT(Appeals) upheld the order of the Assessing Officer.The aggrieved-assessee filed the instant appeal before Tribunal.

The Tribunal held in favour of assessee as under:

Friday, August 12, 2016

Letter of comfort given to AE is outside the ambit of international transaction

The issue for consideration of the Tribunal was as under:

Whether Letter of Comfort issued by the assessee-company to its Associate Enterprise (‘AE’) could be deemed as international transaction under transfer pricing provisions?

The Tribunal held as under:

1) Letter of Comfort was nothing but a guarantee given by the assessee-company to its AE so as to enable the AE to avail of loan facility. By giving such loan, the assessee exposed itself to the risk of repaying the loan availed by the AE.

2) However, in Redington (India) Ltd. v. Asstt. CIT [2016] 69 taxmann.com 351 (Chennai), the Tribunal held that such a guarantee or Letter of Comfort did not involve any cost to the assessee, therefore, it was outside the ambit of international transaction.

3) Thus, following such verdict of Redington (supra) it could be concluded that Letter of Comfort given to AE could not be deemed as international transaction and there would not be any need to make any adjustment in respect of Letter of Comfort. Accordingly, the orders of the lower authorities were to be set aside. - TVS Logistics Services Ltd. v. DY. CIT [2016] 72 taxmann.com 89 (Chennai - Trib.)

Income from distribution of “Ten Sports” channel to cable operators couldn’t be held as ‘royalty’


a) The assessee was engaged in business of telecasting “Ten Sports”. Its revenue arose from advertisement and distribution of sports channel in India. A distribution agreement was entered into by the assessee with ‘Taj India’ for distribution of pay channel to various cable operators and ultimately to consumers in India.

b) The AO made following observations:

The income from distribution of sports channel by assessee is taxable as royalty.

Transponder fee paid to US based company for rendering services in connection with telecasting of “Ten Sports” was taxable as royalty.

c) The CIT(A) reversed the order of AO. The aggrieved-revenue filed the instant appeal. The Tribunal held as under:

Wednesday, August 10, 2016

No sec. 69C additions on basis of info received from sales tax dept. without giving hearing change to assessee


a) The assessee filed return of income declaring certain taxable income.

b) Information received from Sales Tax Department revealed that the assessee was involved in taking accommodation entry of bogus purchases. On the basis of this information, the assessment was reopened by the AO. He made certain additions to income of the assessee under section 69C.

c) On appeal, the CIT(A) partly allowed the appeal of the assessee and restricted the disallowance to 25 per cent of the purchases.

On appeal, the Tribunal held as under: