Friday, September 30, 2016

Monthly maintenance charge payable by tenant is part of actual rent: High Court

The substantial question of law that arose before the High Court was as under:

Whether maintenance charges could be included as part of rent?

The High Court held as under:

1) If the maintenance charges are not included in the rent, it would enable an assessee to avoid paying tax on the true annual value of the property.

2) The amount of rent would also be dependent upon the common facilities of a building. The better the facilities, the higher the rent. It can hardly be suggested that the annual value of a property which provides several common amenities such as a swimming pool, gymnasium, security car, parking and elevators would be the same as the annual value of a property in the same area but without these facilities.

3) Where the agreement provides that the owner shall pay the amounts for the common facilities, maintenance charges, etc., it is obvious and reasonable to presume that the same is factored into the rent payable by the lessee or the licencee. In that event the same cannot be added to the rent agreed to be paid. However, if the maintenance charges, etc., are stipulated to be payable by the licencee or the lessor it must form a part of the rent for the purpose of computing the annual value of the property. -SUNIL KUMAR GUPTA V. ASTT. CIT - [2016] 73 374 (Punjab & Haryana)

Thursday, September 29, 2016

Interest paid to partners can't be disallowed under sec. 14A in hands of firm: Pune ITAT

a) A partnership firm was engaged in the business of manufacturing of chemicals. It had claimed deduction of interest paid on partner’s capital.

b) While making assessment, the Assessing Officer observed that investment in mutual funds was made out of interest bearing funds which also included interest bearing partner's capital.

c) The Assessing Officer was of the view that assessee had incurred expenditure including interest expenses which were attributable to earning tax-free dividend income from investment in mutual funds. Thus, the expenditure so incurred on interest was required to be disallowed.

d) Further, the CIT(A) confirmed the action of the Assessing Officer.Aggrieved-assessee filed the instant appeal before ITAT.

The ITAT held in favour of assessee as under:

1) Interest and salary received by the partners are treated on a different footing by the Act and not in its ordinary sense of term. The Section 28(v) treats the passive income accrued by way of interest as also salary received by a partner of the firm as a 'business receipt' unlike different treatments given to similar receipts in the hands of entities other than partners.

Wednesday, September 28, 2016

CBEC releases draft Rules and Formats of Returns and Refund under GST

On September 26, 2016, the CBEC has unveiled the draftrules and forms under GST on Registration, Invoice and Payment. Now, CBEC releases another draft rules and formats for Returns and Refund. Key highlights of rules and forms are as under:

1. The registered taxable person is required to file details of outward supplies in Form GSTR-1 electronically. The recipient will receive GSTR 2A on the basis of details furnished by supplier in GSTR 1.

2. The recipient will file details of inward supplies in GSTR 2 electronically on basis of details contained in GSTR 2A. The recipient shall specify the details of inward supplies for which he is not eligible for input tax credit and quantum of such ineligible input credit.

3. The registered taxable person, other than composition dealer,shall file monthly return in GSTR-3. Part of this return will be electronically generated from GSTR 1, GSTR 2, electronic credit ledger, electronic cash ledger and electronic liability register. Part B has to be filled to discharge liability or to claim refund. The refund claimed in Part B shall be deemed to be an application filed for refund.

Tuesday, September 27, 2016

CBEC releases draft GST Rules and Forms

With enactment of 101st Constitution Amendment Act, the road to GST is clear. The Govt. had already unveiled draft model law on GST. Today, CBEC released draft rules and forms under GST on Registration, Invoice and Payment. Key highlights of rules and forms are as under:

Registration Rules

1. The application of registration will be examined by proper officer and he will approve and grant registration within 3 common working days.

2. If the application is found deficient, then applicant will be intimated within 3 common working days. Thereafter, applicant has to furnish required clarification, information or documents sought within 7 working days electronically. If proper officer is satisfied with details provided by applicant, he will grant registration within 7 common working days from receipt of such details. Otherwise, he will reject application and inform electronically to applicant.

3. The registration certificate must be displayed at principal place of business and at every additional place of business and GSTIN must be displayed in the name board at the entry of place.

4. The person obtaining registration as casual dealer is required to make advance deposit of estimated tax liability for the period for which registration is sought.

Monday, September 26, 2016

SEBI proposes foreign portfolio investors to directly trade in corporate bonds without a broker

SEBI board has met in Mumbai and took the following important decision:

1) FPIs permitted to trade directly in Corporate Bonds: With an aim to deepen corporate bonds market by attracting more overseas funds, SEBI has decided to allow wellregulated Foreign Portfolio Investors (FPIs) to trade directly in these securities without any broker.

