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 taxmann.com 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 taxmann.com 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 taxmann.com 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 taxmann.com 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 taxmann.com 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 taxmann.com 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 taxmann.com 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 taxmann.com 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 taxmann.com 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 taxmann.com 347 (SC)

Debtor can’t raise dispute on existence of debt to avoid initiation of insolvency process by creditor

Disputes raised by Debtor in reply to demand notice from operational creditor were not sustainable as corporate debtor didn’t raise any objection for disputing existence of debt against operational creditor before issuance of statutory notice under section 8 of the Insolvency and Bankruptcy Code, 2016.

Merely mentioning dispute in reply to the notice u/s 8 will not amount to dispute being in existence. Therefore, petition for initiation of Corporate Insolvency Resolution process by Operational Creditor was to be admitted - [2017] 80 taxmann.com 320 (NCLT - Mum.)

Payment for Usage of Marks/Logos - Whether Royalty?

How crucial marks/logos/designs (collectively hereinafter referred to as "marks") are for an enterprise is a well acknowledged fact. In the current dynamic business scenario an entity's identity and existence are dependent on how well it is able to establish itself in the minds of the people. To achieve this objective, organisations constantly undertake extensive advertisements and promotional activities. With businesses being carried on across the borders, multinationals join hands to increase their global presence.

Taxation in India, being based on "source based taxation" principles, revenue authorities perceive every cross border transaction with suspicion and attempt to levy tax on the premise that the source (accrual) of a payment is based in India. Accordingly, revenue has always regarded the payment for use of marks as Royalty, both in terms of section 9 of the Income-tax Act, 1961 (hereinafter referred to as "Act") and under the provisions of the Double Taxation Avoidance Agreement ('DTAA').

In this article, an endeavour has been made to touch upon the sensitive issue of taxability of consideration received by the foreign companies with respect to use of their marks in India.

Click here to view full article

Sale proceeds of land appurtenant to residential house is entitled to section 54 relief: ITAT

The issue before the Tribunal was as under:

Whether sale proceeds of land appurtenant to the building areentitled to deduction under section 54?

Tribunal held in favour of assessee as under

1) The land sold by the assessee was forming part of the residence and all the property was duly assessed to house-tax and was self-occupied by the occupants, viz., the assessee and his family members. Under section 54, the legislature has used the expression "being buildings or lands appurtenant thereto and being a residential house’.

2) The Karnataka High Court had examined these expressions while construing the provision of section 54in the case of C.N. Anantharam v. Asstt. CIT [2015] 55 taxmann.com 282/230 Taxman 34 (Kar.)and had held that the deduction under section 54 is available even if the land, which is appurtenant to the residential house is sold. It is not necessary that the whole of the residential house should be sold because the legislature
has used the words "or" which is distinctive in nature.

3) In the instant case, it was not the case of Assessing Officer (AO) and CIT(A) that the land was not appurtenant to the residential house. Here assessee had sold only the land appurtenant to the house and not residential house which, according to the Karnataka High Court, was not a requirement under the law and exemption under section 54 was also available to the land which was appurtenant to the house.

4) The sale deed itself showed that the land was part of residential house. Therefore, the exemption claimed under Sec. 54 had to be allowed to assessee. - [2017] 80 taxmann.com 223 (Delhi - Trib.)

Salary deduction for not serving during notice period couldn’t be taxed: ITAT

Facts :

a) Assessee declared salary income after deducting amount for not serving during notice period with two of his employers.

b) During the course of reassessment proceedings, Assessing Officer (AO) added the salary amount deducted by the employers for not serving during notice period to the income of assessee.

c) On appeal, CIT(A) upheld order of AO that no such deduction is available under Section 16 of the Act and the salary income is taxable on due basis or on paid basis. Aggrieved-assessee filed the instant appeal before Tribunal.

Tribunal held in favour of assessee as under:-

1) Employers had made deduction from the salary which was paid to the assessee during the year under consideration because of leaving the services as per agreement made between the assessee and the respective employer.

2) This was a case of recovery of the salary which was already made to the assessee for which Section 16 of the Act couldn’t be referred to.

3) Assessee had actually received the salary from his previous employers after deducting the notice period amount as per the job agreement with them.

4) Therefore, salary received by the assessee could only be taxed in the hands of assessee. - [2017] 80 taxmann.com 297 (Ahmedabad - Trib.)

Friday, April 21, 2017

Govt. extends due date for deposit under PMGKY to April 30, 2017

Government has extended date for making interest-free deposits for declarants who have paid tax and penalty under the Pradhan Mantri Garib Kalyan Yojna (PMGKY).

Under the PMGKY scheme, declarants had to deposit 25% of amount declared, in a bank for 4 years without interest. Due date for deposit such amount was March 31, 2017 which has now been extended till April 30, 2017.

Earlier, CBDT had also notified that if an assessee had made payment of tax, surcharge, penalty and deposit in the banks by the closing hours of 31st March, 2017, he shall be allowed to file declaration under the Scheme by the 10th of April, 2017.

Sec. 69A additions upheld as assessee failed to prove that bedroom from where cash was seized belonged to his sister


a) Search action was carried out at the residence of the assessee. During search, some unexplained cash was found and seized from bedroom of assessee's sister.

b) Assessee contended that cash received from the bedroom of sister belonged to his sister who came to stay with him few days back and, therefore, the same could not be included as unexplained cash in the hands of the assessee.

c) Assessing Officer (AO) did not accept the contention of the assessee and added entire amount of cash found as unexplained under section 69A.

d) CIT(A) and ITAT confirmed the order of AO. Aggrieved-assessee filed instant appeal before the High Court.

