Tuesday, March 31, 2015

Discount allowed by ONGC to Oil Marketing Cos. for sale of petroleum products would not form part of sale price

Gujarat VAT - Where assessee for first quarter of April, 2014 to June, 2014 had given discount to Oil Marketing Companies on sale of its petroleum products by way of credit note, amount of discount would not form part of sale price as directed by Government of India.

a) The assessee was engaged in exploration, development and production of the petroleum products. It was obliged to act as an instrument to implement the policy of the Central Government subject to such directives as might have been issued by the President from time-to-time with a view to exercise control over strategic areas of economy and to serve public interest.

b) For the first quarter of April, 2004 to June, 2004, the assessee had given discount to the Oil Marketing Companies (OMCs) on the sale of its petroleum products as directed by the Government of India in its letter dated 27-8-2004 by way of a credit note dated 13-9-2004. It claimed that the amount of such discount would not form part of taxable turnover.

c) The assessing authority held that the discount given by the assessee to the OMCs on the sale of petroleum products was not an admissible deduction. The assessee was required to pay the tax inclusive of such discount.

d) Both, the First Appellate Authority and the Tribunal upheld the order of the Assessing Authority.

High Court held in favour of assessee as under: 1) The assessee could charge only such rate from the OMCs as Government of India directed.The broad formula adopted for such purpose was the crude price in international market minus the last discount which would prevail for a quarter. At the end of the quarter after, taking into consideration all the relevant factors, the Government of India would declare the final price.

2) Since for the petroleum products already supplied by the assessee to the OMCs during such quarter the invoices would have been raised on the basis of provisional discount, the adjustment would have to be done on the basis of final discount declared by the Government of India. Though in most of the cases, the final discount might have been higher than the provisional discount earlier declared, it was entirely possible that in some cases such final discount might have been lower than the provisional price. The assessee would eventually adjust its accounts with the OMCs by raising either the debit note or credit note, as might be required.

3) Perhaps it is a misnomer, though consistently so referred to by the Government of India as well as by the assessee, to term this component as discount. A discount is reduction in catalogue price for any reason recognised by the trade. In the instant case, there was no prefixed price which as per the trade practice was reduced by a discount given by the seller to the purchaser. It was a case where under a price control regime under the directives of Government of India, the assessee was obliged to sell its products at lesser than the market price. These terms were determined even before the sale. Initial invoices at the time of actual supply of petroleum products by the assessee were merely provisional. They were based on provisional price fixation by the Government. They were never meant to reflect final sale consideration for the goods sold. They were always subject to adjustment once the Government of India finally declared the reduced rate of specified petroleum products. Comparing the invoiced price with the finalised price after adjustment was a complete fallacy. Even invoiced price whenever based on provisional price fixed by the Government was always below the market price which the assessee could have fetched.

4) Therefore, the amount of discount given by the assessee to the OMCs on sale of its products would not form part of sale price. The assessee was not required to pay tax on such discount - ONGC Ltd. v. State of Gujarat - (2015) 55 taxmann.com 297 (Gujarat).

Monday, March 30, 2015

Dividend paid by foreign Co. abroad for shares deriving substantial value from Indian assets not taxable: CBDT

The existing provisions of Section 9 of the Act deal with cases of income which are deemed to accrue or arise in India. Sub-section (1) of the said section creates a legal fiction that certain incomes shall be deemed to accrue or arise in India. Clause (i) of said sub-section provides that all income accruing or arising, whether directly or indirectly, through the transfer of a capital asset situate in India shall be deemed to accrue or arise in India.

The Finance Act, 2012 inserted an Explanation 5 to section 9(1)(i) to clarify that an asset or capital asset, being any share or interest in a company or entity registered outside India, shall be deemed to be situated in India if the share or interest derives, directly or indirectly, its value substantially from the assets located in India.Further, the Finance Bill, 2015 clarified the meaning of the term "substantially", thereby putting to rest the never ending controversy and providing a stable taxation regime. However, apprehensions have been expressed about the applicability of the Explanation 5 to the transactions not resulting in any transfer, directly or indirectly of assets situated in India. It has been pointed out that such an extended application of the provisions of the Explanation 5 may result in taxation of dividend income declared by foreign company outside India, in respect of shares deriving substantial value from assets located in India. This may cause unintended double taxation and would be contrary to the object and purpose of amendment made by the Finance Act, 2012.