2) Amendment in InvIT and REIT regulations: In order to facilitate growth in Infrastructure and Real Estate, SEBI has allowed Infrastructure Investment Trusts (InvIT) and Real Estate investment Trust (REIT) to invest in a two-level special purpose vehicle structure through Holding Company (Holdco) subject to sufficient shareholding in the Holdco and the underlying SPV and other safeguards.

Mumbai ITAT grants interest on tax refund even if refund was less than 10% of gross tax

a) The assessee claimed interest under section 244A. The Assessing Officer held that, since the refund determined was less than 10 per of gross tax, no interest would be payable to the assessee under section 244A and thus, he rejected the rectification application.

b) On appeal, the Commissioner (Appeals) affirmed the order of the Assessing O􀁹icer. The Tribunal held in favour of assessee as under:

1) There was no proper justification on the part of the revenue to withhold the amount of refund beyond the date of issuance of intimation/order under section 143(1).

2) Upto the date of passing order/intimation under section 143(1), no interest shall be payable by the department to the assessee because of clear provisions of law on the statute in this regard, but for the period of delay in issuing the refund after the date of passing of the order under section 143(1), the assessee is entitled for interest.

3) Thus, the Assessing Officer was directed grant the interest under section 244A for the period falling between the date of passing of order under section 143(1) and actual date of granting of refund, at the rate of interest as would have been applicable if the refund amount would have been for an amount more than 10 per cent of the gross tax. - [2016] 73
228 (Mumbai - Trib.)

Friday, September 23, 2016

CBEC releases FAQs on GST

With the enactment of 101st Constitution Amendment Act, the road to GST is clear. The Govt. had already unveiled draft model law on GST.

The National Academy of Customs, Excise & Narcotics (‘NACEN’) is conducting a mammoth capacity building exercise to train about 60,000 indirect tax officers of the Centre and State so that officers are well equipped to implement GST when it is rolled out. Now the NACEN has released FAQs on Registration, Valuation, Refund, and Input Tax credit,etc.

The FAQs have been prepared and reviewed by a team of officials from both Centre and States. These FAQs compilation covering 24 topics with over 500 questions, will be an effective tool in disseminating knowledge on GST to Tax officials, Trade and Public. This is the first version based on the Model GST Law which has been released in the public domain. NACEN will bring out updated versions of the FAQ, as and when relevant statutes are enacted and rules are framed.

Thursday, September 22, 2016

Order not barred by limitation when it was ready to be served upon assessee before limitation period

The issue before the High Court was as under:

Whether the Tribunal erred in law in holding that the assessment order under section 143(3) received by the assessee was barred by limitation and as such perverse?

The High Court held in favour of revenue. The aggrieved-assessee filed the SLP in Supreme Court against such order. The Apex Court dismissed the SLP.

The observations of the High Court are given hereunder:

1) A representative of the assessee, on his own volition and without intimation to the Department, visited the office and found the assessment order ready to be served upon him.

2) The probability of the order being made and ready to be collected by the representative of the assessee before the period of limitation, could not also be ruled out. Thus, assessment order was not barred by limitation. - BINANI INDUSTRIES LTD. V. CIT - [2016] 73 191 (SC)

Tuesday, September 20, 2016

The concept of lifting of corporate veil can be resorted to even in execution proceedings

The concept of lifting the corporate veil is applicable not only in the cases of holding of subsidiary companies or in the case of tax evasion but can be equally applied in execution proceedings. The corporate veil can be li􀁺ed in cases where the Court from the material on record comes to the conclusion that the Judgment Debtor is trying to defeat the execution of the Award which is passed against him

The disputed questions that arose in the instant case are:

a) In which cases corporate veil can be lifted by the Court and whether the concept of lifting of corporate veil is also available in execution proceedings?

b) Whether the learned Single Judge was justified in lifting the corporate veil in this case and whether the learned Single Judge was further justified in coming to the conclusion that Bhatia Industries and Infrastructure Limited (BIIL) and Bhatia International Limited (BIL) was a single economic entity?

c) Whether any interference is called for in the order passed by the learned Single Judge? 

The High Court held as under:

Monday, September 19, 2016

DU giving xerox of books to its students as a course pack doesn't infringe Copyright Act

a) International publishers including University Press, Cambridge University Press and Taylor & Francis lodged a case against Rameshwari photocopy shop, a licensed vendor located in DU’s north campus.

b) The publishers had alleged that photocopy shop had been indulging in creating pirated version of books and selling them away to the student at very cheap prices.

c) Further publishers contended that photocopy shop was violating copyright law and causing them financial loss since student stopped purchasing their books. At the time, the Court passed an interim order preventing the vendor from selling the compilations of photocopied texts.

