Wednesday, March 30, 2016

One can account for income from choreography on cash basis and income from production on accrual basis

a)    Assessee was a professional dance director for cinematographic films. He was also producing films under a proprietorship concern.
b)    Assessee followed cash system of accounting in respect of his professional receipts whereas he was following mercantile system of accounting for computing income from production of films.
c)    Assessing Officer (AO) took a view that assessee was following hybrid system of accounting which was not permissible in view of amendment made to section 145 of the Income-tax Act by the Finance Act, 1995.

d)    The CIT(A) upheld the order of the AO. Aggrieved by the order of the CIT(A), the assessee filed the instant appeal before the tribunal.

Brand promotion of GoDaddy by its Indian subsidiary amounts to export of service


a) Assessee (‘GoDaddy India’) is an Indian subsidiary of GoDaddy US. It proposed to enter into an agreement to provide brand promotion and support services in India to GoDaddy US.

b) It sought advance ruling by contending that place of provision (POP) of services to be provided by it to GoDaddy USA is outside India. Therefore, it would not be liable to pay service tax in India.

c) Revenue on the other hand contended that service to be provided by the assessee is intermediary services which is to be consumed by Indian customers and as per POP rules, POP would be location of service provider i.e. India. Therefore, such services should not be treated as export of services.

Salary of NR for rendering service in US won't be taxed in India as per DTAA even if salary is received in India

a)  The assessee was transferred from Indian company to its American sister concern to act as a lead software engineer
b)  He left India on 30th May of relevant financial year in connection with his US employment. However, for internal facilitation, his salary for relevant period was paid by Indian company in India.
c)  Assessee filed his return claiming status of a non-resident and claimed his salary income as exempt from tax in view of Article 16(1) of the DTAA between India and USA.
d)  Assessing Officer (AO) held that since salary was received in India, the same would be taxable in India irrespective of his residential status.

e)  CIT(A) confirmed the order of the AO. Aggrieved by the order of CIT(A), assessee filed the instant appeal before the tribunal.

Tuesday, March 29, 2016

Your Queries on Service Tax

Query – We have obtained contract from a company for running two canteens. We prepare food and serve to employees of company. The company has one AC canteen which is under Factories Act as company employs more than 250 employees. Company has another non AC canteen in another unit, where employees are less than 250 and is not under Factories Act.
The company is of the view that service tax is not chargeable by us to them in both the cases. However, department is taking a view that our services are 'outdoor catering services' and we are liable to pay service tax on 60% of value.
Answer - Section 66E(i) of Finance Act, 1994 defines following as 'declared service' - Service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity.

Real Estate Bill - Internal control implications

1.0 Introduction
The Real Estate (Regulation and Development) Bill has been cleared by both houses of parliament. The provisions of this new legislation assume critical importance in the context of internal controls at real estate companies. CFOs, controllers and audit committees of companies in this sector need to gear up for system and process changes to ensure compliance with this new legislation and at the same time comply with the provisions of section 134 of the Companies Act.
2.0 Internal Controls - Provisions of Companies Act
As per section 134 of the Companies Act, 2013, the Board of Directors, in case of a listed company, are responsible for laying down internal financial controls and ensuring the adequacy and effectiveness of such controls. The Directors are also responsible for devising proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.

Saturday, March 26, 2016

An order already revised under sec. 264 couldn't be subsequently revised by invoking sec. 263

Where original assessment order had been revised under section 264 and, thus, no longer existed, order passed by CIT under section 263 revising original assessment order was void ab initio
a)    Assessee filed revision application under section 264 before the Commissioner of Income-tax (CIT) to revise the assessment order passed by Assessing Officer (AO) under section 143(3).
b)    CIT accepted the revisional application of assessee and directed AO to revise the assessment order accordingly.

c)    However, subsequently, the original assessment order of AO was revised by CIT under section 263.