TheExplanation 5sought to clarify the source rule of taxation in respect of income arising from indirect transfer of assets situated in India.Thus, declaration of dividend by foreign company outside India does not have the effect of transfer of any underlying assets located in India. Therefore, CBDT has clarified that dividends declared and paid by a foreign company outside India in respect of shares which derive their value substantially from assets located in India would not be deemed to be income accruing or arising in India by virtue of provisions of the Explanation 5 to Section 9(1)(i).

Friday, March 27, 2015

SEBI notifies revised delisting norms

In order to make delisting more effective, the SEBI has notified revised regulations for delisting process through the reverse book-building route that would make the delisting easier for companies. Under the revised norms the timeline for completing the process has been reduced. It provides for relaxation of rules on a case-to-case basis. The key features of amendment are as under:

i. Timeline for completing the delisting process has been reduced to 76 working days from 137 calendar days.

ii. Now stock exchanges would be given five working days to give their in-principle approval for delisting.

iii. SEBI has retained the reverse book building process for determining the price of shares for the purpose of delisting. However, delisting would be considered successful only if at least 25 % of the public shareholders would participate in the reverse book building process. Further, the shareholding of the acquirer, together with the shares tendered by public shareholders, should be 90 % of the company's total share capital.

iv. To ensure that a delisting plan has been decided in a fair manner, company's board would have to approve of it only after a due diligence process, for which it can appoint a merchant banker on behalf of the firm and the promoter.

v. Further, the company's board would have to certify that the company is in compliance with applicable securities law and that it would be in the interest of shareholders.

vi. Companies having paid-up capital of not more than Rs 10 crore, and networth that does not exceed Rs 25 crore as on the last day of the previous financial year are exempted from following the Reverse Book Building process.

vii. The exemption would be available only if there is no trading in the shares of the company in the last one year from the date of the board's resolution authorising the company to go in for delisting, and trading of shares of the company has not been suspended for any non-compliance during the same period.

Thursday, March 26, 2015

Sec. 54 relief allowed on cap gain from land, viz, long-term asset, though flat that existed on it was short-term asset

Where assessee constructed a building on land, which was long-term capital asset even though said building was short-term capital asset, assessee was entitled to claim benefit of section 54 to the extent capital gain attributable to land.


a)Assessee transferred a building (used for residential purposes) within 3 years of its purchase which was constructed on a land, viz, long-term capital asset.

b)Assessee claimed exemption under Section 54 in respect of investment made by him in another residential house to the extent capital gain attributable to sale of land.

c)The Assessing Officer (AO) opined that capital gain as was attributable to long-term capital asset, viz, land would not qualify for relief under section 54 as the building which existed on the same was a short-term capital asset.

d)The appellate authorities upheld the order passed by the AO. Aggrieved-assessee filed the instant appeal before the High Court. The High Court held in favour of assessee as under:

1)The legislature has defined the meaning of house property as ‘building or land appurtenant thereto’. In view of the aforesaid definition of house property, a land appurtenant to a residential house is entitled to benefit under Section 54. Therefore, if a land appurtenant to a residential house could be entitled to benefit under Section 54, it was difficult to accept that the land on which the residential building was constructed would not be entitled to the said benefit.

2)When a property, i.e., residential house is sold, the sale consideration includes the value of the land and the value of the construction. The AO treated the capital gain on sale of land (on which the residential house was constructed) as a long-term capital gain while the capital gain on sale of building was treated as a short-term capital gain. Therefore, if, for levying tax under the Act, such a distinction could be made, one failed to understand why that distinction would not be kept in mind in extending the benefit under section 54.

