Friday, June 23, 2017

Timing of India Withholding Tax on Royalty/Technical Service Fees for overseas entities– the Dichotomy continues?

Withholding Tax in India is often perceived to be a challenging matter by many overseas entities having operations/activities in India. This may be on account of various reasons like lock up of funds in India (on account of taxes withheld) where a position of non taxability of income is adopted, mismatch between the year in which taxes are withheld by the Indian payer of income vs. the year in which the income is offered to tax in India, challenges with claiming credit for taxes withheld in India in the home country. 

One of the issues on which there has been some judicial debate is the point of time when withholding tax obligation triggers for an Indian payer of income in relation to a Royalty/Technical Service fee ('Service fee') payment proposed to be made to an overseas entity.

So as to set a context to the issue which is discussed in this article, to start with, it may be relevant to make a quick note of the fact that Sections 5 and 9 of the Income-tax Act, 1961 ('IT Act') are provisions dealing with scope of incomes chargeable to tax in India in principle, whereas, Section 145 of the IT Act governs the timing of taxation of the incomes in India (i.e. based on the cash or mercantile system of accounting regularly followed). Section 195 of the IT Act deals with withholding tax obligations in relation to payments proposed to be made to non-residents which are chargeable to tax in India.

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IFRS Exposure draft: Sales proceeds during testing of fixed asset to be recognised as other income

The International Accounting Standards Board (IASB) has proposed narrow-scope amendments to International Accounting Standards (IAS) 16 Property, Plant and Equipment. IAS 16 provides principles for recognition and measurement (initial & subsequent) of items of Property, Plant and Equipment (PPE) as assets. The proposed amendments include modification to the definition of directly attributable costs as cited in the para 17 of IAS 16.

As per clause (e) of para 17, directly attributable costs include costs of functionality testing of assets after deducting the net sale proceeds from items produced while bringing the asset to the location & condition necessary for it to be capable of operating in the manner as intended by the management.

Now, IASB has proposed amendments to the above component of directly attributable cost. As per the amendment, the net sale proceeds from such items produced should not be deducted from the costs of functionality testing of assets. To establish principle for treatment of such sale proceeds, a new para 20A has been proposed to be added to IAS 16.

According to the proposed new para 20A, the proceeds from selling such items produced while bringing the asset to that location & condition and production costs of such items should be recognised to profit or loss as per respective IAS/IFRS (International Financial Reporting Standards).

The above amendments have been proposed to reduce diversity in application of para 17 of IAS 16. These amendments would be applied both prospectively and retrospectively. An entity shall apply these amendments retrospectively only to the items property, plant & equipment brought to use as intended by the management only in the year in which the entity first applies these amendments. The Exposure Draft of proposed amendments would be open for public comment until October 19, 2017.

Not Really a Seamless Credit Mechanism – The Story of ‘Blocked Credits’

A seamless credit flow is the bedrock of an efficacious GST mechanism whereby cascading effect of taxes is eliminated through a chain of tax credits allowed for set off against output tax liability at each stage. With the introduction of GST regime in India, expectations were high on seamless availability of Input Tax Credits ('ITCs) on various business expenses such as employee insurance, business travel, rent-a-cab etc., that are
currently 'blocked' under the 'existing law'. Strangely enough, expectations were belied as these ITCs continue to be 'blocked' under the imminent GST regime. In brief, the taxpayer cannot avail ITCs on following important categories of expenditure under the GST regime: 

1) Motor vehicles (except for a few taxpayers like transporters, vehicle dealers etc);

2) Food & beverages and outdoor catering etc;

3) Health treatment, membership of fitness club etc;

4) Taxi/cab service, Insurance (except when required by law); and

5) Works contract services;

A perusal of the above list reveals that the situation has remained unchanged or become stricter as regards 'blocked credits' under the GST Regime.

Final notification on Sec. 10(38) brings clarity

Under the existing provisions of the Section 10(38) of the Income-tax Act ('the Act') income arising from a transfer of long-term capital asset, being equity share of a company, is exempt from tax if the sale has been undertaken on or after 1st October, 2004 and is chargeable to Securities Transactions Tax (STT).

It has been noticed that such exemption is being misused by declaring unaccounted income as exempt long-term capital gains (LTCG) after entering into sham transactions. With a view to prevent this abuse, Section 10(38) has been amended to provide that exemption shall be available only if the acquisition of share is chargeable to STT. Further, powers have been given to the CBDT to notify transactions which would be eligible for capital gains exemption even if no STT was paid on purchase of such shares. The CBDT then issued the draft notification and brought out the negative list of transactions on which such exemption would not be available. Now the CBDT has issued the final notification considering the representations of various stakeholders for entitlement to the capital gain exemption in genuine cases.

The final notification is similar to the draft notification in terms of prescribing negative list of transaction. However, relaxation has been given in interest of exemption in genuine cases.

Following three type of transactions will not enjoy capital gain exemption under Section 10(38):

a) Acquisition of listed equity share through a preferential allotment in a company whose equity shares are not frequently traded in stock exchange.

b) Acquisition of listed equity shares not through a recognized stock exchange.

c) Acquisition of equity shares of a company during the period of its delisting.

Ind AS 110: In case of mergers of subsidiaries, book values is to be taken as per standalone books


A company, say P Ltd. is a parent company of two companies, say Q Ltd. & R Ltd. Q Ltd. & R Ltd. are under common control of P Ltd. In case of common control business combination, the assets, liabilities and reserves of the transferor (acquired) company is recognised at their book values in the books of the transferee(acquiree) company in accordance with Appendix C of Ind AS 103, Business Combinations.

Now, CBDT has notified new Rule 10CB which prescribes computation of interest income pursuant to secondary adjustment. Rule 10CB also provides that repatriation of excess money shall be made on or before 90 days from the:-

(A) Whether the book values should be as per the books of the companies merged or as per the consolidated books of parent company in following situations:

1. Q Ltd. merges with R Ltd.

2. Q Ltd. merges with P Ltd.

(B) Further, whether P Ltd. shall require to eliminate the effect of business combination in above two situations in the consolidated financial statement?



Situation 1 : Appendix C, Business Combinations of Entities under Common Control of Ind AS 103 provides that accounting of merger of common control companies should be done as per the pooling of interest method. Under this method, assets, liabilities and reserves of the transfer or should be recognised in the books of the transferee at their carrying amounts without any adjustments except harmonisation of accounting policies of both companies in accordance with para 9 of Appendix C.

Para 11 of Appendix C states that the balance of retained earnings of the transferor is aggregated with that of the transferee. Further, the name of reserves, like general reserve, revaluation reserve etc. of the transferor should remain same in the book of transferee also in accordance with para 12 of Appendix C. Any difference between purchase consideration and share capital of the transferor is recognised as capital reserve separately from other capital reserves.

Accordingly, the book values or carrying amounts of assets, liabilities and reserves should be combined on the basis of standalone books of Q Ltd. and R Ltd., i.e. the merged companies.

Situation 2 : P Ltd. is holding company of Q Ltd. So, merger of P Ltd. with Q Ltd. will not have any effect. The assets, liabilities and reserves which were appearing in the consolidated financial statement of P Ltd. will not be part of standalone financial statement of P Ltd. Therefore, it would be appropriate to take carrying amounts of assets, liabilities and reserves of Q Ltd. as appearing in the consolidated financial statement of P Ltd.