The High Court held as under:

1) The interests of the students can be rightly protected under the Indian Copyright Act which allows for fair dealing practice. Further, there are exemptions on “fair use” of work including educational propose from the purview of infringement.

2) Copyright is not a divine, natural or inevitable right that confers on authors/publishers the absolute ownership of their creations. It is designed rather to stimulate activity and progress in the arts for the intellectual enrichment of the public.

MCA doubles limit of managerial remuneration payable by Cos. having no profit or inadequate profit

MCA has notified the revised Remuneration Limits for the Companies having no or inadequate profits as per Schedule V of the Companies Act, 2013. To align the interest of managerial person in companies, it has been decided to amend the Schedule V of the companies act for enhancing the managerial remuneration payable by the companies having no profit or inadequate profit it its managerial person.

The following points have been kept in mind by the companies while calculating the managerial remuneration:

i) Where effective capital is negative or less than 5 crores, then a company can pay upto Rs. 60 lakhs (earlier the limit was Rs. 30 lakhs) per annum as a remuneration to its managerial person.

ii) If effective capital is more than 5 crores but less than 100 crores, then a company can pay upto Rs. 84 lakhs (earlier it was Rs. 42 lakhs)

Friday, September 16, 2016

IDS payments shall not be reflected in 26AS; Govt. reiterates its stand on confidentiality of info

The Income Declaration Scheme, 2016 (‘IDS’) provides an opportunity to persons who have not paid full taxes in past to come forward and declare their undisclosed income and assets. The IDS is open for declaration up to 30.09.2016.

Govt. reiterates that the information contained in a valid declaration under IDS is confidential and shall not be shared with any authority. Further, the payments under IDS shall neither be reflected in 26AS statement nor can be viewed by the Assessing Officer in the Online Tax Accounting System (OLTAS) of the department in the interest of confidentiality.

Thursday, September 15, 2016

Threatening letter issued by CA to recover fees from client is an act of professional misconduct


a) The CA used to file Income Tax returns of client and his family members.

b) The client received a bill from CA demanding sum of Rs. 3.8 lakhs as professional fee for filing returns and his family members for 19 years. Further bill was accompanied with written statement threating to initiate legal action against him if the payment was not made.

c) The client filed a complaint with the ICAI council against such CA. The Council held that the CA was guilty of 'professional misconduct' for annexing a note to the bill which contains a language not expected from a Chartered Accountant.

The High Court held as under:

1) The Disciplinary Committee opined that CA gave no explanation as to why for each year as and when professional services were rendered, a bill was not raised. Further the Disciplinary committee did not delve further into merits of the dispute, the reason appeared to be that the dispute was a civil dispute and was sub- judice.

2) But, with respect to the written communication appended by way of note to the bill, it opined that the language was threatening and not expected of a CA who is looked upon by the society as a dignified professional.

3) The Court concurs with the opinion of Disciplinary Committee held that the CA had committed a professional misconduct. [2016] 73 83 (Delhi)

Wednesday, September 14, 2016

No denial of exemption on maturity of life insurance policy just because policy was taken from foreign insurer


a) The assessee received a certain amount on account of maturity of life insurance policy taken by her husband from American Insurance Company in Abu Dubai. She claimed tax exemption on such amount under section 10(10D).

b) The Assessing Officer disallowed the claim of the assessee on the ground that the insurance policy was not taken from Indian insurance company and, therefore, provisions of section 10(10D) were not applicable.

c) The Commissioner (Appeals) upheld the order of the Assessing Officer. The aggrieved assessee filed the instant appeal before the ITAT.

The ITAT held in favour of assessee as under:

1) Section 10(10D) provides that any sum received under life insurance policy is eligible for exemption, except in case of exceptions as culled out under clauses (a), (b) and (c). It was not the case of the revenue that the assessee falls under any of the exemption as enumerated in clauses (a), (b) and (c) of section 10(10D).

Monday, September 12, 2016

Payments made by 'Yash Raj Films' for making copies of film negative weren't technical services


a) Assessee-company (i.e. Yash Raj Films) made payments to Adlab for making copies of prints for the films.

b) Assessing Officer (AO) noticed that the assessee had not made deducted TDS as per the provision of section 194J in respect of payments made to Adlabs Ltd.

c) Assessee's stand was that the work performed by Ablab did not involve any technical or professional services, therefore payments were covered under section 194C.

d) On appeal, CIT(A) granted relief to the assessee. Aggrieved by the order of CIT, revenue filed appeal before Tribunal.