3)Therefore, the assessee was entitled to the benefit of section 54 to the extent capital gain attributable to land. - C.N. ANANTHARAM V. ASSISTANT CIT [2015] 55 taxmann.com 282 (Karnataka)

Tuesday, March 24, 2015

SEBI Board meets- approves norms of IFSCs, eases conversion of debt into equity by banks/FIs; nods to municipal bonds

The SEBI held its board meeting at New Delhi on 22.03.2015 and took the following decisions:

1.Introduction of framework for IFSC : SEBI has approved guidelines on regulation of International Financial Services Centre (IFSC) set up under Section 18(1) of Special Economic Zones Act, 2005. The key features of guidelines on IFSC are as under:

i. Gujarat International Finance Tec-City (GIFT City) would be country's first IFSC.

ii. Subsidiaries of domestic as well as foreign stock market intermediaries and clearing corporations of stock exchanges allowed to set-up and undertake business at IFSC. The guidelines permits issuance of depository receipts and debt securities by domestic as well as foreign companies under 'Foreign Currency Depository Receipt' Scheme

iii. The guidelines also provide for listing and trading of shares and other derivatives of foreign companies incorporated in India. All categories of investors such as - Non resident Indian, foreign investor, institutional investors and Resident Indian eligible under FEMA are allowed to participate in IFSC

iv. Mutual funds and Alternative Investment Funds set up in IFSC are also allowed to invest in securities listed in IFSC

2.Conversion of debt into equity by Banks/FIs made easier : The Board has approved a proposal to relax provisions relating to 'Issue of Capital and Disclosure requirements' and Take over Code while converting debt into equity of listed borrowers companies in distress by the lending institutions. The conversion of debt into equity would be allowed at face value or at new fair-price formula. The new guidelines aims to revive listed companies in distress and to provide more flexibility to the lending institutions to acquire control over the company in the process of restructuring

3.Review of continuous disclosure norms for listed companies : In order to enable investors to make well informed decision, the SEBI has proposed following changes to Listing obligations and Disclosure requirements by Companies:

i. Listed company shall have to disclose all events/information first to stock exchange(s) as soon as reasonably practicable and not later than 24 hours of occurrence of event/information. Further, listed entities are required to make public the outcomes of board meeting within 30 minutes of meetings

ii. The listed entity has to provide specific and adequate reply to queries of stock exchange(s) with respect to rumours. The listed entity is required to disclose on its website all events/information which is material and such information shall be hosted for a minimum period of 5 years. The listed entity must disclose all events/information with respect to its subsidiaries which are material.

4.Issue and listing of municipal bonds : The Board considered and approved regulations relating to issuance and listing of bonds by municipalities. The regulations are in line with guidelines issued by Govt of India for issue of tax-free bonds by Municipalities. The key features are as under:

i. Municipalities making public issue shall issue only revenue bonds. For private placement, issuer may issue general obligation bonds or revenue bonds. Minimum tenure of bonds will be of three years

ii. Issuer need to obtain credit rating from credit rating agencies and it is to be noted that Municipality must not have defaulted in previous 365 days and its net worth should be positive for three preceding years

Monday, March 23, 2015

Rent-a-cab and outdoor catering services used for business purposes are eligible for credit

Rent-a-cab services, outdoor catering services consumed for factory canteen and repair/maintenance of vehicles used for business purposes are eligible for credit as 'input services'; however, no credit is available to extent of amount recovered from employees.

a)Assessee took input service credit as follows:

a.'Rent-a-cab' services for bringing workers to their factory and vice versa.

b.Outdoor catering services availed by its workers on ground that it was statutory requirement to maintain factory canteen as there were more than 350 workers. Further, assessee submitted that pro rata credit attributable to amount recovered from workers for supply of concessional food was reversible.

c.Repair and maintenance services for vehicles owned by it.

b) Department denied credit on ground that these services had no nexus with manufacture.

Tribunal held partly in favour of assessee as under :

1) For 'rent-a-cab' and outdoor catering services: services in question had been availed by assessee in course of business of manufacturing; hence, assessee was entitled to take impugned credit. However, if any amount was recovered from employees towards these services, same was not entitled to credit. As this fact had not been examined, matter was remanded back for verification as to amount recovered from employees.