As per para B86 of Ind AS 110, Consolidated Financial Statements, in consolidation procedure intra group assets and liabilities, equity, income, expense and cash flows relating to transactions between group companies should be eliminated in full. So, in the present case in both situations, P Ltd. should eliminate all effects of mergers in its consolidated financial statement.


Issue 2 of Ind AS Transition Facilitation Group Clarification Bulletin 9

Saturday, June 17, 2017

CBDT notifies rule for computing interest income for secondary adjustments under TP

In order to make the actual allocation of funds consistent with that of the primary transfer pricing adjustment, Finance Act, 2017 inserted Section 92CE in the Income-tax Act, 1961 to provide for secondary adjustment by attributing income to the excess money lying in the hands of the associated enterprise.

As a result of primary adjustment, if there is an increase in the total income or reduction in the loss of the assessee, excess money which is available with its AE will have to be repatriated to India and to the extent it is not repatriated, it shall be deemed to be an advance made by the assessee to the AE on which interest will have to be calculated. Now, CBDT has notified new Rule 10CB which prescribes computation of interest income pursuant to secondary adjustment. Rule 10CB also provides that repatriation of excess money shall be made on or before 90 days from the:-

1) Due date of filing of return if primary adjustment to TP has been made suo-moto by assessee;

2) Date of order of AO or appellate authority, if primary adjustment determined in the order has been accepted by assessee;

3) Due date of filing of return in case assessee had entered into Advance Pricing Agreement;

4) Due date of filing of return in case assessee opted for safe harbour rules under section 92CB;

5) Due date of filing of return in case an agreement is made under Mutual Agreement Procedure (MAP).

With regard to the rate of interest to be computed in the case of failure to repatriate the excess money with in the prescribed time limit, rule provides for separate interest rates for international transactions denominated in Indian rupee and those denominated in foreign currency. The rate of interest is on annual basis and shall be computed as follows:-

a) at one year marginal cost of fund lending rate of State Bank of India as on 1st of April of previous year plus 325 basis points in case international transaction is denominated in Indian rupees.

b) at six month London Interbank Offered Rate as on 30th September of previous year plus 300 basis points in the case international transaction is denominated in foreign currency.

Notification No. 52/2017, dated 15-06-2017

Review petition couldn’t be barred when SLP was to be dismissed: HC

Delhi High Court has held that a review petition could be maintainable before High Court after the Special Leave Petition (SLP) has been dismissed by the apex court and the aggrieved party could not be deprived of any statutory right of review. [2017] 82 295 (Delhi)

Land appurtenant to building was entitled to sec. 54F relief even if no construction was done on It


a) Assessee had sold shares and utilised long term capital gains from such sale of shares to purchase property which was comprised of land along with such building. He claimed exemption under section 54F.

b) Assessing Officer (AO) held that as per provisions of section 54F only investment in a residential house property is eligible for deduction. Land in one schedule had no residential building and therefore exemption under section 54F wasn’t available.

c) On appeal, CIT(A) allowed claim of assessee. Aggrieved-revenue filed the instant appeal before the Tribunal.

The Tribunal held in the favour of assessee as under:

1) As per Section 54F, exemption is allowable in respect of amount invested in construction of residential house property. Nothing is mentioned in Section 54F that deduction couldn’t be allowed on acquisition on land appurtenant to the building or on the land on which building is being constructed.

2) When the land was purchased and building was constructed thereon, it was not necessary that such construction should be on the entire plot of land, meaning thereby a part of the land which was appurtenant to the building and on which no construction was made, there was no denial of exemption on such investment.

3) Contention of revenue that exemption under section 54F was eligible only for construction of house wasn’t tenable. Exemption couldn’t be denied on the land appurtenant to building if all the other conditions of section 54F were satisfied. 

4) Thus, the cost of vacant land appurtenant to and forming part of the residential unit was to be considered for claim of exemption under section 54F even if no construction had been done on the appurtenant land. [2017] 82 93 (Chennai)
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'Whats App’ didn’t abuse dominant position in market for instant messaging services: CCI

The Competition Commission has rejected the allegations of predatory pricing against WhatsApp in the market for instant messaging by stating that even though WhatsApp was in dominant position and it was not the only provider of consumer communication applications and consumer could be able to download other similar applications such as Viber, Snapchat, Hike, Hangouts, Chat On, etc. Therefore, allegations of predatory pricing have no substance and WhatsApp has not contravened any provisions of the Competition Act. - [2017] 82 272 (CCI)

Aadhaar number must for filing tax return and linking PAN; CBDT clarifies effect of SC court verdict

Honorable Supreme Court in its landmark judgement has upheld Section 139AA of the Income Tax Act as constitutionally valid which requires quoting of the Aadhaar number in applying for PAN as well as for filing of income-tax returns.

Section 139AA(2) of the Income-tax Act provides that every person who has been allotted PAN as on the 1st day of July, 2017, and who is eligible to obtain Aadhaar, shall intimate his Aadhaar on or before a date to be notified by the Central Government. The proviso to section 139AA (2) provides that in case of non-intimation of Aadhaar, the PAN allotted to the person shall be deemed to be invalid from a date to be notified by the Central Government.

The Court also held that the “Parliament was fully competent to enact Section 139AA of the Act and its authority to make this law was not diluted by the orders of this Court.” 

CBDT clarifies the effect of the Apex Courts judgement as follows:

1) From July 1, 2017 onwards every person eligible to obtain Aadhaar must quote his Aadhaar number or Enrolment ID of Aadhaar no. for filing of income-tax returns as well as in applications for PAN;

2) Assessee’s who have been allotted PAN as on 01-07-2017, and who have Aadhaar no. or are eligible to obtain Aadhaar no., shall intimate their Aadhaar number to income-tax authorities.

3) However, for non-compliance of the above point No.(2), only a partial relief by the Court is that PAN of the person will not be cancelled for those who do not have Aadhaar and who do not wish to obtain Aadhaar number.

Ind AS 110: Dividend distribution tax paid by subsidiary is charged to consolidated profit or loss


A wholly- owned subsidiary company, say B Ltd., paid dividend of Rs. 250,000 to its holding company, say A Ltd. Consequently, it paid Dividend Distribution Tax (DDT) of Rs. 25,000. Both companies have adopted Ind AS from April 1, 2017 and the payment ofdividend and DDT was made after the transition to Ind AS. 