Tribunal held in favour of assessee as under:

1) The contract was made for taking out multiple prints of the final negative which was given to Adlab. Such jobs or work contracts of making several prints of the same final negative did not involve any technical or professional services.

2) In view of above facts, CIT (A) was justified in holding that assessee has rightly deducted TDS on the payments made to Adlabs, for supplying copies of final negative as per the provisions of section 194C. - [2016] 73 73 (Mumbai - Trib.)

Saturday, September 10, 2016

Course launched by USA University in India isn't its business activity as it is registered as NPO


a) The Regents of the University of California (‘UCLA’) entered into an agreement with Northwest Universal Education Private Ltd (‘NUEP’) to launch a Management Program in India which would train the senior executives of the companies.

b) It agreed to send its professors for training the senior executives working in India in respect of management techniques.

c) The applicant raised following questions:

- Whether program fee received by the Applicant is chargeable to tax in India as ‘fees for included services’ under Article 12 of the India-US DTAA?

- Whether the activities undertaken by it in India, viz., teaching would constitute its PE in India in terms of Article 5 of the India-US DTAA?

The Authority held as under:

1) Since the nature of the activity by the applicant in that case was educational activity, it could not amount to fees for included services particularly because of the provision of Article 12(5)(C).

Friday, September 9, 2016

SEBI tightens screw on promoters for enforcement of exit option in case of compulsory delisting

Under the existing delisting norms a Recognized Stock Exchange has power to delist the equity shares of listed company on certain grounds. The whole time directors and promoters of Company (which has been compulsory delisted) are debarred from accessing the securities markets for a period of 10 years from the date of compulsory delisting. 

The existing delisting Regulations provides that pursuant to compulsory delisting of a company, the promoter shall acquire delisted equity shares from the public shareholders, subject to their option of retaining their equity shares, by paying them the fair value. 

In addition to the existing delisting Regulations, SEBI has imposed new restrictions on promoters and whole time directors of company to ensure effective enforcement of exit option to the public shareholders in case of compulsory delisting of company. Accordingly, SEBI hereby directs that in case of such companies whose fair value is positive:

a) such a company and the depositories shall not effect transfer of any of the equity shares and corporate benefits (like dividend, rights, bonus shares, split, etc.) shall be frozen, for all the equity shares, held by the promoters/ promoter group till the promoters of such company provide an exit option to the public shareholders in compliance with delisting Regulations;

b) the promoters and whole-time directors of the compulsorily delisted company shall also not be eligible to become directors of any listed company till the exit option is provided.

Thursday, September 8, 2016

Subsidiary company can adopt calendar year as its FY for consolidation of accounts


a) Universal Robots (India) Pvt. Ltd., is an Indian Subsidiary of Universal Robots AS, which is registered in Denmark.

b) It had adopted FY ending March 31, 2015as per the requirement of the Companies Act, 2013. Whereas, the holding company followed the calendar year as FY. So, it realised that due to different FY it will be difficult to consolidate its accounts with that of holding company.

c) The Board of Directors of the Universal Robots (India) Pvt. Ltd.passed a resolution to change its FY to calendar year. Holding company also consented for the same. d) It filed petition to get permission to follow calendar year as its FY for consolidation of accounts.

The NCLT held as under:

1) Section 2(41) of the Companies Act, 2013 provides as follows:

Wednesday, September 7, 2016

CA not guilty of misusing of service tax collected from client; further inquiry ordered


a) A CA used to file returns of his client and at the end of every month, he used to collect the amount of service tax on behalf of the client for depositing it in the service tax account. 

b) He used to give photocopies of the Challans deposited in the Bank. On verification of service tax payments to bank it was found that CA was not depositing the same of service tax as collected from client.

c) Client filed a complaint with the ICAI council against such CA. The Council held that the CA was guilty of 'professional misconduct'.

The High Court held as under:

1) The complaint did not mention the relative amounts, the challans, the amounts allegedly collected as due, and the amounts paid. However, the relative or corresponding demands from the Service Tax authorities or the assessment orders, or even the service tax returns, were not on the record. These would have substantiated to a large measure the client's allegation. Likewise, there was no material to suggest that the amounts were deposited in some other concern's account. Quite possibly the respondent has been charge criminally for an offence.However, that ipso facto did not transform into proof of such criminal misconduct;
the prosecution or the complainant would have to establish his guilt. 

2) The matter requires to be gone into afresh by the Council. Having regard to the gravity of the allegations, it would be appropriate that the Council should consider all the relevant materials, including the documents and the deposition of the complainant before preparing a fresh report.