High Court held in favour of revenue as under:

1) Assessee failed to bring on any record that the bedroom was in exclusive possession of the sister. Even, there were contradiction in the statement of assessee recorded under section 132(4) and the affidavit of the sister.

2) Assessee had stated that out of amount found in cash, Rs. 2,50,000 lakh belonged to his sister whereas sister in her affidavit stated to had cash possession of Rs. 6,38,800 which was received by her from in-laws being Stridhan.

3) There were material contradiction in the statement of assessee and his sister with respect to ownership of actual amount in cash. Further no evidence was produced with respect to any share received from her in laws.

4) Therefore, seized cash was rightly included in income of assessee as unexplained money under section 69A. - [2017] 80 taxmann.com 175 (Gujarat) 

AO's participation in raid doesn’t make reassessment void when he isn’t biased against assessee

The issue before the High Court was as under:

Whether ITAT fell into error in concluding that there was no infirmity in the framing of the assessment by an Officer who was involved in the search and seizure operations?

High Court held in favour of revenue as under:

1) Assessing Officer (AO) has been given the power under the Act to gather information for the purposes of assessment. The mode of gathering such information may vary from the mere issuance of a notice under Section 142 to the more intrusive method of entry and search/seizure envisaged under Section 133A, Section 133B and Section 132.

2) There is nothing inherently unconstitutional in permitting AOto gather the information and to assess the value of the information himself. It was not open to the High Court to have disabled AO from discharging his statutory functions.

3) If the assessee would establish that AO was in fact biased in the sense that he was involved in his personal capacity in the outcome of the assessment, it would be a good ground for setting aside the assessment order.

4) But to hold that bias was established only because the authorised officer under Section 132 and AO were the same person was an incorrect approach.

5) Assessee has, in addition to relying on the circumstance that the AO was a participant in the raiding party, not placed any other material to substantiate the allegation of bias.

6) No personal bias or malice or past history with the said official was alleged, much less proved. Thus, the argument that assessment was void on account of bias was unsustainable and had to be rejected. - [2017] 80 taxmann.com 257 (Delhi)

Grant of scholarship to deserving students to pursue higher studies was charitable in nature: HC


a) The assessee was a society registered under Societies Registration Act, 1860 and was running several educational institutions in the State of U.P.

b) Assessing Officer (AO) disallowed payment of scholarship to the incumbent on the ground that it was not for charitable purpose and it would be considered as income of assessee.

c) On appeal, CIT (Appeals) deleted additions made by AO which was affirmed by the Tribunal on further appeal. Revenue filed instant appeal before the High Court

High Court held in favour of assessee as under:-

1) Scholarship to the incumbent was granted for pursuing Engineering course from University of California, Los Angeles, USA. The candidate was selected after a thorough process of selection and finding him most deserving candidate, scholarship was granted to the said incumbent.

2) This was in the process of charitable object of assessee Society for advancement of higher technical education to deserving students. It could not be doubted that advancement of education was a 'charitable purpose'.

3) The candidate, beneficiary, was directly or indirectly not related to Members of Society nor otherwise had any bearing or connection with the Society Members. Financial status of the said student or other things were immaterial so far as purpose for which scholarship to said incumbent was concerned.

4) Therefore, CIT (Appeals) was justified that grant of scholarship to deserving students to pursue higher studies was charitable in nature. [2017] 80 taxmann.com 96 (Allahabad) 

Monday, April 17, 2017

AO rightly treated bank as an assessee -in-default for allowing LTA claim to its employee travelling abroad


a) A survey was conducted on nationalized bank under section 133A to verify the TDS compliance in the case of salary and perquisite payments made to its employees. 

b) Assessing Officer (AO) noticed that bank had allowed LTC exemption to its employeesfor the foreign travel. AO treated bank as an 'assessee-in-default' under section 201(1) for making short-deduction of tax.

c) CIT(A) confirmed the order of AO, aggrieved-assessee filed instant appeal before the Tribunal.

Tribunal held in favour of revenue as under:

1) As per the provisions of section 10(5), only the reimbursement of expenses which are incurred on travel of employees and their families to any place in India are exempt. Since the employees of the Bank had travelled to foreign countries, the benefit of exemption available under section 10(5) should not have been granted.

2) Though bank may not have been aware of the details of the employees' places visited or destination at the time of advancement of LTC amounts. Yet, at the final settlement of the claims of the employees under LTC, bank should have obtained all the relevant details, such as the places of visits (destinations), etc.

3) Thus, the bank was aware of the fact that its employees had visited foreign countries by availing of LTC concession. So they were not entitled for to reimbursement of LTC.Thus, bank was under an obligation to deduct tax at source treating such an amount as not exempt.

4) Since the bank had failed to enforce its duty to deduct tax at source under section 192, AO correctly treated Bank as an 'assessee-in-default'. - [2017] 80 taxmann.com 179 (Bangalore - Trib.)

‘Taxmann’ invites taxpayers to submit their practical difficulties faced in case of ITRs and TDS matters

‘All Gujarat Federation of Tax Consultants’ felt an urgent need for effective resolution of practical issues being faced by the taxpayers. Thus, it is organizing an open house at Ahmedabad to have meaningful interactions with concerned CPC authorities with a view to achieve effective resolution of several practical difficulties being faced by the taxpayers in relation to following activities:

A) Filing of e-returns, processing of ITRs and rectifications, issue of tax refunds, computation of interest, adjustment of tax demands against refunds, etc., handled by CPC (ITD) Bengaluru.