Friday, March 25, 2016

No action could be taken against foreign parent Co. by issuing notices to its Indian group Co.

a)        Ingram Micro Asia Holdings Inc., a company incorporated in USA and part of US based Ingram Group, acquired shares of assessee-company (Techpac Holdings Ltd.), a company incorporated in Bermuda and ultimate holding co. of Techpac Group.
b)       After the aforesaid acquisition, the Indian entity of the Ingram Group [Ingram Micro India Pvt. Ltd.] was merged into the Indian entity of the Techpac Group [Tech Pacific India] and post-merger, the name of Tech Pacific India was changed to Ingram Micro India Ltd.
c)        During the search and seizure proceedings carried out at the premises of Ingram Micro India Ltd. [previously known as Tech Pacific India] (hereinafter referred to as ‘Ingram Micro India’), Assessing Officer (AO) found share purchase agreement under which shares of assessee-company (i.e., Techpac Holdings Ltd.) were transferred to Ingram Micro Asia Holdings Inc.

d)       It was contended by AO that by virtue of the said agreement, assessee had transferred all the assets and liabilities of its Indian Group Company (i.e., Tech Pacific India) to Ingram Micro Asia Holdings Inc. Hence, there was a clear transfer of capital asset in India and, therefore, by virtue of the provisions of Section 9 of the Income-tax Act (‘Act’), the income from such transfer was deemed to accrue in India.

Wednesday, March 23, 2016

Where assessee had deducted tax at source from salary paid overseas to its nonresident employees and had deposited the same in Governments account, such payment could not be disallowed merely because tax was not paid within timelimit prescribed under section 200(1).


a) The assessee had claimed deduction in respect of payments made to expatriates pertaining to the assessment of financial year 1990-91 that was still pending.

b) The CIT(A) disallowed such claim under Section 40(a)(iii) on the ground that assessee had failed to deposit TDS within prescribed time-limit under Section 200(1). The ITAT upheld the order of CIT(A). The High Court held in favour of assessee as under :

1) A plain reading of section 40(a)(iii) indicates that no deduction would be allowable in respect of any payments chargeable under the head 'Salaries' if (a) the same are payable outside India, and (b) if tax has not been paid or deducted thereon under Chapter XVII B of the Act.

Monday, March 21, 2016

10 key takeaways from Companies Amendment Bill, 2016

Companies Amendment Bill, 2016 (the bill) was introduced in Lok Sabha on 16th March, 2016. Most of the amendments proposed in bill are broadly aimed at addressing difficulties in implementation of provisions of Companies Act, 2013.
Key amendments proposed in the bill are as follows:
  1) Appointment of auditors: It has been proposed to do away with the requirements of annual ratification by members with respect to appointment of auditors. Further, under the exisitng provisions, the auditor who has resigned from the company needs to file Form No. ADT-3 with the company and ROC. His failure to do so may attract maximum penalty of Rs 5 lakhs. Now it has been proposed to reduce such penalty to Rs 50,000. However, such penalty should not exceed the remuneration of auditor.
  2) Prohibition on loan or guarantee: Bill seeks to limit the prohibition on loans, advances, etc., to any person in which any of the director is interested in. It has been proposed to allow companies to give loan's or guarantee's or provide security to any person in whom any of the director is interested in subject to passing of special resolution by the company and utilisation of loans by the borrower for its principal business activities.
  3) Restrictions on layers of investment companies: Under the existing provisions a company shall make investment through not more than two layers of investment companies. The Bill proposes to delete the restrictions on layers of investments.

Govt. lowers interest rates on small savings schemes; interest on PPF reduced to 8.1%

Every year in the month of March, the Finance Ministry notifies the interest rates on various Small Savings Schemes for the next financial year.

However, as per the Press Release of the Government, dated 16th February, 2016, instead of annual resetting of interest rates for the next financial year, the interest rates now on will be reset a er every quarter based on the G-Sec yields of the previous three months.

Accordingly, interest rates on various Small Savings Schemes for the 1st quarter of 2016-17 have been notified by the Government considering the G-Sec yields for the months of December 2015 to February 2016. The rates of interest on various small savings schemes have been notified as under:

Saturday, March 19, 2016

Sec. 50 applies only to seller of property and not to buyer of property

a)    Assessee purchased a property for a consideration of Rs. 48 lakhs. The Assessing Officer (AO) observed that the stamp duty value of such property was much higher than the consideration declared by the assessee.
b)    AO treated stamp duty value as fair market value of such property as per section 50C and, accordingly, made addition under section 69B by treating the differential amount as unexplained investment.
c)    CIT(A) set aside the order of AO by holding that section 50C applies only to seller of property and not to buyer of property.

d)    Aggrieved by the order of CIT(A), assessee filed the instant appeal before the tribunal.