The company now has following queries:-

a. How DDT should be accounted for in the consolidated financial statements for the year 2016-17?

b. Would answer in the above case be different if A Ltd, subsequently pays dividend of Rs. 12, 00,000 to its shareholders and DDT thereon of Rs. 95,000 after deducting DDT of Rs. 25,000 paid by B Ltd.?

c. Whether A Ltd. should recognise Deferred Tax Liability (DTL) in the consolidated financial statements on the undistributed profits of B Ltd. which may be distributed in the foreseeable future?


a. At the time of consolidation, dividend income earned by A Ltd. and the corresponding entry in the equity of B Ltd. will get eliminated as consolidation adjustments. DDT of Rs. 25,000 paid by B Ltd. to the taxation authorities shall be debited and reflected in the consolidated statement of profit & loss. 

b. If holding company is allowed to adjust the DDT paid by subsidiary against its DDT liability then the sum of DDT paid by holding and DDT adjusted should be recognized in the consolidated statement of changes in equity. DDT paid by the subsidiary which has been adjusted by holding against its DDT liability, is nothing but a tax on distribution of dividend to the shareholders of holding company. Therefore, A Ltd. should recognize DDT of Rs. 120,000 to the consolidated statement of changes in equity.

c. As per paras 39 & 40 of Ind AS 12, Income Taxes, holding company should create DTL for all taxable temporary differences associated with investment in subsidiary only if it is determined that such temporary differences will be reversed in foreseeable future. Accordingly, A Ltd. is require to recognise DTL on the undistributed profit of B Ltd. ifit is already concluded that the undistributed profits will be distributed in foreseeable future. Such DTL may be reversed by the amount of DDT paid by B Ltd. when it will distribute such profits if such DDT is allowed to be set off against DDT liability of A Ltd. 

- Issue 1 of Ind AS Transition Facilitation Group Clarification Bulletin 9

Saturday, June 10, 2017

Sec. 54 relief was available even if investment was made in new property before execution of sale deed

The issue before the Chennai ITAT was as under:

Whether assessee would be eligible for Section 54F relief when he had invested the sale proceeds in construction of new flat even prior to execution of sale deed? 

The Chennai ITAT held as under:

1. Section 54 of the Income-Tax Act (the Act) clearly says that if the assessee, within a period of one year before or two years after the date on which the transaction took place, purchased or within a period of three years after that date, constructed a residential house in India, then the assessee is eligible for deduction under Section 54 of the Act.

2. In this case, the investment was admittedly made one year before the date of sale of property. In view of language employed by Parliament in Section 54 of the Act, it is not the requirement that the sale consideration has to be invested in purchase of property. It is immaterial whether the assessee invested the sale consideration in purchasing of new flat after the date of sale or one year before the sale of property.

3. In this case, the assessee invested the sale consideration one year before the sale of property, therefore, the assessee is eligible for deduction under Section 54 of the Act. - [2017] 82 164 (Chennai - Trib.)

Ind AS Transition: Govt. grant in the nature of promoters’ contribution to be transferred to Other Equity


A company, B Ltd. is a first-time adopter of Ind AS from April 1, 2017. One year ago, it received a contribution from the government (which holds 100% shareholding in B Ltd.) in the nature of promoters’ contribution. As per the previous GAAP, the contribution was recognized as capital reserve in accordance with AS 12, Accounting for Government Grants. 

The company has following queries:-

1) How the contribution shall be treated on transition to Ind AS?

2) How the contribution shall be treated under Ind AS if the same has been received after transition to Ind AS?


Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance deals with the contributions made by the government. Ind AS 20 does not cover contributions made by a government in the capacity of shareholder. So, Ind AS 20 is applicable only when the contribution is provided as a government, not as a shareholder. Where the contribution is in the nature of government grant then as per Ind AS 101, Firsttime Adoption of Indian Accounting Standards, Ind AS 20 shall apply retrospectively to the grant. Ind AS 20 requires the government grant to be recognised as income over the periods in which related expenditure is recognised as expense to profit or loss.

Where the contribution is in the nature of shareholder contribution which is recognised in capital reserve under previous GAAP, such contributions (i.e. capital reserve) should be transferred to any appropriate category under “Other Equity” at the transition date in accordance with para 10 of Ind AS 101.

Accordingly, in the present case,

1) B Ltd. is required to transfer the balance of contribution received from the government in the nature of promoters’ contribution to appropriate category under “Other Equity” at the transition date.

2) There will be no change on treatment of the contribution even of it is received subsequent to the transition date.


- Issue 3 of Ind AS Transition Facilitation Group Clarification Bulletin 9

10 Key Takeaways of Draft Rules on Credit Transfer Document

There were lots of rumors afloat that Indian Companies planned to scale down their inventories ahead of GST rollout to limit their losses. Dealers were afraid of paying high GST rate without any claim to credit of excise in absence of duty paying document. The all-powerful GST council intends to introduce “Credit Transfer Document” which will allow them to take credit of duty paid under earlier law subject to some conditions. Moreover, it has also been decided to bring amendment to CCR Rules, 2004 to make Credit transfer document as eligible document for claiming credit.

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Replace this SLD ITAT lays down new mechanism to computer value of Rent Free Accommodation with this SLD ITAT lays down new mechanism to compute value of Rent Free Accommodation


A company, say D Ltd. has adopted Ind AS voluntarily w.e.f April 1, 2015. In April, 2017, it purchased debentures of another company, E Ltd.

D Ltd. wants to know how interest on investment in debt of E Ltd. will be treated under Ind AS?


The treatment of interest from investment in debt instrument depends upon the basis of subsequent measurement of investment, i.e. amortized cost, fair value through other comprehensive income or fair value through profit or loss.

(i) When the investment is measured at amortized cost, firstly interest revenue, calculated using the effective interest rate, should be added to the gross carrying amount of the investment. Subsequently, on receipt of interest from issuer of debt instrument, the amount of interest received shall be deducted from the gross carrying amount of the investment.

(ii) When the investment is measured at fair value through other comprehensive income, interest revenue from the investment should be recognized in the statement of profit & loss in accordance with paras 5.7.10 and 5.7.11 of Ind AS 109, Financial Instruments. In this case also, interest amount is calculated using effective interest rate.

(iii) When the investment is measured at fair value through profit or loss, an entity has the option either to adjust interest income with the fair value gains/losses or to recognize as income separately in accordance with para B5 (e) Ind AS 107, Financial Instruments: Disclosures.


- Issue 9 of Ind AS Transition Facilitation Group Clarification Bulletin 8

Tuesday, June 6, 2017

GST Council clears remaining two rules and all States agreeing for roll out of GST from July 1, 2017

The 15th GST council meeting held in New Delhi has cleared the two remaining rules, pertaining to transitions and returns. All the States has also agreed for roll-out of Goods and Service Tax (GST) from July 1, 2017. The Council has released the copy of return rules, return formats, mismatch formats and practitioner formats. Following are the download links:-

ITAT allowed sec. 54F relief to trust created for sole beneficiary of individual

The issue before the Tribunal was:

Whether a trust which was for the sole benefit of an individual was entitled to deduction under section 54F or not, when its status was that of AOP?

The Tribunal held in favour of trust as under:

1) As per section 54F the benefit of this section is available to individual or Hindu undivided family (HUF).The jurisdictional High Court in the case of Mrs. Amy F. Cama v. CIT [1994] 237 ITR 82 (Bom.) had elaborately considered the same issue. The High Court was dealing with trust's claim for deduction of purchase price of the flat from capital gain as per section 54. It was held that the trust was entitled to the same.

2) The High Court had held that section 161, makes a representative assessee subject to the same duties, responsibilities and liabilities as if the income was received by him beneficially. The fiction was created as it was never the object or intention of the Act to charge tax upon persons other than the beneficial owner of the income. Whatever benefits the beneficiary will get in the said assessment must be made available to the trustee while assessing him under section 161.

3) The above decision of the High Court would squarely apply in the present case, when one was concerned with the issue of exemption under section 54F as Section 54 was also applicable to individuals and HUF.