2) For repair and maintenance service: any service availed by a manufacturer in course of business is eligible for credit. Admittedly, vehicles in question had been used by assessee in course of their business being a manufacturer of excisable goods. Hence, assessee was entitled to credit – Caparo Fasteners v. Commissioner of Central Excise, Jaipur I - (2015) 55 taxmann.com 165 (New Delhi - CESTAT).

Act of ICSI of prohibiting associate members from contesting elections of regional council isn't arbitrary

Action of ICSI in barring 'Associate Members' from contesting and getting elected to Regional Councils is not arbitrary, illegal and violative of article 14 of Constitution


a)The petitioners were registered as associate members of the Institute of Company Secretaries of India constituted under the Company Secretaries Act, 1980.

b)The council of ICSI issued a notification fixing the schedule for conduct of elections to the Council and Regional Councils (‘RC’) in the year 2014. As per the said notification, only the Fellow Members of the Institute were eligible to stand for election to the RCs.

c)Aggrieved by the same, the petitioners filed instant petition contending inter alia that the action of the respondents in barring the 'Associate Members' from contesting and getting elected to the Regional Councils was arbitrary, illegal and violative of article 14 of the Constitution.

d)The petitioners also sought a direction to provide an opportunity to the Associate Members of the Institute to stand for election to the Council of the Institute proposed to be held under the election notification on par with the Fellow Members of the Institute.

High Court dismissed petition and held as under:

1)Right to contest election to Regional Councils, being a statutory right created by Company Secretaries Act, 1980 and rules and regulations made thereunder, it is subject to qualifications and disqualifications prescribed therein and, thus, petitioners could neither claim an absolute right to stand for election to Regional Councils nor contend that their right to contest election was defeated by stipulating that fellow members alone were eligible to stand for election to Regional Council

2)As stipulated in section 5(3), an Associate Member who has been in continuous practice as a Company Secretary for at least five years or an associate member who possesses such qualifications or practical experience as the council may prescribe are entitled to be entered in the Register as Fellow Members. Thus, it is clear that the Fellow Members and Associate Members constitute two different classes.

3)As fellow members belonged to a different class and being more experienced and knowledgeable, impugned provisions in making only fellow members eligible to stand for election to Regional Councils could not be held to be discriminatory and violative of article 14 of Constitution thus, legislative intendment was clear that Council shall be composed of only fellow members - PRINCE KUMAR V. INSTITUTE OF COMPANY SECRETARIES OF INDIA [2015] 55 TAXMANN.COM 215 (DELHI)

Tuesday, March 17, 2015

NI Act: Order of Magistrate was to be set-aside as it took cognizance of complaint without verifying POA

Where Magistrate had taken cognizance of complaint without prima facie establishing fact as to whether power of attorney existed in first place and whether it was in order, order passed by Magistrate was to be set aside


a)The appellant, vice-Chairman and managing director of the company under a scheme of investment had collected various amounts from various persons in the form of loans and, in consideration thereof, issued post-dated cheques either in his personal capacity or as the signatory of the company which later on got dishonoured.

b)Respondent No. 2, the power of attorney holder of six complainants, filed complaint against the appellant u/s 138 and 142 before the Metropolitan Magistrate.

c)The Additional Chief Metropolitan Magistrate issued summons against the appellant u/s 204 of the CrPC for the offences punishable u/s 138 and 142 of the NI Act.

d)The appellant, aggrieved by issue of summon, moved an application for discharge/recall of process in each of the complaints. The application filed by the appellant was dismissed.

e)The appellant preferred applications before the High Court for quashing of the complaints. However, the said applications were dismissed by the High Court.

On appeal, the Supreme Court held as under:

1)The Magistrate had taken cognizance of complaint without prima facie establishing fact as to whether power of attorney existed in first place and whether it was in order? Magistrate wrongly took cognizance in matter

2)From the bare perusal of the complaint it could be seen that except mentioning in the cause title there was no mention of or a reference to the Power of Attorney in the body of the said complaint nor was it exhibited as part of the said complaint.

