Longer credit period allowed to AE on realization of sale proceeds would be an international transaction under TP

Longer credit period to AE is 'international transaction' in terms of Explanation to section 92(1) but same is 'closely linked' to international transaction of sale or service to AE in terms of Rule 10A(d). This is not a transaction of loan or advance to the AE but is only an excess period allowed for realization of sales proceeds from the AE. Therefore, the arm's length interest rate would be the average cost of the total fund available to the assessee and not the rate at which a loan is available.

The issues that arose before the Tribunal were as follows:

a)Whether allowance of longer credit period to AE could be treated as an international transaction in terms of Explanation to section 92(1)?

b)Whether allowance of longer credit period to AE could be treated as transaction of loan or advance to AE so as to determine arms’ length interest rate at a rate at which a loan was available?

The Tribunal held as under:

1)After the insertion of Explanation to section 92B(1), the payment or deferred payment or receivable or any debt arising during the course of business would fall under the expression international transaction. Thus, in view of the expanded meaning of the international transaction, the delay in realization of dues from the AE in comparison to non-AE would certainly fall in the ambit of international transaction.

2)As per Rule 10A(d) if a number of transactions are closely linked or continuous in nature and arising from a continuous transactions of supply of amenity or services the transactions is treated as closely linked transactions for the purpose of transfer pricing and, therefore, the aggregation and clubbing of closely linked transaction are permitted under said rule.

3)When the transactions are influenced by each other, particularly in determining the price and profit involved in the transactions, then those transactions can safely be regarded as closely linked transactions.

4)In the instant case, the credit period extended to the AE was a direct result of sale transaction. The sale price of the product or service determined between the parties would always influenced by the credit period allowed by the seller. Therefore, the transaction of sale to the AE and credit period allowed in realization of sale proceeds were closely linked.

5)When the assessee was not making any difference for not charging the interest from AE as well as non-AE then the only difference between the two could be considered as the average period allowed along with outstanding amount.

6)If the average period multiplied by the outstanding amount of the AE was at arm's length in comparison to the average period of realization and multiplied by the outstanding from non-AEs then no adjustment could be made being the transaction was at arm's length.

7)The transaction in question was not a transaction of loan or advance to the AE but it was only an excess period allowed for realization of sales proceeds from the AE. Therefore, the arm's length interest in any case would be the average cost of the total fund available to the assessee and not the rate at which a loan was available. - GOLDSTAR JEWELLERY LTD. V. JCIT [2015] 53 taxmann.com 353 (Mumbai - Trib.)

Trust entitled to exemption even if it charged fee for commercial activity, being incidental to its charitable nature

Fee charged by trust for processing subsidy applications could not be deemed as commercial receipts if it was incidental to its charitable objectives. Thus, assessee-trust was entitled to exemption under Section 10(23C)(iv).

Facts:

a)The assessee, National Horticulture Board (NHB) was an autonomous society set up by the Government to promote, develop horticultural activities and to enhance the social and economic well-being of the farmers, etc.

b)As a part of pursuing these objectives, one of the activities in which assessee was involved in was disbursement of subsidy received from the ministry of agriculture in respect of qualified horticulture projects and, in this regard, assessee had received certain sum on account of cost of application form and the brochure from subsidy seekers.

c)Assessee had filed its return (including the amount received from subsidy seekers) and it claimed exemption under section 10(23C)(iv).

d)The Assessing Officer (‘AO’) disallowed the exemption by contending that the amount so received were for services rendered to the customers, which were in the nature of business, commerce and trade and, therefore, the activities of assessee could not be treated as charitable activities.

e)On appeal, CIT(A) affirmed the order of AO. Aggrieved by the order of CIT(A), assessee filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under:

1)First proviso to Section 2(15) provides that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity.

2)Thus, the above proviso has two limbs, one is related to carrying on of any activity in the nature of trade, commerce or business and other one is related to carrying on any activity of rendering any service in relation to any trade, commerce or business.