Thursday, March 17, 2016

SEBI proposes 25 % votings rights as threshold level to trigger 'control' under Takeover Code

Last week, the SEBI, in its board meeting had considered and approved the proposal for initiation of public consultation process regarding the introduction of brightline tests for acquisition of ‘control’ under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 ("Takeover Code”). The SEBI noted that multiple regulators apply the test of control from di􀁹erent perspectives and arrive at di􀁹ering results which may lead to ambiguity.

In pursuance of the SEBI Board meeting, a discussion paper has been released seeking public comments for proposals related to Brightline Tests for Acquisition of ‘Control’ under the Takeover Code.

In the discussion paper, the SEBI has proposed to amend the definition of control to define it as: (a) right or entitlement to exercise at least 25% of voting rights of a company irrespective of whether such holding gives de facto control and/or (b) the right to appoint majority of the non-independent directors of a company.

Wednesday, March 16, 2016

Notice served on old address couldn't be quashed if assessee didn't intimate the new address to dept.

a)    The case of the assessee was selected for scrutiny and, accordingly, notice under section 143(2) was issued upon him. The notice was generated through the software application of the Income-tax Department and was sent to the assessee at the address given in the return of income.
b)    Assessee filed an affidavit stating that said notice was not served. However, in affidavit, assessee had not furnished any reasons or evidences as to why notice sent at correct address could not be served on assessee.

c)    It was noticed that address of assessee in affidavit was different from address provided in return of income, which showed that assessee had changed his address and new address was not communicated to Income-tax Department.

Tuesday, March 15, 2016

Rationalization of Service Tax Abatements and various relief measures

I. Rationalization of Abatements – w.e.f. 1st April 2016 in Notification No.26/2012-ST:
1.0 Passenger/Goods Transportation by Rail – credit on input services extended:
 ♦ Earlier, the notification provided for abatement subject to not taking cenvat credit on inputs, capital goods and input services.
 ♦ The restriction regarding availment of credit on input services has been removed.
 ♦ Given the fact that such abatement is mainly given to take care of the goods portion there was no justification to restrict the credit on input services as the output service suffered tax.
 ♦ This amendment enables taking of credit on input services eventhough abatement is availed.

2.0 Transport of Goods in Containers by Rail – credit on input services extended:
 ♦  Abatement of 70% was available subject to non-availment of credit on inputs, input services and capital goods.
 ♦  Now the abatement is restricted to 60% with cenvat credit benefit on input services.

Government restores exemptions to boost infrastructural projects

I. Introduction:
With affirmation on the economic development of the country as against the global slowdown, the Hon'ble Finance Minister Mr. Arun Jaitley presented its third Union Budget for 2016-17. During the budget speech, the Finance Minister flagged various issues which are in the top most priority of the Government. One of such issue which ranks high in the agenda ever since Mr. Narendra Modi came in power is to make the tax laws of the country transparent and predictable. The Government has been vehemently promoting against retrospective amendments which imposes an unforeseeable burden on the tax payer. In the current budget, the Government has proposed to introduce three new sections under service tax law namely 101,102 and 103 so as to restore certain exemptions where were withdrawn in the previous years.
In order to understand the impact of these new sections, it is relevant to refer to serial numbers 12 and 14 of the Mega Exemption Notification 25/2012-ST dated 30.06.2012 as it stood at the time of its introduction and the subsequent amendments which happened over the years.

SEBI debars wilful defaulters from accessing capital markets

SEBI, in its Board Meeting held on March 12, 2016, approved of certain new initiatives which include imposing restrictions on wilful defaulters, proposing brightline tests for acquisition of ‘control’ under the SEBI Takeover Regulations, 2011, reviewing the manner of dealing with Audit Reports containing qualifications and approving the Budget for 2016-17. The decisions taken by the SEBI Board will have an impact on the overall market, market participants and also on the market intermediaries. The key decisions taken by the SEBI board are discussed as hereunder:

I. Certain restrictions imposed on wilful defaulters: With an intention of restricting wilful defaulters from accessing capital markets for raising funds from public, SEBI Board has approved of the following proposals:

a) Wilful defaulter to be debarred from raising funds : SEBI has proposed to prohibit the issuer company from making public issue of equity securities or debt securities or nonconvertible redeemable preference shares if such issuer company or its promoter or its directors are in the list of wilful defaulters.

b) Wilful defaulter to be restricted from taking control over other entity : If any company or its promoter or its director is categorized as ‘wilful defaulter’, then such person may not be allowed to take control over other listed entity.