4) In the instant case, the issue was benefit of investment made in purchase of flat for deduction under section 54F by the trustees and the sole beneficiary of the trust was the individual 'V'. Hence, the ratio emanating from the above jurisdictional High Courts decision was squarely applicable to the facts of the case.

5) Hence, It was clear that it was only by virtue of section 161 that trust had been assessed for the income that was for benefit of sole beneficiary. Accordingly, following the precedent, trust was principally entitled to deduction under section 54F. - [2017] 81 367 (Mumbai - Trib.)

Trust not hit by proviso to sec. 2(15) due to selling cow's milk if main object of trust was to take care of cows

DIT (Exemptions) v. Shree Nashik Panchvati Panjrapole [2017] 81 375 (Bombay)


a) The object of assessee-trust was to run, inter alia, a Panjrapole, i.e., protection of cow and oxen. It also used to sell mil procured from the cows to the general public at nominal rate.

b) DIT (E) cancelled assessee-trust's registration by invoking section 12AA(3) on the ground that its income by way of sale of milk, interest and dividend was in excess of Rs. 10 lakhs and, therefore, would casese to be a charitable trust.

c) The Tribunal held that the activity of selling milk by a Panjarapole would not by itself make the proviso to section 2(15) applicable. Further, it held that selling milk would be incidental in running a Panjarapole.

d) Aggrieved-revenue filed the instant appeal before the High Court.

The High Court held in favour of assessee as under:-

1. The dominant function of the Trust was to provide an asylum to old, maimed, sick and stray cows. Further, only 25 per cent of the cows being looked after yielded milk and if the milk was not procured, it could be detrimental to the health of the cows. Therefore, the milk obtained and sold by the trust was an activity incidental to its primary/principal activity.

2. In the instant case, the activity of milking the cows and selling the milk was almost binding on the trust, in the process of giving asylum to the cows. The activity to be considered in the nature of trade, commerce or business would in most cases have to be carried out on a regular basis with a view to earn the profit.

3. The presence of the profit intent would normally be a sine qua non for the activity to be considered as trade, commerce or business. Therefore, in the present facts, it was not as though the keeping of the cows and milking them was with a view to carry out an activity in the nature of trade, commerce or business to earn profits.

4. Admittedly, the dominant activity carried out by the trust was to take care of old, sick and disabled cows. In these circumstances, an incidental activity of selling milk which might have resulted in receipt of money, by itself would not make it trade, commerce or business nor an activity in the nature of trade, commerce or business to be hit by the proviso to section 2(15) - [2017] 81 375 (Bombay)

Form 15G/15H to be filed once in a year and not every time when payment is due; CBDT clarifies

Section 197A of the Income-tax Act provides that tax shall not be deducted, if the recipient of certain payment on which tax is deductible furnishes to the payer a selfdeclaration in Form No. 15G/15H in accordance with provisions of the said section. The manner of filing such declarations and the particulars have been given in Rule 29C of the Income-tax Rules, 1962.

The Central Board of Direct Taxes (CBDT) had received various representations seeking clarifications on the issue as to whether a depositor should submit only one declaration in respect of the income each year or whether Form 15G/15H has to be submitted each time the payment is due to be received from the deductor.
CBDT has now settled the issue and clarified that it will be sufficient if only one declaration is made in respect of the income each year before each deductor.

Notification no. 6 of 2017, dated 30-05-2017

Black money in third party bank account can be subject to search and seizure: Delhi HC

The issue before the High Court was:

Whether the undisclosed money in third party bank account can be subject to search and seizure?

Delhi High Court held as under:

1) Section 132(1)(c) permits search to be under taken by the Department if there is reason to believe that a person is in possession "of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been, or would not be, disclosed" for the purposes of the Act, referred to as "the undisclosed income or property".

2) The second proviso to Section 132(1) read with Section 132(3) permits the Department to ask bank to freeze bank account that is subject to search and seizure since it may not be possible "to take physical possession" immediately of such "valuable article or thing and remove it to a safe place.

3) Therefore, a sum in a bank account is not outside ambit of section 132(1) and can be subject to search and seizure as a person can be in possession of undisclosed income not only in his or her own account but in someone else's account. [2017] 81 408 (Delhi)

ITAT condoned delay in filing of appeal as delay occurred due to death of assessee’s counsels


a) Assessee filed his appeal before the ITAT with a considerable delay beyond the time limit prescribed under section 253(3).

b) He requested for condonation of delay on ground that there were various casualties/deaths and medical contingencies of the persons connected with the him to represent his case.

Tribunal held in favour of assessee as under:

1) The relevant averments of the assessee as contained in application for condonation of delay duly supported by an affidavit that the CA who was representing the Income-tax matters unfortunately got expired. Then the matter was being looked after by assessee's younger brother.

2) Unfortunately even his younger brother got expired. Subsequently, the papers were handed over to an advocate who he did not file the appeals and at the same time he also got expired. Besides, during the aforesaid period the assessee was suffering from heart diseases and ultimately he underwent angiography, in-between, the assessee's mother got expired.

3) Then assessee appointed a new CA in November 2016, unfortunately he met with an accident and was bedridden for three months. He was able to walk only sometime in February, 2017 end and then the matter was pursued by him and the appeal was ultimately filed.

4) Assessee had sufficiently explained that the he was prevented by sufficient and bona fide cause in filing this appeal within time prescribed by law. 

5) Since delay in filing appeal took place due to consecutive casualties/deaths and medical contingencies of assessee's counsels, delay was to be condoned. [2017] 81 298 (Mumbai - Trib.)

Monday, May 29, 2017

New definition of startup – 4 things to know

The Government of India had announced 'Startup India' initiative for creating a conducive environment for startups in India. The various Ministries of the Government of India have initiated a number of activities for such purpose.

The Government had received representations from various industries seeking changes in the definition of a startup. DIPP has now issued new notification to bring about changes in the definition of startup. The list of major changes is as follows:

(1) Enlarged definition of Startup:

Earlier an entity would be considered as Startup if it was working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.

In order to grow the employment opportunities for youth, the DIPP has now enlarged the definition of startup. Now, entities having scalable business mode with a high potential of employment generation can also apply for registering as a Startup. This will allow registration of more startups and will definitely create more employment opportunities for the youth.

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Specified financial transactions – pertinent issues

Taxation of income in a vast country such as ours is a challenge due to enormity of the transactions besides the general tendency to evade tax. While presenting the Budget, 2017 the Hon'ble Finance Minister acknowledged that we lack the tendency to comply with tax laws which is confirmed by the low number of taxpayers representing 3% of the total population. The wisdom dawned on the lawmakers that the best way to regulate the business transactions is to create some legal provisions and vest on the taxpayers to report such of those transactions regardless of the tax impact out of those transactions. This could create a base or a trail wherefrom the Revenue can go to the bottom of the matter and detect pilferage of tax, if any.

It is with this tendency section 285BA was inserted into the statute book by the Finance Act, 2003 applicable from the assessment year 2004-05. Originally, this section covered those entering into certain transactions. Later it was substituted by the Finance (No.2) Act, 2004 and later by the Finance (No.2) Act, 2014 w.e.f. 01.04.2015 which has widened the base of reporting of transactions. What was originally conceived as the areas wherefrom the information was sought to be gathered, the administration by virtue of delegated legislation has expanded the scope of reporting / compliance by amending rule 114E of the Income-tax Rules, 1962.