3)Since aforesaid fact had been overlooked by High Court while passing impugned judgment, order passed by Magistrate and impugned judgment passed by High Court were to be set aside - A.C. NARAYANAN V. STATE OF MAHARASHTRA [2015] 55 TAXMANN.COM 118 (SC)

Monday, March 16, 2015

Arbitrators have to give reasons for arbitral award even if arbitral proceedings are initiated under old Act

Where arbitrator's award was unsupported by any reason, same was to be set aside, even though arbitral proceedings were initiated under old Act, i.e., Arbitration Act, 1940


a)A non-speaking arbitral award in favour of the appellant-company was set aside by the High Court on the ground that the arbitrator had not recorded his 'findings' as required under clause 70 of the General Conditions of Contract

b)The High Court held that the expression 'finding' appearing in clause 70 of the general conditions of contract implied something more than the mere recording of a conclusion by the arbitrator. Inasmuch as the arbitrator had failed to do so, the award announced by him was unsustainable.

c)The High Court, accordingly, set aside the award and remitted the matter back to the arbitrator for a fresh determination of the issues between the parties.

On appeal, the Supreme Court held as under:

1)The Arbitration and Conciliation Act, 1996 had repealed the Arbitration Act of 1940 and sought to achieve the twin objectives of obliging the arbitral Tribunal to give reasons for its arbitral award and reducing the supervisory role of courts in arbitration proceedings

2)There was a paradigm shift in legal position under new Act, i.e., 1996 Act, which prescribed a uniform requirement for arbitrators to give reasons for their arbitral award

3)Where arbitrator's award was unsupported by any reason, same was to be set aside, even though arbitral proceedings were initiated under old Act, i.e., Arbitration Act, 1940 - ANAND BROTHERS (P.) LTD. V. UNION OF INDIA [2015] 55 TAXMANN.COM 153 (SC)

Friday, March 13, 2015

ICSI plans to place ceiling of five Cos for which Secretarial audit report can be issued by practicing CS

The Council of the Institute of Company Secretaries of India has issued the draft guidelines for Issuing Compliance Certificate and Signing of Annual Return by practicing member to seek views and suggestions from the stakeholders. The Guidelines would come into force wef. April 1, 2015.

ICSI proposes ceiling on Issuing Secretarial Audit Report and Annual Return

As per draft guidelines, ICSI has proposed the ceiling on issuing a Secretarial Audit report by a practicing member to a maximum of 5 companies in a financial year and upper limit of Signing/certification of annual return by a practicing member has been fixed at 80 Companies in aggregate, in a financial year

Breach of specified ceiling to be deemed as professional misconduct

Practicing member who issues Secretarial Audit Report in respect of more than 5 Companies and/or Signs/Certifies Annual report of more that 80 companies in aggregate in a Financial Year, would be deemed to be guilty of professional misconduct Ceiling in case of a firm of Company Secretaries

In case of a firm of Company Secretaries, the ceiling of five companies in case of issuance of Secretarial Audit report and eighty companies in case of signing/certification of Annual Return would apply to each partner therein who is entitled to issue Secretarial Audit Report pursuant to Section 204 of the Companies Act, 2013 and/or sign/certify an Annual Return pursuant to Section 92 of the Companies Act, 2013.

Editor’s comment: The Guidelines have been issued in supersession of the Guidelines (‘old guidelines’) issued on 27th November, 2007 by council for Issuing Compliance Certificate and Signing of Annual Return. Earlier, as per the old guidelines the ceiling for issuing compliance certificate and signing of Annual Return was fixed at 80 companies in aggregate in a calendar year. Under new guidelines the ceiling on signing/certification of Annual return has been kept same as old guidelines however, the time limit criteria has been changed from ‘Calendar year’ to ‘Financial Year’

Thursday, March 12, 2015

Depreciation available on asset even when it was transferred to stock-in-trade at nominal value