However, if listed company or its promoter or its director is categorized as ‘willful defaulter’, and there is a take-over Code, 2011.

c) Criteria for determining ‘fit and proper person re-defined’ : SEBI also proposes to amend the criteria for determining a ‘fit and proper person’ in the SEBI Regulations to include that no fresh registration shall be granted to any entity if the entity or its promoters or its directors or key managerial personnel, as defined under the SEBI (ICDR) Regulations, 2009, are included in the list of ‘wilful defaulters’.

Monday, March 14, 2016

ITAT allows tax credit for dividend tax foregone by Oman to promote economic developments

a)   Assessee received dividend income from an Omani Company. The assessee was liable to pay tax in India on said dividend income as per Indian Income-tax Act. However, it was not liable to pay any tax on such dividend income in Oman by virtue of exemption granted as per Article 8 (bis) of the Oman Company Income-tax Law.
b)  Assessee included the dividend income in its total income and, thereafter, claimed credit of tax which would have been payable in Oman in respect of such income.
c)   The contention of the assessee was that Article 25 of DTAA between India and Oman allows tax credit in India for the taxes payable in Oman. Even though no taxes were actually paid in Oman by virtue of exemption or so.
d)  Assessing Officer (AO) accepted the contention of assessee and allowed credit of deemed dividend tax which would have been payable in Oman. However, subsequently, Commissioner of Income-tax (CIT) revised the order of AO and disallowed the tax credit so claimed by assessee.

e)   Aggrieved by the order of CIT, assessee filed the instant appeal before the Tribunal.

Presumptive Taxation Scheme in a new Avatar – Bigger and Better

I. Amendments to section 44AD:
The existing provisions contained in the said section (applicable to individual, HUF or partnership firm) provides that notwithstanding anything to the contrary contained in section 28 to 43C, in the case of an assessee engaged in an eligible business having total turnover or gross receipts not exceeding one crore rupees, a sum equal to 8% of the total turnover or gross receipts, or, as the case may be, a sum higher than the aforesaid sum declared by the assessee in his return of income, shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profit and gains of business or profession".
Further, under the existing scheme as per proviso to section44AD(2), where the eligible assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) of section 44AD subject to the conditions and limits specified in section 40(b).

Subsidy relatable to manufacturing cost would be eligible for Sec. 80-IB relief


a)  Assessee, eligible for claiming deduction under Section 80-IB, received subsidy, inter-alia, transport subsidy, interest subsidy and power subsidy from the Government.
b)  Assessee claimed deduction under section 80-IB in respect of subsidy so received from the Government by contending that subsidies were directly relatable to cost of manufacture and/or sale of products.
c)  Assessing Officer (AO) disallowed the deduction so claimed by assessee by holding that deduction under section 80-IB is admissible only in respect of profits derived from eligible business. There is a world of difference between the expression “profits derived from” any business, and “profit attributable” to any business.

d)  The contention of the AO was that subsidies that were allowed to assessee had no close and direct nexus with the business of the assessee but had a close and direct nexus with grants from the Government.

Saturday, March 12, 2016

Union Budget 2016 – Key Transfer Pricing proposals

The Hon'ble Finance Minister of India presented the third Budget of the Modi Government on 29 February 2016. In the backdrop of significant global slowdown and a need to jumpstart the economy, the Finance Minister's job was to strike an intricate balance between growth, fiscal consolidation and the promise to provide ease of business coupled with a non-adversarial tax regime.
In the recent past, transfer pricing has been a much debated topic in corporate board rooms as well as Government ministries worldwide. The OECDalongwith the G20 and certain other countries have issued the Base Erosion and Profit Shifting (BEPS) Guideline in October 2015 emphasizing on the need to focus on conduct and substance rather than contract and legal form in tax determination. Pricing of intra-group transactions is also a potential trigger for BEPS and expectedly found a crucial place in the OECD BEPS Guidelines.