B) Filing and processing of TDS returns, grant of due credit and reconciliation of TDS or TCS and related issues dealt with by CPC (TRACES) Ghaziabad. 

The taxpayers and tax practitioners are requested to send their practical difficulties faced by April 17, 2017 at suggestions@taxmann.com which can be placed before CPC authorities at the open house.

Following departmental authorities will deal with such practical difficulties at the open house:

DGIT (System) – Shri S.S. Rathor

CIT-CPC (ITR) – Shri R. K. Mishra

CIT-CPC (TDS) – Shri Sunil C. Sharma

Delay in payment under IDS due to demonetization unacceptable- HC dismisses writ


a) The petitioner had filed a declaration under the Income Declaration Scheme, 2016 (IDS) declaring total undisclosed income of Rs.11.59 crores.

b) He was unable to deposit the amount of Rs.1.19 crores being 25% of income declared which he was required to deposit before 30th November, 2016 under IDS in view of the demonetization of Rs.500/- and Rs.1000/-currency notes on 8th November, 2016.

c) Thus, he filed writ before the High Court seeking a direction to the Revenue to accept Rs.1.19 crores which he was unable to deposit on or before 30th November, 2016.

High Court held as under:

1) There was no provision under the IDS or in the rules made there under which would permit the revenue to accept payment of tax after due date.

2) High Court couldn’t issue any such directions as the revenue authorities were obliged to act in accordance with the Income Declaration Scheme, 2016 which was a part of the Finance Act, 2016

3) It must be borne in mind that the IDS was optional and the dates of payment were known at the time of filing the declaration. Therefore, filing writ seeking direction to accept payment of tax after due date wasn’t maintainable. [2017] 80 taxmann.com 167 (Bombay)

CBDT introduces digitally signed E-PAN card for applicants

Central Board of Direct Taxes (CBDT) has introduced the electronic PAN Card (E-PAN) which would be sent by email to all applicants in addition to issue of the physical PAN Card.

E-PAN would be digitally-signed which can be submitted by applicant as a proof of identity to other agency electronically directly or by storing in the government's Digital Locker.

Further, in order to improve the Ease of Doing Business for newly incorporated companies, CBDT has tied up with Ministry of Corporate Affairs (MCA) to issue PAN and TAN in one day.

Applicant companies have to submit a common application form SPICe (INC 32) on MCA portal. Once the data of incorporation is sent to CBDT by MCA, the PAN and TAN would be issued immediately without any further intervention of the applicant. Till 31st March 2017, 19,704 newly incorporated Companies were allotted PAN in this manner. During March, 2017, out of the 10,894 newly incorporated companies, PAN was allotted within 4 hrs in 95.63% cases and within 1 day in all cases. Similarly, TAN was allotted to all such companies within 4 hrs in 94.7 % cases and within 1 day in 99.73% cases, CBDT clarified.

Press Release dated 11-08-2017

Power of attorney holder can also file a complaint for dishonoring of cheque: HC

In general, a person who is entitled to prefer a complaint for dishonoring of cheque under the Negotiable Instrument Act, 1881 must be a “payee or a holder in due course” but law does not insist on that payee or holder in due course should personally file a complaint. His duly authorized power of attorney can also file a complaint on his behalf if cheque is issued in discharge of a legally enforceable debt.

Therefore, filing of complaint in respect of an offence under section 138 of the Negotiable Instrument Act is permissible through holder of power of attorney. - [2017] 80 taxmann.com 72 (Madras)

Bar Council of India can’t remand disciplinary proceedings transferred to it from State Bar Council: SC

The Disciplinary Committee of Gujarat Bar Council of India (BCI) could not complete its proceedings within a year as mandated under the provision of the Advocacy Act, 1961, as a consequence of which disciplinary proceeding had been transferred to the Bar Council of India. However, the BCI’s Disciplinary Committee got back the case to the State Bar Council with a direction to dispose of the matter within a stipulated period of time.

Being aggrieved by the action of Bar Council of India, Appellant filed a case before the Apex Court. It was held that when a disciplinary proceeding before a State Bar Council gets transferred to Bar Council of India (BCI) under the provision of the Advocates Act, 1961, the BCI cannot send it back to the State Bar Council with a direction to decide it within a stipulated time. - [2017] 80 taxmann.com 54 (SC)

‘Quasi-capital’ loan not to be compared with ‘loan’ for ALP computation


a) Assessee had advanced an optionally convertible loan to its associated enterprise (AE). The tenure of loan was five years and the lender had the option for repayment or for conversion of loan into equity at par with the company at any time during the tenure of the loan.

b) Assessee did not provide for any interest on said loan. TPO was of the view that merely because loan was convertible into equity, it did not alter its character as loan at the relevant point of time, and once that was so, the benchmarking of loan was to be done as per the prevailing market rate.

c) TPO made addition to assessee's ALP in respect of interest on loan to AE. 

d) The DRP confirmed said addition. Aggrieved-assessee filed the instant appeal before the Tribunal.

Tribunal held in favour of assessee as under:-

1) The transaction in question was not of the transaction of lending money to AE. Amount advanced to the AE was attached with the obligation of the AE to issue share capital, in case the assessee exercised option for the same, on certain conditions, which were admittedly more favourable, and at an agreed price, which was admittedly much lower, vis-à-vis the conditions and price which independent enterprise would normally agree to accept.

2) The lending was thus in the nature of quasi-capital in the sense that substantive reward, or true consideration, for such a loan transaction was not interest simplictor on amount advanced but opportunity to own capital on certain favourable terms. 