The amendment to rule 114E made by Income-tax (Seventh Amendment) Rules, 2016 applicable retrospectively w.e.f. 01.04.2015 and income-tax (Twenty-Second Amendment) Rules, 2015 w.e.f. 01.04.2016 have cast huge responsibility on the taxpayers as regards reporting with corresponding provisions for penalty for delay in reporting and lump sum penalty for incorrect report.

This write up discusses the gamut of rule 114E read with section 285BA and the issues which may be useful for the professionals and taxpayers at this juncture.

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Friday, May 26, 2017

Mauritius Apex Court disallows common expenditure on exempt capital gains


a) The Mauritius Company derives income from dividends paid by the Indian investee companies. It had disposed off certain investment and earned capital gains, which is not an income as per Mauritius Income Tax Act (MITA).

b) It paid fees to custodians and sub custodians for the holding of the investment and same was claimed as deduction from gross total income.

c) Mauritius Revenue Authority (MRA) disallowed the expenditure to the extent that it was not exclusively incurred in the production of gross income by invoking section 18 of the MITA. However apportionment was done as per the following formula given under section 26 of the MITA:

Capital Gains x Allowable expenditure

Income + Capital Gains

d) Appellant contended that revenue authority could not resort section 26 which applies to ‘exempt income’ having characteristics different than capital gain.

e) It was also contended that only expenses directly attributable to capital gain such as commission payable to brokers were not allowable. However, custodian fees and sub-custodian fees which did not relate to the capital gains, were capital in nature and, therefore, to be allowed.

The Mauritius Supreme Court held as under: 

1) Section 26 of the MITA provides for disallowance of any expenditure to the extent to which it is incurred in the production of income which is ‘exempt income’. It also provides formula to calculate such disallowance.

2) Section 18 of the MITA provides that expenditure is allowable to the extent that it is exclusively incurred in the production of gross income. Exempt income is not chargeable to tax and capital gains on the other hand is not an income for tax purposes. Accordingly, both exempt income and capital gain are excluded from gross income.

3) If an expenditure produces both gross income and other income (which does not amount to gross income) then as rightly viewed by the MRA, only the part which produces gross income, is an allowable deduction.

4) Since both capital gains and exempt income are excluded from the definition of gross income. Therefore, capital expenditure and expenditure attributable to exempt income, although different in the nature, share the same characteristic of being not allowable under sections 18 and 26.

5) The activities of Mauritius Company are those of any investment company. The expenditure sought to be deducted, i.e., custodian and sub-custodian fees, therefore produced two types of income, revenue income during such time the company holds the securities and capital gain when the company decides that the time is right for disposal of securities. The total custodian and sub-custodian fees cannot therefore be exclusively or
solely incurred for the production of gross income and are not allowable under Section 18. Thus, we could not accept the submission that the expenses were incurred with the intention of producing revenue income and that the capital gain was only an indirect outcome and on that basis expenses should be totally deductible.

6) Further, section 18 and 26 are not mutually exclusive sections and, hence, recourse can be made to section 26 if section 18 is silent on any issue. Therefore, MRA had rightly disallowed expenditure incurred to earn capital gains. - [2017] 81 386 (SCM)

Mere loan confirmation letters from lenders couldn’t prove sanctity of loan transaction: ITAT


a) Assessee was owner of a proprietorship concern and claimed to have received unsecured loans of Rs 10 lakhs each from Natasha Enterprises (NE) and Mohit International (MI).

b) Assessment was initially completed but subsequently the Assessing Officer (AO) came to know that NE and MI were shell entities. He accordingly reopened assessment.

c) During reassessment proceedings, assessee filed the loan confirmations, copies of ledger account and other supporting evidences to justify the transactions but same were rejected by the AO. Accordingly, loan amount was added to income as unexplained cash credit u/s 68.

d) CIT(A) confirmed the additions, Aggrieved-assessee filed the instant appeal before the Tribunal.

The Tribunal held in favour of revenue as under:

1) Merely because loan transactions were though cheques, which were duly evidenced from the bank statements of the lenders, copies of loan confirmations and statements of accounts could not prove that the initial onus of demonstrating the bonafides of loan transactions was duly discharged by the assesse.

2) It was pointed out that the lenders were shell entities and this fact was duly brought to the notice of the assessee but the assessee did not have anything to say on this point. He was neither able to produce any of the lenders nor gave sufficient information about the nature of relationship with them.

3) In order to demonstrate valid transaction, it was not the completion of paper work but genuineness of transactions which was crucial. Thus, onus had not been discharged by the assessee. Accordingly, loan transaction was rightly treated as unexplained credit as per section 68. - [2017] 81 308 (Ahmedabad - Trib.)

25 Key Takeaways of Final GST Rules passed by GST Council

In its 14th meeting in Srinagar on 18th and 19th May,2017 the all-powerful GST council cleared seven rules pertaining to different aspects of GST. These rules relate to Registration, Input Tax Credit, Payment, Refund, Invoice, Valuation and Composition and have paved the way for the rollout of GST from July 1, 2017.

The key highlights of these final GST Rules are as follows:

1) PAN is mandatory for taking registration under GST. PAN will be validated by CBDT. After successful validation, registration will be granted.

2) Physical verification of place of business will not be conducted to grant registration under GST. But officer can do physical verification after granting of registration, if he is satisfied that it is necessary to do the same. He must upload verification report on GST Portal within 15 working days after verification.

3) Tax invoice in case of supply of taxable services must be issued within 30 days of date of supply of services. However, time limit for banking company, insurance company or financial institutions is 45 days.

4) Electronic Liability Register shall be maintained for each person liable to pay tax on the GST Portal.

5) A separate formula is prescribed for Maximum Refund in case of inverted duty structure, i.e., GST rate is higher on Inputs than on Output Supply.

6) The person eligible to take credit in respect of input of goods held in stock after registration is required to file a declaration on GST Portal that he is eligible for input tax credit within 30 days.

F1 Circuit—A Fixed Place PE!

Thanks to the burgeoning fan base of various sporting events globally. Now several sporting bodies are organising various series across borders. However, tax policies of the nations are not so sweet for the taxpayers. This is more so because of the current global wave of preventing the unintended application of the tax provisions. The Supreme Court of India's decision in the case of Formula One World Championship Ltd. v. CIT1 is a perfect illustration wherein the Apex Court has given a new dimension to the concept of permanent establishment ("PE").

Exposure of a foreign company (F Co.) having PE in the source country has always been a contentious issue. India follows "source based taxation". Under source based taxation principle, income earned by a non-resident is taxed in the country in which such income has accrued or arisen, even by way of a deeming fiction.

In this article we will dwell upon the Supreme Court's ruling and also other rulings on similar issue on the existence of Fixed Place PE in India, more particularly as to whether F Co.'s presence for a short duration in a source State/country can be considered to its PE?

Sale of business without transfer of trademark held as slump sale as buyer was in same line of business

The issue before the Tribunal was as under:

Whether sale of manufacturing unit by assessee without transferring his trademark could be held as slump sale?