Clarity on taxation of non-resident ~ few steps to overarching theme of ease of doing business in India

The issue of applicability of certain tax provisions to non-resident has always been a matter of debate and led to controversy in Indian tax administration. Bringing clarity in taxes, reducing litigation is one of the prime objective of the present Government. To achieve the said objective, the Government has taken few steps in the proposed Budget 2016, and has provided clarity on some of the issues faced by the non-resident.

Exemption from requirement of furnishing Permanent Account Number [PAN]
In order to ensure that more people come under the tax net, the Finance (No. 2) Act, 2009 had introduced section 206AA under the Income-taxAct. This section provided for higher withholding tax rate of 20%, if the payee does not provide the PAN, with an exception for non-resident in respect of payment of interest on long-term bonds as referred to in section 194LC. In order to reduce compliance burden for non-resident, it is now proposed that with effect from 1 June 2016, in addition to interest on long-term bonds, the provisions of section 206AA shall not apply to a non-resident in respect of any other payments subject to such conditions as may be prescribed.
This is a welcome relaxation as most of then on-resident tax payers having one time transactions may not have PAN.

Deemed conclusion under section 78a - Welcome provision

The budget, 2016-17 has fulfilled the wishes of the assessees to a great extent and one of the provision that is being welcomed by the assessees is the deemed conclusion of proceedings under section 78A of the Finance Act. This article is an attempt to discuss the amendment made in section 78A of the Finance Act. This section pertains to penalty on any director, manager, secretary or officer who is engaged in the day to day operations and conduct of business and was knowingly party to the contravention made by the organisation. The penalty provisions contained in the section 78A are produced for the sake of convenient reference as follows:-
SECTION 78A. Where a company has committed any of the following contraventions, namely:—
(a) evasion of service tax; or
(b) issuance of invoice, bill or, as the case may be, a challan without provision of taxable service in violation of the rules made under the provisions of this Chapter; or
(c) availment and utilisation of credit of taxes or duty without actual receipt of taxable service or excisable goods either fully or partially in violation of the rules made under the provisions of this Chapter; or

Controversy regarding Rate of Service Tax – Whether as per Section 67A or as per Point of Taxation Rules? Union Budget 2016 provides the key.

History of Section 67A:
Section 67A of the Finance Act, 1994 was introduced by The Finance Act, 2012 with effect from 28-05-2012 which is reproduced below:
"67A. The rate of service tax, value of a taxable service and rate of exchange, if any, shall be the rate of service tax or value of a taxable service or rate of exchange, as the case may be, in force or as applicable at the time when the taxable service has been provided or agreed to be provided.
Explanation.—For the purposes of this section, "rate of exchange" means the rate of exchange determined in accordance with such rules as may be prescribed".
Plain reading of the above provision suggest that the rate of service tax prevailing on the date of provision of service shall be relevant for the purposes of determination of service tax liability. However, such an interpretation would make the Point of Taxation Rules, 2011 redundant for the purposes of determining service tax liability which was the main objective of framing such rules.

Friday, March 11, 2016

How to tax e-commerce businesses'? - Equalisation Levy is an answer

1. Background
Finance Minister has proposed Equalisation Levy (EL) through Finance Bill, 2016, Chapter VIII.
E-commerce companies like Face Book, Google, etc. are growing very fast, earning substantial revenues and some of them are avoiding Income-tax in the Country of Source (COS) as well as Country of Residence (COR). E-commerce business is growing at the fastest rate globally and no Government in the world can allow this business to go tax free.
It is now admitted by OECD and other concerned authorities that under the present rules of international taxation, E-commerce companies can escape taxation. The main reason is that under the existing rules of international taxation, COS can tax a non-resident providing E-commerce services only if the non-resident has a permanent establishment (PE) in the COS. E-commerce companies do not need PE in any COS. They can set up the companies in tax havens and avoid COR tax also. For the last few years, there was strong public criticism – in Britain and other European countries - of these companies escaping taxation. In the light of the American and European financial crisis, G20 countries asked OECD to come out with recommendations for necessary modifications in the existing rules so that E-commerce companies also can be taxed.

Kick to Startup India initiative

The economy of any country depends on quality of its people. Larger the number of employed people, better will be the economy. The importance of promoting entrepreneurs has been recognised by the Indian Government. 'Startup India, Stand up India' is one such campaign for creating a conducive environment for ‪‎startups in India. It aims to boost entrepreneurship, encourage startups with job creation and building an economy driven by technology.