3) Usually loan transactions are benchmarked on the basis of interest rate applicable on the loan transactions simplictor which, under the transfer pricing regulations, cannot be compared with a transaction which is something materially different than a loan simplictor. For example, a non-refundable loan which is to be converted into equity. It is in this context that the loans, which are in the nature of quasi-capital, are treated differently than the normal loan transactions.

4) However, what the authorities had held that a quasi-capital transaction can be compared with a simple loan transaction where sole motivation and consideration for the lender is the interest on such loan.

5) Keeping in mind these factors, as also entirety of the case, it was fit and proper to delete the arm's length price adjustment in respect of interest which, according to the revenue authorities, assessee should have charged on the optionally convertible loan granted to the AEs. - [2017] 80 taxmann.com 24 (Ahmedabad - Trib.)

Thursday, April 6, 2017

Unutilized Foreign Tax Credit isn’t a tax deductible expenditure: Ahmedabad ITAT


a) Assessee pointed out that in terms of the Explanation 1 to Section 40(a)(ii), bar on deduction under section 40(a)(ii) is confined to only such income tax paid abroad in respect of which tax credit is granted under section 90 or 91. There is no bar on deduction under section 40(a)(ii) in respect of foreign tax for which no tax credit is available.

b) The issue before the Tribunal was as under:

‘Whether deduction under section 37(1) could be allowed in respect of foreign tax credit for which only partial credit was allowed in the current year?’ 

Tribunal held in favour of revenue as under:-

1) As per Explanation 1 to section 40(a)(ii), any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91 and as per Explanation 1 to section 40(a)(ii) any sum paid on account of any rate or tax levied includes any sum eligible for relief of tax under section 90A;

2) The scope of Explanations to Section 40(a)(ii), on which assessee had relied upon so much, it may be noticed that if the main provision does not cover the taxes paid abroad, there cannot be any occasion to include under Explanations to Section 40(a)(ii), taxes in respect of which relief under section 90 and 91 is not admissible. 

3) These Explanations do not extend the scope of the Section 40(a)(ii) but rather explain the scope of the said section. If something is covered by the Explanation, it cannot be said that it is not covered by the main provision. If taxes in respect of which tax credit under section 90 or 91 are covered by the proviso, these are covered by the scope of Section 40(a)(ii) as well. And if these taxes are covered by Section 40(a)(ii), the theory that meaning of 'tax' under section 40(a)(ii) must remain confined to the taxes levied under Income Tax Act, 1961 comes to a naught since the taxes in respect of which credits are available under section 90 or 91 cannot be, under any circumstances, imposed under the Indian Income Tax Act.

4) Therefore, in the event of assessee being allowed only partial tax credit in respect of taxes withheld abroad, he could not be allowed any deduction in respect of the balance of the taxes so withheld abroad under section 37(1). - [2017] 80 taxmann.com 6 (Ahmedabad - Trib.)

CA could demand higher remuneration if he produced good quality audit report


a) Petitioner-Chartered Accountant (CA) was engaged by the revenue authorities to conduct a special audit of a company. Audit Report was submitted and a huge addition of Rs. 720 crore was made.

b) CA submitted bill to the revenue for his professional services detailing 1315 man hours spent by his team. A total bill of more than Rs. 1 crore was raised taking average rate of manhour at Rs. 7500 per hour.

c) AO was of the view that time spent on lunch, refreshments, etc. should have been proportionately discounted from the bill. 85 per cent of the billed hours were considered by him as reasonable and accordingly reduced the average rate from Rs. 7500/hour to Rs. 4000/hour.

d) CIT(A) upheld the order of the AO. CA filed writ before the High Court: 

High Court held as under:-

1) Unlike employees, professionals do spend 9 to 10 hours a day on their work, even at odd hours, and attend to their basic necessities in the remaining hours of the day. Exclusion of such necessary recess for consumption of food and refreshment, etc. for a person to render quality work was illogical.

2) It was noteworthy that the quality of the report had been assessed as 'very good' by the AO.

3) Audit work was rendered by the CA’s four partners, Chartered Accountants and other personnel i.e. by qualified assistants and semi-qualified assistants. 

4) Notably, the work experience of the partners ranged from 3 to 27 years while the range permissible billing rate was between Rs. 3,500/- to Rs. 7,500/- and the rate of sitting could be correspondingly adjusted as per their regular sitting hours; instead it had arbitrarily been reduced to an average rate of Rs. 4,000/- per hour.

5) What the revenue was to assess was whether the special audit report was (i) within time, (ii) of the desired quality (iii) the billing was commensurate with the nature of inquiry and the quantum of the records to be looked into; etc.

6) If the audit report was of good quality and, inter alia, authored by a qualified professional having a fair number of years of experience then he/she might well be entitled to ask for the highest prescribed billing rate. [2017] 79 taxmann.com 415 (Delhi) 

No Sec. 195 TDS on crediting income to payee when it is taxable on receipt basis under treaty: ITAT


a) The assessee was liable to make royalty payment, to Saira Europe SPA, Italy. Liability was duly accounted for in the books of account, though payment was made a bit later.

b) Assessing Officer (AO) raised demand on the assessee by treating the due date for depositing tax deductible at source as being 7 days from the end of the month in which amount was credited in the books of account.

c) Assessee contended before AO that as per article 12(3) of India Italy DTAA, royalty payment was taxable only at the point of time when it was actually paid and not at the point of time of credit. AO, on the contrary rejected the contention of assessee.

d) On appeal, CIT(A) upheld order of AO. Aggrieved-assessee filed instant appeal before tribunal:-

Tribunal held in favour of assessee as under:-

1) It is only elementary that the TDS liability under Section 195 is a vicarious liability in the sense that it's survival in the hands of tax-deductor is wholly dependent on existence of tax liability in the hands of recipient of income.

