Saturday, February 18, 2017

CST won't accrue to that State where BrahMos Missile was stored only for warhead integration

Assessee, a joint venture company between Russia and India, had been established for purpose of design, development, production and sale of Brahmos Cruise Missile weapon system. The Indian Armed Forces awarded contract to the assessee for manufacture and supply of Brahmos Cruise Missiles.

A manufacturing unit of the assessee had been set up at Hyderabad. The missiles manufactured at Hyderabad unit were sent to Nagpur unit for the purpose of integration of warhead. Subsequently such missiles were dispatched to the Indian Armed Forces from Nagpur as directed by the Hyderabad office.The assessee treated the said transactions as inter-state sales of Missiles affected from its Hyderabad unit and, accordingly, charged and collected CST and paid the same to its assessing authority at Hyderabad. The State of Maharashtra demanded tax from assessee on the ground that was a local sale affected from Nagpur and hence State VAT would be levied. 

The High Court held as under:

It denied the demand of Maharashtra VAT department and held that the sale of missile occur from the Hyderabad and not from the Nagpur. There was branch transfer of missile between Nagpur and Hyderabad for their War head integration. The Nagpur would not be treated as a place from where sale occasioned first for delivery.

Rs 30 lakhs black money seized by Punjab Police eligible for PMGKY scheme; High Court

Facts:

a) Assessee was travelling in a cab from Delhi carrying Rs. 30 lakhs. Such cash amount was seized by Punjab police and handed over to the Income-tax Officers.b) Assessee filed writ petition seeking unconditional release of amount with a further prayer to avail of the remedy under 'Pradhan Mantri Garib Kalyan Yojana, 2016' (PMGKY) by depositing the aforesaid amount, tax, surcharge and penalty.

High Court held in favour of assessee as under:

1) A person having unaccounted cash can avail of the benefit of the PMGKY scheme by submitting the Form 1 at any time on or before 31-3-2017 provided he does not fall under the list of excluded cases.

2) In the exclusion, it is mentioned that the scheme shall not apply in relation to prosecution for any offence punishable under Chapter IX or Chapter XVII of the Indian Penal Code, etc.

3) The use of the words "in relation of prosecution of any offence" instead of "in relation to investigating for any of the offence" clearly shows legislative intent that provisions would apply only if the chargesheet or complaint is filed for prosecuting any person under any of the aforementioned provisions of the Act and not merely when investigations are going on.

4) In the instant case, no complaint or chargesheet was pending against assessee. The alleged un-disclosed seized cash had been handed over to the Income-tax department and summons had already been served upon the petitioner.

5) Assessee was not trying to project undisclosed income as duly accounted for availing of the remedy. Since he was not amongst the persons who weren’t eligible for availing of the PMGKY Deposit Scheme, the Income-tax Officer could not deny the benefit of PMGKY. - [2017] 78 taxmann.com 172 (Punjab & Haryana)

Harsh Punitive action will be taken against shell companies: FinMin

Departments to review the functioning of ‘Shell Companies’ in India, so as to prevent their misuse for money laundering and tax-evasion, especially in the context of unearthing black money post demonetization. In the initial analysis, it has been found that ‘Shell Companies’ are characterized by nominal paid-up capital, high reserves & surplus on account of receipt of high share premium, investment in unlisted companies, no dividend income, high cash in hand, private companies as majority shareholders, low turnover & operating income, nominal expenses, nominal statutory payments & stock in trade, minimum Fixed Asset

It has been found that 559 beneficiaries have laundered money to the extent of Rs.3900 Crore with the help of 54 Professionals who have been identified. These information has been shared with SIT, Income Tax Department, Enforcement Directorate, SEBI and the ICAI. Harsh punitive actions will be taken against the deviant shell companies which will include freezing of Bank Accounts, striking off the names of dormant companies, invocation of Benami Transactions (Prohibition) Amendment Act, 2016 – Press Release dated, 10-02-2017