For empowering startups to grow through innovation and technology, the Indian Government announced startup India: Action Plan [plan] which addresses all aspects of the startup eco-system. The plan proposes a 19 point action list which inter-alia includes compliance regime based on self-certification, startup India hub, rollout of mobile app and portal, legal support and fast-tracking patent examination at lower cost, faster exits, funding support through a 'funds of funds' with a corpus of INR 10,000 crore, etc. It also proposes to provide tax exemptions on profits, capital gains, and investment above fair market value subject to fulfillment of certain conditions. The objective to give these exemptions is to promote investments into/growth of startups and address the working capital requirements.

Recently, the Government has issued a notification wherein the term 'startup' has been defined and the procedure for its recognition and obtaining tax benefits has been prescribed.

‘Race against deadline’ for Companies eager to declare interim dividend

The companies suddenly seem to be in a rush to declare interim dividend. The driving reason behind this rush lies in the amendments inserted in the Finance Bill, 2016.
Finance Bill, 2016, seems to have caught hold of the income which was getting taxed at a lower rate. As per the provisions of the Income Tax Act, 1961("IT Act"), dividend distributed by companies, are exempt in the hands of the shareholders by way of exemption under section 10(34) IT Act. Thus, companies are liable to pay distribution tax under section 115-O of the IT Act, at the rate of 17.304% (i.e. basic rate of 15% plus surcharge of 12% and cess of 3%).
Through the FinanceBill 2016, a new section has been introduced (i.e. 115BBDA) to provide that, where the dividend is to be paid to resident individuals, HUFs and Firms then, there would be an additional tax at the rate of 10% in the hands of the investors. This step by the Hon'bl Finance Minister aims at taxing such portion of income which was getting escaped from the ambit of tax, in the hands of those investors, who are subjected to higher tax rate (i.e. 30%).

Our Budget expectations once again come to fruition

Every year ‘Taxmann’ predicts and suggests various substantive and procedural changes to taxation laws based on judicial litigations, prevalent uncertainties and change in the business environment. We met several expectations for Union Budget 2014-15 and 2015-16 which were published in [2014] 47 297 (Article) and [2015] 61 143 (Article).

This year also we have released our Budget expectations in [2016] 67 45 (Article). It is to our credit that many of our expectations came to fruition in the Union Budget 2016 as well.

Thursday, March 10, 2016

Move to create employment opportunity

Considering the growth of the economy, the expectation from the Government in the current year's ‪#‎budget was to create more employment opportunities in various sectors such as infrastructure, manufacturing, etc., thereby, resulting in generation of income.

Towards this end, the ‪#‎FinanceBill, 2016,has proposed to incentivize the employers by expanding and liberalising the scope of employment generation incentive available under Section 80JJAA of the Income-tax Act, 1961 ('the Act').

Prior to the proposed amendment, benefit under Section 80JJAA of the Act was available only to employers engaged in the manufacture of goods, subject to the fulfilment of specified conditions such as new regular workmen employed during the previous year in excess of 50 workmen for an existing factory, increase in the number of regular workmen must be by atleast 10% of the existing number of workmen as on the last day of the preceding year.

There has been litigation in the recent past on whether the deduction would be available only to manufacturing sector or would other sectors also be eligible for the same There has been a Tribunal decision wherein, it has been held that even an IT and ITeS Company would be eligible to claim deduction under Section 80JJAA of the Act.

Addressing the above issue and also for generating new employment opportunities, the Finance Minister has proposed to amend the eligibility criteria for deduction under Section 80JJAA of the Act, thereby widening the scope to include all assessees liable to tax audit and not only those engaged in the manufacturing activity.