2) When a credit or a payment made by an Indian resident to a non-resident does not trigger the taxability of that income in the hands of recipient, the tax deduction liability does not come into play at all.

3) The provisions of Section 195 are to be read in conjunction with the charging provisions under the statue, as also in conjunction with the relevant double taxation avoidance agreements which override these charging provisions.

4) Section 195(1) states that any person responsible for paying to a non-resident any sum chargeable under the provisions of this Act, shall, at the time of credit of such income to the account of the payee or at the time of payment deduct tax at source.

5) As per Article 13 of India-Italy DTAA, the term "royalties" means payments of any kind “received”. Therefore, royalty payment was not liable to be taxed at the point of time when account of the non-resident was credited, in view of the fact that under the related DTAA, tax liability can only arise at the point of a subsequent event, i.e., payment.

6) Since, income embedded in the payment was not taxable at that point of time of crediting the amount, there could not be any occasion for deduction of withholding of the tax on such income. – [2017] 79 taxmann.com 460 (Ahmedabad - Trib.)

Saturday, April 1, 2017

New ITR forms for AY 2017-18: Which ITR form you should opt for?

Every year CBDT notifies new income-tax return (ITR) forms. In 2016 the CBDT hadnotified the ITR Forms at the end of March, 2016 and it deviated from its past practice ofnotifying ITR Forms in the month of May or June. This time also the CBDT has notifiedthe ITR forms in the month of March, 2017.

As per the assurance given by the Finance Minister in his Budget Speech the CBDT had finally prescribed simplified ITR 1 Form with fewer columns. However, such ITR 1 is applicable only for individuals having income up to Rs 50 lakhs. Further, Individual taxpayers either having dividend income above 10 lakhs or having unexplained credit (taxable at 60% under Section 115BBE) can't opt for ITR-1.

The CBDT has scrapped ITR- 2A. Now all assessees (other than those earning salary income and business income) would be required to file ITR-2 only. Earlier taxpayers opting for presumptive taxation were required to file ITR-4S. But now they are required to file 'ITR-4 SUGAM' for presumptive income. Taxpayer earning income from business or profession are now required to file ITR-3 instead of old ITR-4.

Friday, March 31, 2017

Utilization of refund of TDS by company in liquidation would amount to contempt of court: Apex court

Contempt of Courts Act: Company in liquidation received money from National HighwayAuthority of India (NHAI) on account of acquisition of company's land.High Court had directed NHAI to deposit said amount with Registrar of High Court andNHAI deposited said amount after deducting TDS.

Thereafter, company has filed its return and claimed refund of the entire amount coveredby the TDS. Such amount was utilized for various purpose by the company. The ApexCourt held that utilization of TDS refund would amount to Contempt of order of High Court,as refund was actually compensation in respect of land acquired from company and itwas that amount which High Court wanted to protect by its order. - [2017] 79 taxmann.com 463 (SC)

Share premium isn’t part of capital employed for computing Sec. 35D deduction of preliminary exp: SC

The issue before the Supreme Court was as under:

Whether "Premium" collected by Company on its subscribed share capital was to be treated as "capital employed in the business of the Company" within the meaning of Explanation(b) of sub-section(3) to Section 35D so as to enable the Company to claim deduction of preliminary expenses as prescribed under Section 35D?Supreme Court held in favour of revenue as under:

The "premium amount" collected by the Company on its subscribed issued share capital could not be said to be the part of "capital employed in the business of the Company" inview of the following reasons:-

1) If the intention of the Legislature was to treat the amount of "premium" collected by theCompany from its shareholders while issuing the shares to be the part of "capitalemployed in the business of the company", then it would have been specifically said so inthe Explanation(b) to sub-section(3) of Section 35D of the Act. It was, however, not said so.

2) Section 78 of the Companies Act which deals with the "issue of shares at premium anddiscount" requires a Company to transfer the amount so collected as premium from theshareholders and to keep the same in a separate account called "securities premiumaccount". It does not anywhere say that such amount should be treated as part of capitalof the company employed in the business for one or other purpose, even under the
Companies Act.

3) Column III of the Form of Annual Return prescribed under the Companies Act whichdeals with capital structure of the company, provides "issued shares capital break up".This column does not include in it the "premium amount collected by the company from itsshareholders on its issued share capital". This is indicative of the fact that such amount isnot considered as a part of the capital, unless it is specifically provided for in the relevantsection. - [2017] 79 taxmann.com 450 (SC)

Lessee can’t claim depreciation on reimbursement of construction cost to lessor: Apex Court


a) Mother Hospital Private Ltd. (Assessee)entered into an agreement with a partnership firm for construction of hospital building on land belonged to the firm.

b) It wasagreed that the firm will complete the construction of the building on the condition that the entire cost of construction should be borne bythe assessee. Since the ownership of the land had to remain with the firm, it was also agreed that the land would be given on lease.

c) Assessee filed its return in which it claimed depreciation on the building portion on the ground that it was deemed owner of building as per Explanation 1 to section 32. 

d) Assessing Officer (AO) rejected claim of depreciation which was upheld by the CIT(A) and High Court on further appeals.

e) Aggrieved by the order of High Court, assessee filed the instant appeal before the Supreme Court.

Supreme Court held in favour of revenue as under:

1) As per explanation 1 to section 32:

“Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes ofthe business or profession on the construction of any structure or doing of any work in or in relation to and by way of renovation or extension of or improvement to the building, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee."