Assessee who used to convert the assets (incapable of any further use and having negligible market value) into stock-in-trade at nominal value would be entitled to claim depreciation on remaining book value of block of asset.


a)The assessee ('Xerox India Ltd.') was engaged in the business of trading in Xerographic equipments, Printers, Scanners, etc.

b)It leased out the equipments to the customers on an operating lease basis.These equipments were capitalised and depreciation thereon was claimed by assessee.

c)When equiptments were returned back to the assessee on the termination of the lease, it used to convert these into stock-in-trade at a nominal value of Rs.1.

d)The nominal value was reduced from the block of assets and depreciation was claimed by assessee on the remaining amount. The revenue disallowed the depreciation on the ground that instead of nominal value, actual value of asset had to be reduced from the block of assets as these assets were transferred to stock-in-trade.

e)On the other hand the assessee contended that whenever these assets were sold, the profit was offered for taxation and in case any of these assets was again leased out, then it was recapitalized in block of asset at the nominal value at which it was decapitalised.

The ITAT held in favour of assesse as under-

1)When the assets were recapitalized at the nominal value at which these were decapitalised then there was no effect on the taxability of the assessee.

2)Similarly, there was no harm to revenue whenever these used assets were sold after their conversion into stock-in-trade as surplus on the sale would be taxed.

3)Thus, assessee was entitled to depreciation on asset. - XEROX INDIA LTD. V. DEPUTY CIT (2015) 55 taxmann.com 29 (Delhi - Trib.)

Wednesday, March 11, 2015

Entertainment tax subsidy granted to cinema halls is capital receipt, rules Delhi High Court

Subsidy granted to owner of multiplex in the form of exemption frompayment of entertainment taxcollected from the public is a capital receipt.


a)The assessee was engaged in the business of running of multiplex cinema halls and shopping malls.With a view to encourage setting-up of multiplex cinema halls and to promote the viewership therein, the State government launched a scheme whereby it offered subsidy to cinema industry. Subsidy was in the nature of exemption from payment of entertainment tax, which is collected from the public.

b)Assessee treated such subsidy as capital receipt.The Assessing Officer (‘AO’) treated such subsidy as revenue receipt on the ground thatsubsidy had been given to the assessee after commencement of its business and operationalization of the multiplex and, further, it was not linked to any of the fixed assets of the company.

c)On appeal, the appellate authorities set aside the order of AO.Aggrieved by the order of appellate authorities, AO filed the instant appeal before the High Court.

The High Court held in favour of assesse as under:

1)The UP Scheme under which the assessee claims exemption to the extent of entertainment tax subsidy, claiming it to be capital receipt, is clearly designed to promote the investors in the cinema industry encouraging establishment of new multiplexes. A subsidy of such nature cannot possibly be granted by the Government directly.

2)Entertainment tax is leviable on the admission tickets to cinema halls only after the facility becomes operational. Since the source of the subsidy was the public at large which was to be attracted as viewers to the cinema halls, the funds to support such an incentive could not be generated until and unless the cinema halls became functional.

3)The purpose of the scheme was to assist the entrepreneur in meeting the expenditure incurred on account of construction of the multiplex as also the actual cost incurred in arranging the requisite equipment installed therein. Therefore, it could not be treated as assistance for the purposes of trade.

4)It was unreasonable on the part of the AO to reject the claim of the assessee about the subsidy being capital receipt as subsidy by its very nature, was bound to come in the hands of the assessee after the cinema hall had become functional and definitely not before the commencement of production.