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Our Budget expectations once again come to fruition

Every year 'Taxmann' predicts and suggests various substantive and procedural changes to taxation laws based on judicial litigations, prevalent uncertainties and change in the business environment. We met several expectations for Union Budget 2014-15 and 2015-16 which were published in [2014] 47 120 (Article) and [2015] 61 143 (Article).
This year also we have released our #Budgetexpectations in [2016] 67 45 (Article). It is to our credit that many of our expectations came to fruition in the Union Budget 2016 as well.
The following is a comparative study of the changes suggested by us viz-a-viz changes proposed in the Finance Bill, 2016:

Expectations from Budget 2016-17
  1.  (a) Dividend income and share in profit of a firm should not be treated as exempt income for Section 14A disallowance as these incomes always suffer economic taxation.(b) Section 14A disallowance should not exceed amount of total expenditure claimed under any provision of the Act.
  2. As per section 206AA, where the deductee does not furnish the PAN, tax shall be deducted at source at higher rates. Such provision is also applicable to non-residents.

Wednesday, March 9, 2016

Impact of Budget on Individual taxpayers

The Finance Minister, Mr. Arun Jaitely on February 29, 2016 presented his 3rd Union Budget in the Parliament. Various changes have been proposed in the income-tax provisions which would impact the taxable income of an individual. The key direct tax proposals made for an Individual are as under:
  1.  Rate of surcharge shall be increased to 15% from 12%, if total income of an individual exceeds Rs. 1 crore.
  2.  Relief under Section 87A is proposed to be raised from Rs. 2,000 to Rs. 5,000 if total income of a resident individual does not exceed Rs. 5, 00,000.
  3. Dividend income is exempt under section 10(34). However, the Finance Bill proposes an additional tax at the rate of 10% on gross amount of dividend income received from domestic company, if it exceeds Rs. 10 lakhs per annum.
  4.  Additional deduction up to Rs. 50,000 is proposed under section 80EE in respect of interest on housing loan to the first time individual buyers of a residential house property.
  5.  Maximum deduction under section 80GG for individuals paying house rent but not receiving HRA shall be increased from Rs 24,000 to Rs. 60,000 per annum.
  6.  Time-limit to acquire or construct house property to claim deduction of interest on housing loan under section 24(b) has been proposed to be increased from 3 years to 5 years.
  7.  A new Section 54EE is proposed to provide exemption up to Rs. 50 lakhs for long-term capital gains invested in units of funds set-up by Government to promote start-ups.
  8. Filing of return is now mandatory, even if entire income is exempt from tax under Section 10(38). However, in such case total income should exceed maximum exemption limit without giving effect to the provisions of Section 10(38).
  9.  Currently, belated return can be filed at any time before the expiry of 1 year from the end of the relevant Assessment Year. Now, it is proposed that belated return cannot be filed after expiry of relevant Assessment Year.

Dividend income no longer a sweet exempt pie!!

Finance Act, 1997 bought about a radical change in the system of taxing distribution of dividends by inserting section 115-O of the Income-tax Act, 1961 ('Act'). The tax on dividend was over and above the taxes paid by the company on its profits. This amendment was often criticized as it amounted to double taxation in the hands of the company and again in the hands of shareholders.
Dividend distribution tax ('DDT') was abolished in the year 2002 and the budget for the financial year 2002-2003 proposed the removal of DDT by bringing back the regime of dividends being taxed in the hands of the shareholders/ recipients.
However, in line with the view that it is easier to collect tax at a single point i.e. from the company rather than individual shareholders, the Finance Act, 2003 re-introduced section 115-O of the Act and taxed the amounts so declared, distributed or paid by way of dividend in the hands of the company. Consequently, deduction under section 80L (available to individuals) was discontinued. Also, dividend liable to DDT under section 115-O of the Act was exempted from tax in the hands of shareholders pursuant to section 10(34) of the Act.
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Tuesday, March 8, 2016

FinMin issues clarifications on excise duty imposed on jewellery

In the Union Budget 2016, basic excise duty of 1% is being imposed on Articles of jewellery (excluding silver jewellery). This will have major impact on individuals as well as Goldsmiths. The excise duty is levied with effect from March 1, 2016. Now, Ministry of Finance issues clarifications to remove doubts and uncertainty on such levy. The Key clarifications are given here under:

1) Articles of silver jewellery are exempt from excise duty.

2) Job workers (manufacturing jewellery for principal manufacturers) are not required to take excise registration and pay excise duty.

3) SSI exemption limit of Rs 6 crore is available to manufacturers of jewellery along with higher eligibility limit of Rs. 12 crore.