The Tribunal held in favour of assessee as under:

1) The definition of slump sale' u/s 2(42C) read with the explanation (1) to sec. 2(19AA) of the Income-tax Act makes it clear that 'slump sale' means transfer of one or more undertakings as a result of sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sale.

2) In the instant case, assessee sold its manufacturing unit of edible oil as a going concern on slump sale basis to the buyer who was already in same line of business. Consideration was decided without assigning value to individual assets and liabilities.

3) Buyer of the manufacturing unit of the edible oil was already in the same business and wanted to sell the products manufactured from manufacturing unit in their own name and brand. They were not keen to buy the name/trade name/logos/trademark/ product name, etc., of the assessee, so, the assessee excluded the same from the transaction.

4) Therefore, mere exclusion of the said intangible assets could not in any way affect the slump sale of the manufacturing unit of assessee. - [2017] 81 305 (Kolkata - Trib.)

28% GST on cinema halls, race clubs and 5% on economy class air travel

On May 18, 2017 the GST Council had finalised seven GST rules and GST rates on goods (1211 items approx). Today, the GST Council has finalised the GST rates on services. The key takeaways of 14th GST Council meeting are given hereunder:

1. GST rate will be 28% for race clubs, betting and cinema halls. Transport and Financial services will be taxed at 18%.

2. Economy class air travel and rail travel will attract 5% GST rate, but the business class air travel will attract higher rate of 12%.

3. No GST will be levied on hotels charging tariff below Rs 1,000 whereas the GST rate will be 18% for hotels with tariff in the range of Rs 2,500-5,000.

4. GST rate will be 5% for Cab operators like Ola and Uber.

5. Healthcare and Education Services have been exempted from GST. Services that are currently exempt would continue to be exempted under GST.

6. The tax rates for gold, bidis and cigarettes will be decided in next meeting to be held on June 3, 2017.

Mergers and acquisitions: The evolving Indian landscape

Just recently, the largest ever FDI transaction in India was announced, with the Russian government owned Rosneft and its partners acquiring Essar Oil for 13 billion USD. This is indeed a watershed moment for India and a re-validation of global faith in the potential and attractiveness of its economy. With FDI inflows into India already hitting a high in the last fiscal year, this marquee transaction will only provide a fillip to India’s already burgeoning M&A landscape.

There has been a spate of high-profile transactions in India in the last few years, whether domestic or international, and both inbound and outbound. With the government continually working towards reforms on all fronts, be it in its regulatory policies to attract foreign investors, providing an impetus to the manufacturing sector with Make in India, improving India’s Ease of Doing Business rankings, or providing solace to the much beleaguered infrastructure sector by paving the path for real estate investment trusts (REITs)/infrastructure investment trusts (InvITs), there is no looking back.

Ever since the Vodafone tax litigation took the Indian M&A landscape by storm in 2007, tax aspects surrounding any M&As in India came to the forefront—so much so that corporate have now started taking tax insurance to insulate themselves from the uncertainties and vagaries of interpretation of Indian tax laws. Of course, while the government is making strides in trying to deliver the comfort of certainty to the investor
community (such as by issuing clarifications on various aspects of indirect transfers), it is also tightening the screws on various fronts—the renegotiation of India’s tax treaties, the looming advent of General Anti- Avoidance Rules (GAAR) in 2017 and the adoption of Base Erosion and Profit Shifting (BEPS) action plans.

Click here to download PwC India’s Report on 'M&A'

Benefit of IDS wasn’t available even if search proceedings was initiated after launch of IDS


a) The Central Government had come with an Income Declaration Scheme, 2016 (IDS) which was made effective from 1-6-2016 to 30-9-2016.

b) Assessee had faced proceedings under section 132, search warrant was issued and search was also carried out from 30-6-2016 to 2-7-2016. In the meantime before 30-9-2016, he applied for benefit of IDS.

c) Assessee contended that he was entitled to benefit of IDS since raid and search proceedings under section 132 were initiated after the launch of scheme.

d) Assessing Officer rejected the claim of assessee, aggreived-assessee filed the instant appeal before the High Court.

The High Court held in favour of revenue as under:

1) Clause 196(e)(ii) to IDS provides that the provisions of this scheme shall not apply where a search has been conducted under section 132 or requisition has been made under section 132A or a survey has been carried out under Section 133A of the Incometax Act in a previous year.

2) It was a case where the Central Government had granted benefit of IDS only to the persons who were not covered under section 132 and other proceedings. If a particulars class had been debarred to opt for IDS, such person cannot avail the benefit in any circumstances even if search had been conducted after the launch of scheme.

3) The IDS will not override the provisions of the Income Tax Act and the scheme which has come by way of limited purpose cannot prevail over the Income Tax Act 

4) Therefore, even though search proceedings was inititated after the lauch of IDS, assessee won‘t be entitled for benefit of IDS. - [2017] 81 213 (Rajasthan)

Tuesday, May 16, 2017

SAT lifts ban on Satyam’s Raju from accessing capital market

Whole Time Member of SEBI by impugned order had restrained Satyam Computer founder, Ramalinga Raju and his associates (appellants) from accessing securities market for 14 years and had directed appellants to disgorge unlawful gains arising on sale/pledge of Satyam’s shares.

Now, the Security Appellate Tribunal (SAT) has set aside the SEBI’s order from barring appellants from accessing capital market. Further, SAT has asked SEBI to pass fresh order on applicants’ punishment. [2017] 81 201 (SAT - Mumbai)

Govt. notifies rules for depositing old Rs. 500 or Rs. 1000 notes confiscated on or before 30/12/2016

The Specified Bank Notes (Cessation of Liabilities) Act, 2017 provides for holding, transfer and receiving of old 500 and 1000 rupee notes as an offence. It provides for fine of Rs. 10,000/- or five times the cash held, whichever is higher on holding of more than 10 demonetized notes. It also ends the liability of RBI and the Central Government on the currency notes demonetized on 08-11-2016.

Now, Govt. notifies the Specified Bank Notes (Deposit of Confiscated Notes) Rules, 2017 which provides that if specified bank notes (i.e. old Rs. 500 or Rs. 1000 notes)have been confiscated or seized by a law enforcement agencies or produced before a court on or before the 30-12-2016. Such bank notes may be deposit in a bank account or exchange with legal tender at any office of the RBI or a nationalized bank if following conditions are satisfied:-

1) In case confiscated specified bank notes are returned by the court to a person who is a party in case pending before that court, then, the person shall be entitled to deposit or exchange such specified bank notes:-

a. The serial numbers of which have been noted by the law enforcement agency which confiscated or produced them before the court; and are mentioned in the direction of the court.

2) In case specified bank notes are placed in custody of any other person by an order of the court on or before the 30th day of December, 2016, then, the person shall be entitled to deposit or exchange such specified bank notes:-

a. The serial numbers of which have been noted by the law enforcement agency which confiscated or produced them before the court; and are mentioned in the direction of the court. 

3) In case specified bank notes are forfeited in favour of the Central Government or the State Government by an order of the court. The Government shall be entitled to deposit or exchange such specified bank notes - F. No. S-10/05/2017, dated 12-05-2017

Quoting of Aadhar number in return of income isn’t mandatory for non-residents and super senior citizens

The Finance Act, 2017 had inserted a new Section 139AA under the Income-tax Act, 1961 requiring every person to quote Aadhaar number in the return of income with effect from 1st day of July, 2017. If any person does not possess the Aadhaar Number but he had applied for the Aadhaar card then he can quote Enrolment ID of Aadhaar application Form in the ITR.