TPO couldn't benchmark convertible debentures on basis of LIBOR when such debentures were issued in INR

Facts:

a) Assessee-company issued Compulsorily Convertible Debentures (CCDs) convertible into one equity share for every debenture held. It had paid interest at the rate of 12 per cent on the CCDs.

b) Assessee benchmarked weighted average rate of Prime Lending Rate (PLR) as per the State Bank of India (SBI), which was at 12.26 per cent. Since the rate of interest paid by it was lesser than SBI PLR, assessee stated that its rate of interest paid was consistent with arm's length standard from the Indian TP Regulations perspective.

c) Transfer Pricing Officer (TPO) however, did not agree with assessee's contentions. He considered the CCDs as loan and benchmarked the interest rate at LIBOR plus 200 basis points. Accordingly, certain addition was made to assessee's ALP.

d) DRP upheld order of TPO. Aggrieved-assessee filed instant appeal before the Tribunal. Tribunal held in favour of assessee as under:

1) There was no dispute with reference to the fact that the CCDs were issued in Indian Rupees. Accordingly, TPO had wrongly treated the issuance of CCDs as a loan, by treating it as an external commercial borrowing, ignoring the fact that loan is a debt, whereas CCD is hybrid instrument in nature basically categorised as equity in nature.

2) It was to be reiterated that issuance of CCDs was denominated in Indian Rupees and not foreign currency. Therefore, TPO had erred in considering LIBOR as benchmark rate which was in complete contradiction to the principles on the issue.

3) Thus, assessee's contentions, that the CCDs could not be categorised as a loan and LIBOR plus two hundred basis points benchmark couldn’t be accepted on the facts of the case, were accepted. [2017] 78 taxmann.com 75 (Hyderabad - Trib.)

Certificate for lower TDS is ‘person specific’ and not ‘income specific’, says Kolkata ITAT

Facts:

a) Assessee paid interest to two parties which was liable for TDS under section 194A. Both parties obtained a certificate from their respective Assessing Officers under section 197 for lower deductions of tax at source.

b) However, the amount mentioned in such certificate was lesser than the actual amount of interest paid and assessee had deducted tax at source at a lesser rate on the entire payment.

c) AO held that the lower deduction of tax was valid only in respect of amount specified in certificate and on the balance amount, assessee ought to have deducted tax at source at the normal applicable rate.

d) For the shortfall, AO treated assessee as an assessee-in-default and levied interest under section 201(1A).

e) Commissioner (Appeals) confirmed order of AO. Aggrieved-assessee filed instant appeal before the Tribunal.

Tribunal held in favour of assessee as under:

1) Deduction of tax at source at lower rate is 'person specific' and cannot be extended to amounts specified by recipient of payment while making an application for grant of certificate under section 197.

2) Section 197(2) along with relevant rule 28AA(2), clarifies that once certificate under section 197(2) is issued for lesser/no TDS deduction, person making payment is at liberty to deduct tax at rates specified in certificate and that it does not make any reference to any income specified in such certificate.

3) Thus, interest under section 201(1A) levied for alleged short deduction of TDS under section 194A on interest payments made by assessee was to be deleted. [2017] 78 taxmann.com 152 (Kolkata - Trib.)

Payment made to Polish Co. for dismantling machinery couldn't be held as 'FTS'

Facts:

a) The assessee-company made payment to foreign company with out deducting tax at source for work of dismantling and sea-worthy packing of paper mill machinery. 

b) Assessing Officer (AO)treated assessee as assessee-in-default as he was of view that payments were made for' fees for technical services' which were liable to tax in India as per section 9.

c) Commissioner (Appeals) reversed the order of AO. Aggrieved by the order of CIT, revenue filed the instant appeal before the Tribunal.

