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