It may be noted that firms are also required to Quote Aadhaar number of their Partner/members in new ITR 5. Further, in case of trust Aadhaar number of Author(s) / Founder(s) / Trustee(s) / Manager(s), etc., are required to be specified in new ITR 7. However, the Central Government has issued a Notification No. 37, Dated 11/5/2017 whereby it has been notified that the provisions of section 139AA shall not apply to an individual who does not possess the Aadhaar number or the Enrolment ID and is:-

(i) residing in the States of Assam, Jammu and Kashmir and Meghalaya;

(ii) a non-resident as per the Income-tax Act, 1961;

(iii) of the age of 80 years or more at any time during the previous year, i.e., super senior citizen;

(iv) not a citizen of India.

Retrospective amendment to limit exemption to CMA paper for 3 consequent attempt isn't arbitrary: HC


The petitioner-individual, final year student of C.M.A. course, appeared in the final year examination conducted by the Institute and scored more than 60 % marks in the Business Valuation paper of Group IV but could not clear the other papers in the same group. The petitioner was granted with an exemption from appearing in the Business Valuation paper in the subsequent exams/attempts.

Thereafter, in May 2012 an amendment was carried out by the Institute in the Regulation 41(2) vide Cost and Works Accountants (Amendment) Regulations, 2012 and the said exemption was revoked. Thereafter, petitioner availed exemption for three consecutive terms and when he appeared for forth term, exemption had been denied to him.

The petitioner filed writ on ground that the Institute arbitrarily and mala fidely revoked the exemption granted to the petitioner from appearing in subsequent attempts.

The High Court held that:

An apparent reading of the Hindi and English version of the regulation show they are at variance, in as much as the Hindi version refers to the exemption being applicable to three consecutive years, whereas the English version depicts, the same is applicable to three consecutive terms.

In any case, the said plea would be of no help to the petitioner, inasmuch as it is not the  case of the petitioner that he is entitled to the benefit of exemption for a period of three years and not three consecutive terms and, hence it would not be necessary, to go into an issue as to which version would prevail. - [2017] 81 7 (Delhi)

Dependent Personal Services and its applicability in the context of Liaison office

Generally, a liaison office ("LO") set up by a foreign enterprise in India is not subject to tax in India as it is not allowed to undertake any commercial activities. However, the controversy of taxing an LO as a Permanent Establishment ("PE") of the foreign enterprise in India has gained momentum in the past few years. The tax authorities generally argue that an LO is an extension of the foreign enterprise in India through which the foreign enterprise is doing its core business, commercial and marketing activities in India.

Consequentially, the foreign parent company defaults in tax withholding on payment made to expatriates assigned on a short-term basis to the Indian LO on the fair (general) assumption that liaison office is not treated as a PE, and, hence, there is no liability to withhold tax on his remuneration. The income-tax department has become quite aggressive with regard to withholding tax compliances, and, therefore, the possible implications may be considered before deputing a person to the Indian LO.

Dividend income to attract Sec. 14A disallowance even if DDT is paid on it, rules Apex Court

The issue before the Supreme Court was as under:

Whether dividend income would attract Section 14A disallowance even if Dividend Distribution Tax is paid as per Section 115-0

The Supreme Court held in favour of revenue as under:-

1) The object behind the introduction of Section 14A is clear and unambiguous. The legislature intended to check the claim of allowance of expenditure incurred on exempt income in a situation where an assessee has both exempted and non-exempted income or includible or non-includible income.

2) If the income in question is taxable and, includible in the total income, the deduction of expenses incurred in relation to such an income must be allowed. Such deduction would not be permissible on dividend income merely on the ground that the dividend distribution tax paid on dividend.

3) A plain reading of Section 14A would go to show that the income must not be includible in the total income of the assessee. Once the said condition is satisfied, the expenditure incurred in earning the said income cannot be allowed to be deducted.

4) Thus, the phrase "income which does not form part of total income under this Act" appearing in Section 14A includes within its scope dividend income on shares in respect of which tax is payable under Section 115-O. [2017] 81 111 (SC)

Petitions are to be transferred to NCLT if norms of service of notice have been complied within prescribed time

If service of notice of company petition under Rule 26 of Companies (Court) Rules, 1959 has not been complied before 15-12-2016, such petitions shall stand transferred to NCLT whereas all other company petitions would continue to be heard and adjudicated upon only by the High Court

Now, two sets of winding up proceedings would be heard by two different forum, i.e., one by NCLT and another by High Court depending upon date of service of notice, before or after 15-12-2016. - [2017] 80 359 (Bombay)

President gives his assent to ordinance on Nonperforming Assets

The President has approved an ordinance on Non-performing Assets (NPA) which gives the powers to RBI to issue directions to any banking company to initiate Insolvency resolution process in respect of default under Insolvency and Bankruptcy Code. This amendment will help the banking companies to deal effectively with bad loan problems.

Friday, May 5, 2017

No sec. 68 additions on cash deposited in bank account if assessee wasn't maintaining books of account


a) On the basis of information from the CIT that during the year under consideration assessee had made a 'cash deposit' in her saving bank account with Punjab and Maharashtra Co-operative Bank, the case of the assessee was reopened.

b) During the course of the assessment proceedings, the Assessing Officer (AO) called upon the assessee to put forth an explanation as regards the nature and source of the cash deposit in her saving bank account.

c) The assessee placed on record substantial documentary evidence in form of summarized cash analysis to explain the genesis of the cash deposit.

d) AO was not in agreement with the explanation of the assessee and, hence, rejected the same and held the said cash deposit as an 'unexplained cash credit' and added the same to the returned income of the assessee by invoking the provisions of section 68.

e) On appeal, CIT(A) upheld order of AO. Aggrieved-assessee filed instant appeal before Tribunal.

Tribunal held in favour of assessee as under:-

1) A bare perusal of the section 68 reveals that an addition under the said statutory provision can only be made where any sum is found credited in the books of an assessee maintained for any previous year. Thus, the very sine qua non for making of an addition under section 68 presupposes a credit of the aforesaid amount in the 'books of an  assessee' maintained for the previous year.

2) A credit in the 'bank account' of an assessee could not be construed as a credit in the 'books of the assessee', for the very reason that the bank account could not be held to be the 'books' of the assessee.

3) Bombay High Court in the case of CIT v. Bhaichand N. Gandhi [1982] 11 Taxman 59 held that a bank pass book or bank statement cannot be considered to be a 'book' maintained by the assessee for any previous year, as understood for the purpose of section 68.

4) Giving a thoughtful consideration to the scope and gamut of the aforesaid statutory provision, viz., section 68, it was to be held that an addition made in respect of a cash deposit in the 'bank account' in the absence of the same found credited in the 'books of the assessee' maintained for the previous year, could not be brought to tax. - [2017] 80 311 (Mumbai - Trib.)