Tribunal held in favour of assessee as under:

1. There is a difference between 'Contract of work' and 'Contract of service'. The two words convey different ideas.

2. In the 'Contract of work', the activity is predominantly physical; it is tangible. In the activity referred as 'Contract of service', the dominant feature of the activity is intellectual, or at least, mental. In contrast, in the case of rendering any kind of 'service', intellectual aspect plays the dominant role.

3. In the instant case, the scope of work mentioned in the agreement entered by the assessee with the foreign company clearly explained that it was 'contract of work' to dismantle the machinery, therefore, it was not a 'contract of service'. 

4. Since dismantling of machinery did not require any technical services, therefore, payment by the assessee did not fall in the ambit of fees for technical services. - [2017] 78 taxmann.com 49 (Kolkata - Trib.)

Harsh Punitive action will be taken against shell companies: FinMin

Departments to review the functioning of ‘Shell Companies’ in India, so as to prevent their misuse for money laundering and tax-evasion, especially in the context of unearthing black money post demonetization.

In the initial analysis, it has been found that ‘Shell Companies’ are characterized by nominal paid-up capital, high reserves & surplus on account of receipt of high share premium, investment in unlisted companies, no dividend income, high cash in hand, private companies as majority shareholders, low turnover & operating income, nominal expenses, nominal statutory payments & stock in trade, minimum Fixed Asset

It has been found that 559 beneficiaries have laundered money to the extent of Rs.3900 Crore with the help of 54 Professionals who have been identified. These information has been shared with SIT, Income Tax Department, Enforcement Directorate, SEBI and the ICAI. Harsh punitive actions will be taken against the deviant shell companies which will include freezing of Bank Accounts, striking off the names of dormant companies, invocation of Benami Transactions (Prohibition) Amendment Act, 2016 – Press Release dated, 10-02-2017

Friday, February 10, 2017

HC orders winding-up of United Breweries on its failure to discharge dues of Kingfisher Airlines

United Breweries Holding Limited (UBHL) has failed to discharge its admitted liability towards creditors of Kingfisher Airlines as UBHL had given corporate guarantee against financial obligation of Kingfisher Airlines. For recovering dues from Kingfisher Airlines, the lenders have filed winding up petition against UBHL. Since, UBHL has failed to discharge its contractual obligation executed under Guarantee agreement in favor of the petitioner, the Karnataka High Court orders winding up of UBHL Company. - [2017] 78 taxmann.com 80 (Karnataka)

Apex Court attaches Aamby Valley properties of Sahara

The Supreme Court was convinced that Aamby Valley properties of Sahara would be sufficient for realization of dues to SEBI. Thus, it has ordered attachment of such property. Further, the Apex Court has directed Sahara to furnish a list of properties which would be free from litigation and mortgage so that they could be put to public auction. - [2017] 78 taxmann.com 38 (SC)

Transfer of case on restructuring of dept. would be valid even if hearing chance isn't given to assessee

Facts:

a) The assessee was intimated that jurisdiction of the assessee's case pending with the Income tax department had been transferred from Rourkella to Sambalpur.

b) Assessee challenged orders before the High Court on the ground that his jurisdiction was changed without providing an opportunity of being heard and without assigning any reason. High Court held in favour of revenue as under:

1) There is no denial of the fact that if any decision is taken, which is detrimental to the interest of the parties, a notice is required to be given on the principle that no man can be condemned without hearing him.

2) The underlying motive is to provide an opportunity to know the reasons behind taking the decision of transfer.

3) Restructuring of the department was done for equitable distribution of work and, as such, the order passed by the authorities was for administrative convenience.

4) In the given case, even if the assessee would have been provided an opportunity of being heard before taking the decision, no material change would have come.

5) Further, it was not that the case of the assessee herein had only been transferred but the cases of other assessees had also been transferred.

6) Therefore, transfer of case on restructuring of department would be valid even if hearing chance wasn't given to assessee - [2017] 77 taxmann.com 321 (Orissa)