2) As is clear from the plain language of the aforesaid Explanation, it is only when the assessee holds a lease right and any capital expenditure on the construction to the building is incurred by the assessee, that assessee would be entitled to depreciation to the extent of any such expenditure incurred.

3) If construction is carried out by lessor and expenditure is reimbursed by lessee, Explanation 1 would not come to the aid of the lessee.

4) In the instant case, construction was made by the firm and not by the assessee. It was a different thing that the assessee had reimbursed the amount to the lessor.

5) Since construction was not carried out by the assessee himself, therefore Explanation 1 to section 32 could not be applied and, accordingly, assessee couldn’t claim deprecation on building. [2017] 79 taxmann.com 375 (SC) 

Mere signing of 'Sauda Chitthi' wouldn't prove that assessee had received consideration from sale of land: HC


a) Assessee received re-assessment notice on the ground that a document was seized from the residence of Mr. RV, one of the partners of the firm in which assessee was also a partner.

b) This was a copy of 'Sauda Chitthi' entered into between the assessee and Mr. V on one hand as seller and Mr. PK and Mr. RV on other side of the deal as buyers for purchase of land.

c) According to the Assessing Officer (AO), the total sale consideration for above land, according to 'Sauda Chitthi', came to Rs. 18.80 crores and subsequently a sale deed was executed for a consideration of Rs. 56.39 lakhs and balance amount of Rs. 18.23 crores was received by assessee in cash as on-money. He held that the differential amount must be added to income of assessee.

d) Assessee filed writ petition before High Court against such re-assessment notice. High Court held in favour of assessee as under:-

1) It was an admitted position that the assessee had never executed any sale deeds. Merely on the basis of the 'Sauda Chitthi' signed by the assessee (signed and executed though, admittedly they were not owners of land for which the 'Sauda Chitthi' was executed/signed), it couldn’t be said that any amount was received by him.

2) Considering the statement of Mr. RV, he had categorically stated that the ‘Sauda Chitthi’ dated 12-03-2008 was subsequently had cancelled. It also didn’t appear that Mr. RV had stated that he had paid any amount to the assessee.

3) There was no other tangible material available with the AO other than ‘Sauda Chitthi’ to form a reasonable belief that the amount of Rs. 18.23 crores had been received by the assessee in cash.

4) Thus, formation of opinion by the AO seemed to be on surmises and conjectures, which couldn’t be the basis for reopening the assessment, in exercise of powers under section 147. [2017] 79 taxmann.com 237 (Gujarat)

Monday, March 27, 2017

CBDT issues guidelines for waiver of interest of assesseein- default

CBDT via Circular No. 11/2017 dated 24-03-2017 has issued guidelines to reduce or waived off the interest charged under section 201(1A)(i) in case of assessee’s failure to deduct tax at source in some specified cases.

The cases in which the reduction or waiver of interest under section 201(1A)(i) can be considered are as follows:

1) In case where books of account and other documents necessary for making TDS were seized by the department due to which assessee was not able to deduct tax within due time.

2) Where no tax was deducted on any sum paid or payable on the basis of any order passed by the jurisdictional High Court and subsequently such order was reversed by any retrospective amendment or by a decision of Supreme Court or by a larger bench of jurisdictional High Court.

3) In respect of payment made to non-resident, where: 

a) dispute regarding the tax payable in India in respect of the said payment had been referred to the Competent Authority in India as mentioned in Rule 44H.

b) such reference had been received within a period of two years of the date on which the notice of demand determining the tax payable was received by the assessee;

c) the dispute has been settled by way of a resolution arrived at under the Mutual Agreement Procedure (MAP) provided in the said agreement; and 

d) the assessee has given his acceptance to the resolution and has withdrawn his appeal(s) pending on the issue within one month of the date on which the resolution is communicated to him.

In cases where assessee has already paid interest under section 201(1A)(i), assessee is entitled to get refund of such interest amount if the waiver order has been passed by the authority.

Payment for usage of ICC marks to promote Reebok brand can’t be held as royalty: ITAT

The issue before the Tribunal was as under:

Whether payment made by Reebok to ICC as 'Rights fee' for use of Marks of ICC for purposes of promotion and advertisement was in nature of 'Royalty' or 'Fees for technical services'?

Tribunal held in favour of Reebok as under:-

Reebok India Company (assessee) had entered into an agreement with ICC. As per terms of agreement ICC allowed Reebok to associate with it as 'Official Partner of ICC' to advertise its products during the ICC events.

ICC had agreed to grant to the assessee certain 'promotional, advertising, marketing and other commercial rights' on a worldwide basis in connection with the ICC events. In all, there were two types of payments, which the assessee was supposed to make under the Agreement, namely, 'Rights fee' and 'Royalty' Payment made by assessee as “Right fee’ exclusively for use of Marks of ICC for purposes of promotion and advertisement couldn’t be said as ‘Royalty’ asICC did not provide any technical, industrial, commercial or scientific knowledge to assessee for use of ICC marks on his product for promotion in ICC events.

There was a separate clause provided in the agreement for payment of royalty on the manufacture and sale of licensed products using the Marks of ICC which was in nature of 'Royalty' duly covered under clause(iii) of Explanation 2 to section 9(1)(iii). Thus, payment madeexclusively for use of Marks of ICC for purposes of promotion and advertisement and not for manufacture and sale of licensed products couldn’t be treated
as 'Royalty' - [2017] 79 taxmann.com 271 (Delhi - Trib.)

Excise dept. can’t blame advocate for its own failure to remove office objections in appeal: HC

Excise department (Revenue) filed the appeal before the High Court with the plea to quash order passed by Registry dismissing its appeal seeking time to remove office objections.