ITAT allows Sec. 54 relief for property purchased jointly with brother


a) Assessee was co-owner of flat jointly with his wife. He sold said flat and invested his share in another property and claimed long-term capital gain exemption under section 54. 

b) While making assessment, Assessing Officer (AO) observed that the new property purchased was in the name of two persons, namely, the assessee and his brother. He restricted deduction u/s 54 to the extent of 50% value of new property,

c) On appeal, CIT(A) disallowed entire exemption. Aggrieved-assessee filed the instant appeal before Tribunal.

Tribunal held in favour of assessee as under:-

1) In the given case, the name of the assessee's brother was added in the Agreement of new property so purchased for the sake of convenience. The entire investment for the purchase of new property along with stamp duty and registration charges were paid by the assessee.

2) There was no justification in the AO's action, in so far entire investment was made by the assessee and only for the safety reason he had included the name of his brother. 3) The issue was also covered by the decision of hon'ble Delhi High Court in the case of CIT v. Ravinder Kumar Arora [2011] 15 307 (Delhi) wherein High Court held that the assessee was entitled to full exemption u/s. 54F when the full amount was invested by the assessee, even though the property was purchased in the joint names of the assessee and his wife.

4) Therefore, assessee was entitled to full exemption under section 54, even though property was purchased in joint names of assessee and his brother. - [2017] 81 16 (Mumbai - Trib.)

Tuesday, May 2, 2017

Accretion of Hyundai brand due to its usage on Cars manufactured in India isn’t brand promotion: ITAT

a) Assessee-company was fully owned subsidiary of South Korean automobile giant Hyundai Motor Company (HMC). It was manufacturing cars under the brand name 'Hyundai'- a brand which is legally owned by the HMC.

b) As per the agreement entered into by assessee with HMC Korea, it was mandatory to use the badge with trademark Hyundai in every vehicle manufactured by it.

c) Transfer Pricing Officer (TPO) was of the view that by doing so "the assessee had significantly contributed to the development of Hyundai brand in Indian market" and the HMC Korea is, thus, "benefited due to brand promotion activity carried out by the assessee company".

d) TPO faulted the assessee for not having benchmarked "the international transactions relating to brand development. IT proposed ALP adjustment in respect of compensation that the assessee should have received for brand development.

e) Aggrieved by this draft proposal, assessee appealed before the Dispute Resolution Panel (DRP) which confirmed order of TPO. Assessee filed instant appeal before Tribunal.

Tribunal held in favour of assessee as under:-

1) It was an undisputed position that the foreign AE owns a valuable brand, i.e. Hyundai, and this brand had a certain degree of respect and credibility all over the globe including, of course, in the Indian market. When assessee used this brand name in the name of the models of vehicles manufactured by him, it do indeed amount to an advantage to the assessee.

2) Use of brand name owned by the AE in the motor vehicles manufactured by the assessee did not amount to a benefit to the AE of the assessee. An incidental benefit thought in the sense that increased visibility to this trade name does contribute to increase in brand valuation of the brand name.

3) Undoubtedly, 'provision for services' is included in the definition of 'international transaction' under section 92B, but then accretion in brand value due to use of foreign AEs brand name in the name of assessee's products could not be treated as service either.

4) An accretion in the brand valuation of a brand owned by the AE did not result in profit, losses, income or assets of the assessee-company. Therefore, and it could not result in an international transaction. [2017] 81 5 (Chennai - Trib.) 

Changes proposed in Ind AS 101 First-time adoption of Indian Accounting Standard

An exposure draft on Ind AS 101 First-time adoption of Indian Accounting Standard has been recently issued. Key changes proposed in Ind AS 101 are as follows:-

1. Present standard

Para D7AA of Ind AS 101 provides that a first-time adopter to Ind ASs may elect to continue with the carrying value for all of its property, plant and equipment as recognised in the financial statements as at the date of transition to Ind ASs, measured as per the previous GAAP. Further, such carrying value can be used as its deemed cost as at the date of transition after making necessary adjustments in accordance with paragraph D21and D21A, of this Ind AS. If an entity avails the option under this paragraph, no further adjustments to the deemed cost of the property, plant and equipment so determined in the opening balance sheet shall be made for transition adjustments that might arise from the application of other Ind ASs.

2. Proposed scenario

The exposure draft proposes that an entity can make further adjustments to the deemed cost that might arise from the application of other Ind AS. Accordingly there is no such requirement in the exposure draft that if an entity avails the option under para D7AA then no further adjustment can be made in the deemed cost.

3. Applicability date

Proposed changes, if accepted, can be applied from annual periods beginning on or after1st April, 2017.

Saturday, April 29, 2017

Apex Court accepts Rs 2,000 crore post-dated cheques from Subrata Roy

The Apex Court has accepted Sahara India Pariwar Chief, Subrata Roy’s undertaking to deposit two post - dated cheques for a sum of Rs. 1500 crores and Rs. 552 crores, respectively, both drawn in favour of SEBI-Sahara refund account. Further, it has also warned him that if the cheques cannot encashed, then he will be sent to Tihar Jail. -[2017] 80 370 (SC)

SEBI proposes to make mandatory appointment of monitoring agency for IPOs above Rs. 100 crore

SEBI in its board meeting held on April 26, 2017 has taken various decisions towards development of derivative market in India. Following are the major steps to give boost to the primary market:

a. Mandatory appointment of monitoring agency: SEBI has proposed to make mandatory appointment of monitory agency where the issue size is more than Rs. 100 crore.

b. E-wallets for mutual funds: To promote digitalization in mutual funds, SEBI has proposed to allow investment up to Rs. 50, 000 per year in mutual fund schemes through e-wallets. However, redemption of such investment can be made only through bank account of the unit holder.

c. Amendments to Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012: To enable the Commodity Derivatives Exchanges to organize trading of ‘options', SEBI has approved of a proposal to amend the relevant provisions of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012.

d. Inclusion of RBI registered systemically important NBFCs in the category of QIBs: SEBI has approved of the proposal of inclusion of systemically important NBFCs registered with RBI having a net worth of more than Rs. 500 crore in the category of QIBs.

Thursday, April 27, 2017

SC upholds HC’s ruling on Formula One Championship; Budh International Circuit treated as PE


a) Formula One World Championship Limited (FOWC) granted Jaypee Sports International Ltd. (Jaypee) right to host, stage and promote F-1 Grand Prix of India event for a consideration of US$ 40 millions.

b) Authority for Advance Ruling (AAR) held that consideration paid to FOWC wasn’t taxable in India as FOWC did not have any PE in India. However, High Court of Delhi reversed the findings of AAR and treated Buddh International Circuit as PE for FOWC. 

The issue before the Supreme Court was as under:

Whether FOWC was having any 'Permanent Establishment' (PE) in India in terms of Article 5 of DTAA?

The Supreme Court held as under:

1) As per Article 5 of the DTAA, the PE has to be a fixed place of business ‘through’ which business of an enterprise is wholly or partly carried on.

2) During the event and as well as two weeks prior to it and a week succeeding it, FOWC had full access through its personnel to the Buddh International Circuit.

3) Such access or right to access was not permanent but was for a period up to six weeks at a time during the F-1 Championship season. Further, as the tenure of contract was for five years, it meant that such an access for the period in question was of repetitive nature.

4) Since FOWC carried on business in India through a fixed place of business, namely, the Buddh International Circuit, It couldn’t be denied that Buddh International Circuit was not a PE for FOWC. - [2017] 80 347 (SC)