5)The fact that the subsidy granted was not linked to any particular fixed asset did not make any difference. Thus, the assessee was entitledto treat such subsidy on entertainment tax as capital receipt. - CIT V. BOUGAINVILLEA MULTIPLEX ENTERTAINMENT CENTRE (P.) LTD.[2015] 55 taxmann.com 26 (Delhi)

Tuesday, March 10, 2015

Department couldn't allege suppression against assessee while issuing subsequent notices on same issues

Where all relevant facts were in knowledge of authorities when first show-cause notice was issued, while issuing second and third show-cause notices on similar facts, department couldn't allege suppression of facts by assessee.

a)Department carried out inspection on 16-9-1996 and issued notices on 14-3-1997 and 20-4-1998 alleging clandestine removal of goods.

b)Later, department issued third notice dated 27-3-2001 invoking extended period alleging suppression of facts.

c)Assessee challenged third notice as time-barred, as all facts were within knowledge of department since 16-9-1996.

d)Department argued that if any suppression of material facts of fraud was detected, then extended period of limitation of five years was available to the department,therefore, the entire proceedings were legal and within the time-limit prescribed by the Act as the third notice was issued within 5 years from 16-9-1996.

High Court held in favour of assessee as under:

1)Show-cause notices were issued with regard to part of transactions for different periods, but on basis of same inspection made on 16-9-1996. Once earlier show-cause notices were issued with regard to same inspection, then department could not claim having discovered suppression, fraud, etc., subsequently, as everything was within its knowledge since 16-9-1996. Hence, extended period of five years was not available to department.

2)The High Court took note of the judgment of Supreme Court in Nizam Sugar Factory v. Collector of Central Excise 2006 (197) ELT 465 in which it was held that where all relevant facts were not in the knowledge of the authorities when the first show-cause notice was issued, while issuing second and third show-cause notices to the assessee on similar facts,it could not be taken as suppression of facts on the part of the assessee as the facts were already within the knowledge of the authorities – Commissioner of Central Excise & Customs v. Rivaa Textiles Inds. Ltd.(2015) 54 taxmann.com 239 (Gujarat).

Monday, March 9, 2015

Unabsorbed research exp. claimed as revenue exp. can’t be carried forward if hit by Sec. 79

If assessee did not capitalize scientific research expenditure and claimed it as revenue expenditure, any unabsorbed portion of such research exp. would be in nature of business loss and not in nature of unabsorbed depreciation - Therefore, it would be subject to restriction imposed under Section 79 in case of closely held company

Issue for consideration:

a)In view of Section 79 of the Act, where a change in shareholding (i.e., 51%) has taken place in a previous year in the case of a company (being closely held company), no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year.

b)In the instant case, an issue arose whether unabsorbed scientific research expenditure would also be subject to same treatment as that of carry forward of losses in Section 79

c)Assessee’s contention was that the unabsorbed scientific research expenditure had to be treated at par with unabsorbed depreciation based on the principles laid down in the case of Mahyco Vegetable Seeds Ltd. [2010] 123 ITD 40 ( Mum.)

Tribunal held as under:

1)In the case of Mahyco Vegetable Seeds Ltd(Supra), the expenditure in question was unabsorbed capital expenditure incurred on scientific research claimed as deduction under section 35. Therefore, the unabsorbed capital expenditure on scientific research had the same effect as unabsorbed depreciation;

2)Therefore, for applying the above cited decision, it was necessary that the scientific research expenditure should have been capitalized before claiming deduction under section 35;

3)If assessee treated scientific research expenditure as revenue expenditure and claimed deduction thereof, it would give rise to business losses and couldn't be deemed as similar to unabsorbed depreciation.

4)Therefore, in such case there would be a business loss and the provisions of section 79 would be applicable- DEPUTY CIT V. TEJAS NETWORKS LTD.[2015] 55 taxmann.com 55 (Bangalore - Trib.)

Saturday, March 7, 2015

No insurance claim for damages as vehicle owner didn't apply for registration on expiry of temporary registration

Where an accident had taken place, petitioner as owner of vehicle would not be entitled to claim compensation for damages in respect of vehicle when, admittedly, vehicle was being driven on date of accident without any valid registration


a) The Petitioner-complainant purchased a vehicle and got it insured with respondent-company, The vehicle was temporarily registered for one month's period.

b) The petitioner did not apply for permanent registration. Meanwhile, an accident took place in which vehicle got damaged. Consequently, the appellant filed a consumer complaint before the District Forum.

c) The District Forum allowed the complaint and directed the respondent-company to indemnify the complainant to the extent of 75% of the insured amount. Aggrieved by the decision of the District Forum, respondent-company as well as the appellant-complainant approached State Commission.