Tuesday, September 6, 2016

When refund is granted partly, it has to be first adjusted against interest payments and balance against tax


a) The income-tax dept. refunded part amount of tax to the assessee in the first phase and refunded remaining tax amount in the second phase.

b) The assessee arguedthat it was entitled to interest on balance amount of tax refund paid in the second phase but the AO had not granted the same.

c) Thus, the issue before the ITAT was:

Whether the amount of refund paid in the second phase should be adjusted first against the interest component and thereafter the balance amount should be adjusted against the principal component?

The ITAT held as under:

1) It was not a case of payment of interest on interest. Thus, the CIT (A) had wrongly applied the judgment of Hon'ble Supreme Court in the case of Gujarat Fluoro Chemicals[2014] 42 1 (SC).

2) It is clear that where the amount of tax demanded is paid to the assessee then it shall first be adjusted towards interest payable and balance, if any, adjusted towards whatever tax payable.

Monday, September 5, 2016

Dy. Director of Income Tax isn’t empowered to lodge complaint for prosecution against taxpayer

a) The Deputy Director of Income Tax (‘Dy. DIT’) filed complaint for prosecution against taxpayers (i.e., husband and wife) under Indian Penal Code on basis of revelation that the statements made by taxpayers on the date of the search were false and misleading.

b) The Trial Court held that sufficient grounds had been made out against taxpayers to proceed under Sections 191,193, 200 IPC.

c) The taxpayers sought annulment of order of Trial Court primarily on the ground that the search operations having been undertaken by the I.T.Os., the complaint could not have been lodged by the DY. DIT, who was not the appellate authority in terms of Section 195(4) of the CrCPC. On appeal, the High Court declined to interfere on either of these contentions.

The Supreme Court held as under:

1) The DY. DIT, cannot be construed to be an authority to whom appeal would ordinarily lie from the decisions or orders of the I.T.Os involved in the search proceedings so as to empower him to lodge the complaint in view of the restrictive preconditions imposed by Section 195 of CrPC.

2) Thus, the complaint filed by the Deputy Director of Income Tax was to be held as incompetent. – [2016] 73 32 (SC)

Friday, September 2, 2016

Bank can purchase auction property of borrower in absence of any response from bidder: SC

Rule 17 of the Second Schedule of Income Tax Rules, 1961 doesn’t impose any restriction on the Bank from participating and purchasing property in auction where invitation to bid did not result in any response from any interested bidder and it is the Recovery Officer on whom such an embargo has been placed.


a) Whether a bank can purchase mortgaged property in auction sale from its own borrower where there is no show or invitation to bid doesn’t result in any response from bidder?

b) Whether Rule 17 of the Second Schedule of Income Tax Rules, 1961 imposes any restriction in permitting a Bank to take part in the public auctions?


a) ICICI bank Ltd. approached DRT for enforcing security interest against loan. The DRT directed recovery officer to conduct a public auction after fixing offset price however, no bidder came forward to purchase property.

b) In such circumstances, the Bank itself had offered to purchase the properties and Bank’s o􀁹er was accepted and property were sold to Banks. The Bank gave an option to the respondents-borrowers to deposit the amount with interest however, the respondent borrowers did not acted upon.

c) The respondent-borrowers moved to DRT and later to DRAT against sale of the mortgaged properties to Bank however, the plea was dismissed by both the Tribunals.

Thursday, September 1, 2016

Tax Benefits by Ireland to Apple: 8 Things to Know

Apple Inc. has been asked by the European Commission to pay tax of €13 billion plus interest to the Irish Government. Such directions have been given by the European Commission after its investigation that Ireland had granted undue tax benefits to Apple Inc. which is illegal under the EU State Aid Rules.
The European Commission in its investigation found that Apple Inc. was carrying on business in Ireland through its two subsidiary companies, namely, Apple Sales International and Apple Operations Europe.
The Irish subsidiaries were internally allocating almost all their profits to their respective head office. These head offices were existed only on papers and not based in any country. Therefore, Irish Subsidiaries were paying tax in Ireland only on profits that were allocated to Irish branch and not on majority of profits that were allocated to the ‘head office’.
The Irish Apple subsidiaries were able to transfer their profits to head office without paying any taxes because of two tax rulings of Ireland whereby they were allowed to allocate most of their profits to the head office and were liable to pay tax only on remaining part.
After assessing the business operations of Apple and tax rulings of Ireland, the European Commission concluded that Ireland had violated the EU State Aid Rules by allowing Apple’s subsidiaries to artificially allocate their profits to non-existent head office.
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