High Court held as under: -

1) All the appeals filed by the revenue were entertained by condoning delay and there was enough time to remove office objections, but those were not removed.

2) Revenue officials were playing a blame-game. To cover up their lapses and deficiencies, they turned around and blamed their Advocates. They were of the opinion that their Advocates ought to have informed them and at every stage of the matter, particularly as to which office objections had to be complied with or were to be removed.

3) If the officers were unaware of legal procedures, then they had to be in touch with their Advocates. They could not expect that the Advocate himself would come to their office and apprise them as to what further had to be done after the filing of an appeal.

4) While allowing the appeal, we are expecting that this blame game will not be played further and Revenue officials must communicate with their Advocates periodically or rather regularly apprise themselves on the stages their Appeals have to go through. - [2017] 79 taxmann.com 268 (Bombay)

SRK wins tax case; ITAT allows Rs 10 cr. deduction for securing IPL team sponsorship for Star India


a) Shah Rukh Khan (SRK) had entered into a service agreement with Star India Pvt. Ltd. (‘Star India’) for hosting of ‘KBC’.SRK had received advance of Rs.72 crores for two seasons of KBC and the same had also been offered to tax on receipt basis.

b) After the production of the episodes for first season of KBC, the Star India decided not to produce the second season for commercial reasons. So, it wanted to recover the value of the unutilized amount from the SRK for non-shooting of the second season of KBC.

c) SRK agreed to secure for Star India a sponsorship association with KKR IPL Team. For securing such sponsorship, he paid Rs.10 crores to Knight Riders Sports Pvt. Ltd. and in return sponsorship rights were awarded to Star India

d) SRK claimed deduction of such expenditure while computing his business income while Assessing Officer (AO) disallowed such expenditure as he was of the view that SRK was under no obligation to refund any amount to Star India.

e) CIT (Appeals) affirmed order of AO, aggrieved by the order of CIT, SRK filed the instant appeal before the Tribunal.

Tribunal held in favour of SRK as under:

1) It is not the legal necessity to spend the expenditure which is determinative of its allowability; rather, it is the existence or otherwise of commercial expediency which guides the allowability of expenditure under Section 37(1).

2) From the point of view of commercial expediency, it is abundantly clearly that assessee had a long-standing professional relationship with Star India Pvt. Ltd. and there is a nexus between the impugned expenditure and the purpose of business.

3) It was not for the Revenue to prescribe what expenditure should an assessee incur and under what circumstances.

4) In the instant case, there was no challenge to the bonafides of the expenditure incurred. Therefore, same could be understood to had been incurred wholly and exclusively for the purposes of business.

5) Accordingly, the order of the CIT(A) was set-aside and the AOwas directed to delete the addition of Rs.10 crores. - [2017] 79 taxmann.com 227 (Mumbai - Trib.) 

Cabinet approves GST Bills to implement GST from July 1

On Monday, the Union Cabinet gave its nod for four crucial GST Bills to usher in the country's biggest-ever tax reform. The meeting was chaired by Prime Minister Narendra Modi. This meeting was conducted to understand and approve the four Bills - Central GST, IGST, UT GST and Compensation Bills.

Now the Government will introduce these Bills in the ongoing Budget session of Parliament itself. It is expected to be tabled in Parliament this week as Money Bills. The Government hopes to get them passed in the ongoing session to ensure the tax is implemented from July 1, 2017.

However, the State GST Bill will be taken up by State Cabinets and introduced in each State Assembly. The GST Council, in its previous two meetings, had given approval to the four legislations as also the State-GST (S-GST) bill.

Once GST is implemented, a composite tax will be levied on sale of goods or rendering of services. After the new indirect tax regime is rolled out, the revenue would be split between Centre and states in almost equal proportion. This because central taxes like excise and service tax and state levies like VAT will be subsumed in the GST. While the CGST will give powers to the Centre to levy GST on goods and services after Union levies like excise and service tax are subsumed, the I-GST is to be levied on interstate supplies. The SGST will allow states to levy the tax after VAT and other state levies are subsumed in the GST. The UT-GST will also go to Parliament for approval.

Monday, March 20, 2017

Reimbursement of salary of seconded employees held as FTS; ITAT relies on HC’s ruling of Centrica


a) Assessee, a swiss company was engaged in providing operations and management services to airports. It had entered into an agreement with Bangalore International Airport Ltd. (BIAL) for secondment of its skilled personnel.

b) Assessing Officer (AO) held that the payment received by the assessee from BIAL was in the nature of Fees for Technical Services (FTS) and, accordingly, chargeable to tax in India.

c) Assessee claimed that the seconded personnel work under the direct control and supervision of BIAL as it had the right to issue directions to the seconded employees. Therefore, aforesaid receipts cannot be considered as FTS.

d) CIT(A) upheld the order of AO, aggrieved-assessee filed the instant appeal before the Tribunal.

Tribunal held in favour of revenue as under:

1) Secondees were holding high managerial position and also holding the position in the management as CEO and CCO. This clearly establish the fact that they were not ordinary employees but having the expertise in the field of management. Therefore, the purpose of assignment was to avail the services of highly qualified personnel.

2) The Hon'ble Delhi High Court in the case of Centrica India Offshore Pvt. Ltd. v. DCIT [2014] 44 taxmann.com 300 (Delhi) had held that where employees used their technical knowledge and skills while assisting in conducting business of quality control and management, sum reimbursed to overseas companies towards salaries of seconded employees amounted to FTS.