d) Petitioner's claim for insurance was rejected by the Sate Commission as well as by National Commission on ground that at the time of accident, the vehicle was being driven without registration, which was prohibited under section 39 of the Motor Vehicles Act, 1988, and was also an offence under section 192 of the said Act

On appeal, the Supreme Court held as under:

1) Using a vehicle on public road without any registration is not only an offence punishable under section 192 but also a fundamental breach of terms and conditions of policy contract

2) Nothing had been brought on record by petitioner to show that before or after period of temporary registration had expired, petitioner, either applied for permanent registration or made any application for extension of period.

3) Thus, the petitioner would not be entitled to claim compensation for damages in respect of vehicle when, admittedly, vehicle was being driven on date of accident without any valid registration - NARINDER SINGH V. NEW INDIA ASSURANCE CO. LTD. (2015) 54 TAXMANN.COM 414 (SC)

Thursday, March 5, 2015

ROC can allow e-filing of DIR-12 by one of the resigned directors who was an authorized signatory

MCA has received several representations with regard to difficulties faced by stakeholders in filing Form DIR-12. The difficulty arises due to the deactivation of Digital signature certificate (DSC) following en masse resignation of all the directors of a company before appointment of new directors in their places. As a result, Form DIR-12 (Particulars of appointment of directors and the key managerial personnel and the changes among them) couldn’t be filed by few companies due to lack of an authorized signatory Director.

Thus, MCA has provided much needed relief to such stakeholders by authorizing the ROCs to allow any one of the resigned directors who was an authorized signatory Director to e-file Form DIR-12 along with additional fees subject to compliance of other provisions of the Companies Act, 2013.

Editor’s Comments: MCA has temporarily allowed e-filing of such form by one of the resigned directors till an alternate mechanism is put in place in MCA 21 system. It is a welcome step in the direction of promoting ease of doing business by removing the obstacles faced by the stakeholders in ordinary course of business. – [GENERAL CIRCULAR NO.3/2015 [F.NO.MCA21/272/2014 Dated, 04-03-2015]

Assessee not entitled to interest on refund of excess self-assessment tax paid by it, rules Delhi HC

Refund of excess self-assessment paid by assessee was not eligible for interest as the provisions of Section 244A would not apply thereto.

The issue that arose for consideration of the High Court is as under:

“Whether the Tribunal was rightin holding that the assessee would be entitled to interest under Section 244A in respect of excess self-assessment tax paid by it?”

The High Court held in favour of revenue as under:

1)Clause (a) of Section 244A(1) provides that where refund of any amount becomes due to the assessee, he shallbe entitled to receive simple interest thereonwhere the refund is out of any tax paid under section 115WJ or collected at source under section 206C or paid by way of advance tax or treated as paid under section 199.

2)The provisions contained in Sections115WJ or 199 or 206C or Section 207 have no connection with the liability to pay self-assessment tax. Therefore, clause (a) of sub-section (1) of Section 244A would not apply to refund arising out of excess self-assessment tax paid by assessee.

3)Clause (b) of Section 244A(1) was also not applicable in the instant case asit provides that the amount paid by the assessee (from which refund was to be made) must have been deposited pursuant to demand notice issued by the assessing authority.

4)There cannot be a general rule that whenever a refund of income tax is to be paid, the Revenue must necessarily pay interest on the refunded amount.

5)If the excess amount was paid due to erroneous assessment by the Revenue, the reimbursement would be accompanied by payment of interest at the statutorily prescribed rate.Conversely, if the assessee was to be blamed for the miscalculation, the Revenue does not owe any interest even if the excess payment of tax was liable to be refunded.

6)There being no allegation that such excess deposit was pursuant to demand by the Revenue, the claim for interest on excess payment voluntarily made could not be sustained.Therefore, theorder of ITAT directing the AO to pay interest to the assessee on the refunded amount was to be set aside. - CIT vs Engineers India Ltd. - [2015] 55 taxmann.com 1