Monday, March 7, 2016

Judicial Rulings that prompted amendments by the Finance Bill 2016

The Hon’ble Finance Minister, Arun Jaitley had presented the Union Budget 2016, on 29 February 2016. The Finance Bill, 2016 had proposed certain changes consisting of substantive and procedural changes to reduce the litigation and to bring clarity in the Income-tax Act. There were many judicial rulings that spurred amendments by the Finance Bill, 2016.

Market value of property as on 1/4/1981 can be taken as its cost even if only possession was acquired before 1/4/1981


a) Govt. of Tamil Nadu assigned property to the assessee with subject to certain conditions.

b) Assessee acquired possession of the property much before 1st April 1981 by paying entire consideration thereof but due the various conditions imposed by the Tamil Nadu Government, sale deed in favour of assessee was executed in April 1994.

c) Later on in year 2003, assessee sold the property and claimed capital gain loss by taking fair market value (FMV) of property as on 1st April 1981 as its cost of acquisition.

d) CIT took the view that assessee couldn’t take FMV of property as on 1st April 1981 as its cost of acquisition for computation of capital gain as he became the legal owner of the property in 1994 when the sale deed was executed. Accordingly, CIT directed AO to compute capital gain by taking date of acquisition of property as 19.4.1994.

e) Aggrieved by the order of CIT, assessee filed the instant appeal before the tribunal.

Friday, March 4, 2016

Buy-back of shares under scheme of arrangement can't be said to be a colourable device to evade tax: HC

In law, petitioner is entitled to buy back its own shares by means of a scheme under section 391 read with sections 100 – 104 of the Companies Act, 1956 [corresponding to Sections 230 to 232 of Companies Act, 2013], scheme cannot be said to be a colourable device to evade income tax, it is a legally permissible procedure which petitioner is entitled to follow to buy back its shares


a) The Petitioner filed plea seeking sanction of the Scheme of Arrangement with its Equity Shareholders in accordance with the provisions of Section 391 read with Sections 100 to 103 of the Companies Act,1956 [corresponding to Sections 230 to 232 of Companies Act, 2013]. 

b) As per the Scheme, the Petitioner-Company proposed to buy-back Equity Shares of the Company representing 30% of the issued, subscribed and paid up share capital. There was no compulsory purchase. An option, was given to the equity shareholders under the Scheme

c) Regional Director's objected to the saying that scheme was a colorable device intended to evade buy-back distribution tax (BBT) liability under the Income Tax Act, 

d) According to the Regional Director, if a buyback of shares is effected under Section 77A/Section 68, then the distributed income of the company as defined in Section 115QA of the Income Tax Act would be charged to tax, and it is for this reason that the company is not following the procedure prescribed under Section 77A/Section 68 and has opted for the procedure under Section 391 which would not attract such a tax under Section 115QA of the Income Tax Act.

Thursday, March 3, 2016

There were enormous expectations from the Finance Minister

There were enormous expectations from the Finance Minister as this is their 3rd budget. Announcements regarding GST were expected, however there was no commitment of a date for GST introduction in the Finance Minister’s speech apart from a mention that focus would be to introduce it at the earliest. Introduction of 12 new benches of the CESTAT should help in reducing the congestion currently existing in the litigation system.

However, levy of new Krishi Kalyan Cess of 0.50% on all services, though creditable, is a setback as it would increase the cost of services. This cess would have an impact on all aspects of the economy, since all taxable services will attract this cess. Further, levying and reporting service tax would be more complex as service tax and Krishi Kalyan cess would be creditable but Swachh Bharat cess would not be. Overall, it’s a budget with some reform but it leaves us with an expectation that more could have been done

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The Budget has taken a step forward in rationalizing the tax regime

The Budget has taken a step forward in rationalizing the tax regime through sunset provisions for certain exemptions and deductions. It will also give a boost to manufacturing and to SMEs through the reduction in tax rates. Startups will be encouraged by the 3-year tax holiday and capital gains exemption for investors. The special patent regime is an innovative idea and will encourage indigenous research and development. The rules for place of effective management have been deferred by one year in response to representations by stakeholders.

This will give time to companies to make adjustments to align with the rules. The proposals such as stay of demand, easing of TDS requirements, the alternative facility for non-residents who do not have PAN, the procedure for e-assessment and time limits for passing effect orders will facilitate a taxpayer-friendly environment and in turn the objective of ease of doing business.

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