3) Therefore following the decision of Hon'ble Delhi High Court in the case of Centrica (Supra),amount received in terms of secondment agreement was in nature of FTS, chargeable to tax under section 9 as well as under article 12 of India-Switzerland DTAA. – [2017] 79 taxmann.com 199 (Bangalore - Trib.)

Reshuffling of specified investment by a trust doesn't lead to denial of sec. 11 exemption


a) The assessee-trust was running an educational institution, registered under section 12AA. It was collecting moderate fees from the students and expenses of the Institution were always more than educational receipts, which were met out of dividend/interest income of its investment made as per section 11(5).

b) In the course of assessment, the Assessing Officer opined that assessee was carrying on its activities on commercial lines and there was sale of mutual funds in violation of provisions of section 11(5). He, thus, rejected assessee's claim for exemption of income under section 11.

c) The Commissioner (Appeals) allowed the assessee's claim by holding that there was no violation of the provision of section 11(5) for making investment and, moreover, profits derived from sale of mutual fund and dividend income were again re-invested into the specified mode of investment, i.e., mutual funds as per section 11(5).

d) The aggrieved-revenue filed the instant appeal.

The ITAT held in favour of assessee as under:

1) Under the provisions of section 11, there is no lock-in period nor there is any stipulation that investments so made cannot be reshuffled during the outer limit of five years' period. In this context, the Assessing Officer's observation that one set of mutual funds were divested of within the period of sixty days would be untenable.

2) During the year, the assessee-trust had reshuffled one set of investments only with the purpose of safeguarding interest of the trust and in the view of the apprehension that value of said mutual fund was fast declining. By doing so, the trustees of the trust had acted, in the best and paramount interests of the trust and not for the purpose of any benefit or a pecuniary gain to any person specified under sub-section (3) of section 11.

3) Again by doing so, the trust had not violated any stipulation or conditions, as a matter of fact there was no stipulation under section 11(5) placing restriction on the reshuffle of specified investment. Thus, assessee-trust was entitled to exemption under Section 11. – [2017] 79 taxmann.com 97 (Mumbai - Trib.)

Date of allotment letter to be considered and not date of sale deed registration to compute holding period of asset


a) The assessee sold her office unit and claimed that she had earned long-term capital gain as the office unit was held for more than 36 months.

b) The Assessing Officer noted that though allotment of the said office was done prior to 36 months from the date of sale but the agreement to sale was registered during the period of 36 months only, therefore, he computed the holding period from the date of registration of the agreement. Accordingly, he held that the said asset was 'short-term capital asset'. Consequently, the resultant gain was assessed as short-term capital gain.

c) The Commissioner (Appeals) upheld the order of Assessing Officer. The aggrievedassessee filed the instant appeal before the Tribunal.

The Tribunal held as under:

a) A perusal of definition of section 2(42A) shows that the legislature has used the expression 'held'. It is further noted that in various other allied or similar sections, the Legislature has preferred to use the expression 'acquired' or 'purchased', e.g., in section 54/54F. Thus, it shows that the Legislature was conscious while making use of this expression.

b) The expression like 'owned' has not been used for the purpose of determining the nature of asset as short-term capital asset or long-term capital asset. Thus, the intention of the Legislature is clear that for the purpose of determining the nature of capital gain, the Legislature was concerned with the period during which the asset was held by the assessee for all practical purposes on de facto basis.

c) The Legislature was apparently not concerned with absolute legal ownership of the asset for determining the holding period. Thus, one has to ascertain the period of holding of asset from which it can be said that assessee started holding the asset on de facto basis.

d) Thus, it is clear that for the purpose of holding an asset, it is not necessary that the assessee should be the owner of the asset based upon a registration of conveyance conferring title on him.

e) Therefore, holding period of office unit should be computed from the date of issue of allotment letter and not from the date of registration of sale deed. - [2017] 79 taxmann.com 67 (Mumbai - Trib.)

Existence of undisclosed bank deposits non-mandatory on date of PMGKY payment: CBDT

PMGKY scheme has commenced and it is open for declarations till March 31, 2017. Representations have been received from various stakeholders seeking clarification as to whether the deposits made in bank account or cash in hand which are eligible for declaration should exist on the date of filing of declaration under PMGKY.

The CBDT vide Circular No. 8/2017 has clarified that, it is not necessary that the said undisclosed deposits should exist on the date of making payments under PMGKY. However, undisclosed cash should exist on the date of making payment of tax, surcharge and penalty under PMGKY.

Works contractor not eligible for sec. 80-IB deduction


a) The land owner sold undivided co-ownership rights in the property to various individual purchasers. These purchasers further entered into construction agreement with assessee-firm for construction of flats.

b) Assessee filed return of income and claimed deduction under section 80-IB on construction receipts.

c) Assessing Officer (AO) held that the assessee though called developer was only a contractor and was not eligible to claim deduction under section 80-IB. 

d) On appeal, the CIT(Appeals) confirmed the order of AO. Aggrieved-assessee filed the instant appeal before the Tribunal.

Tribunal held in favour of revenue as under:

1) In the instant case, assessee had entered into an agreement with the land owner for development of vacant land into the multi-storied residential complex.

2) The main activity was construction of flats by virtue of the agreement into with the buyers.

3) Assessee's job included only controlling and directing the work of building construction as per plan and design by the landlord and hand over the constructed flats on behalf of the landlord to the eligible flat owners who have got registered undivided right in the property.

4) Assessee had only performed the work as a contractor and its job was not related to designing the project and selling of the project. Further, itwas not entitled to get any share in the constructed area and in the undivided property.

5) Since, it was a case of mere 'works contract', assessee was not eligible for deduction under section 80-IB. - [2017] 79 taxmann.com 10 (Chennai - Trib.)