3)There was no dispute that first limb of first proviso was not attracted on facts of the instant case, in as much as it was not even revenue’s case that the assessee was engaged in activity in the nature of trade commerce or business. The addition was made by revenue by invoking the second limb, i.e., rendering of services in relation to any trade, commerce or business.

4)The Delhi High Court in case of GS1 vs DGIT (Exemption) [2013] 38 taxmann.com 364 (Delhi) held that even for invoking second limb of first proviso to Section 2(15), it was sine qua non that the assessee had extended services to business, trade or commerce and such services have been extended in the course of business carried on by the assessee.

5) It was, thus, clear that even in a situation in which an assessee receives a fees or consideration for rendition of a service to the business, trade or commerce, as long as

No TDS liability of buyer when capital gain arose to NR wasn't taxable due to sec. 54 relief

Where on date of purchase of house property from non-resident vendor, assessee was aware of fact that capital gain was not taxable in vendor's hands due to availability of deduction under section 54, he was not required to deduct tax at source while making payment of sales consideration

Facts:

a)Assessee had purchased a residential property from a non-resident (‘NR’) and made payment to him without deducting tax at source.

b)He argued that that he was not required to deduct tax at source while making payment to NR since NR was eligible to claim relief under section 54 in respect of capital gain arising out of sale of residential property.

c)The Assessing Officer (‘AO’) opined that capital gain tax would be chargeable in the hands of the recipient on sale of the house property. Hence, assessee was required to deduct tax while making payment irrespective of fact that recipient was entitled to deduction under section 54. Consequently, the AO raised demand under section 201 by treating assessee as assessee-in-default.

d)The CIT(A) affirmed the order of AO. The aggrieved assessee filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under:

1)The ultimate levy of taxes depends upon many circumstances like exemption, deduction etc. In the instant case assessee did not deduct tax on payment as he was aware that such payment to NR did not require deduction of tax due to availability of Section 54 relief to NR.

2)If facts of the instant case were to be examined in the light of instruction No. 2/2014 dated 26-02-2014, it would indicate that the AO is required to determine the appropriate proportion of the sum chargeable to tax to ascertain the tax liability on which the deductor shall be deemed to be an assessee in default under section 201.

3)The facts on record indicated that from the date of payments, parties were aware that these payments would not be subject to taxes, because of exemption, hence, there was no need to deduct the taxes. Thus, assessee could not be treated as assessee in default under section 201. - A. MOHIUDDIN V. ADIT(INTERNATIONAL TAXATION) [2015] 53 taxmann.com 102 (Bangalore - Trib.)

Fee charged by bank for receiving payments from customers of assessee via credit card won't attract sec. 194H

'Commission' paid to bank on payments received from customers via credit cards is not liable to TDS under section 194H.

The issue that arose before the High Court was as under:

Whether ‘commission’ paid to bank on payments received from customers via credit cards could be treated as a commission or brokerage under section 194H so as to attract TDS?

The High Court held in favour of assessee as under:

1)The intention of the legislature behind introducing the provisions of section 194H was to include commission or brokerage within its ambit when a third person interacts between the seller and the buyer as an agent and, thereby, renders services in the course of buying and/or selling of goods

. 2)In the instant case, bank was providing services to its client (i.e., trader) which could not be treated as services rendered by an agent during course of buying or selling of goods as banker does not render any service in nature of agency.

3)Thus, the amount charged by bank was a fee for rendering banking services to its client and same could not be treated as a commission or brokerage under section 194H for the purposes of TDS. - CIT V. JDS APPARELS (P.) LTD. [2015] 53 taxmann.com 139 (Delhi)

Sec. 143(1) intimation won't be deemed as completion of assessment to bar filing of revised return, rules HC

Issue of intimation under section 143(1) could not amount to completion of assessment so as to bar an assessee from filing a revised return under section 139(5)

The issue that arose before the High Court was as under-

Whether issue of intimation under section 143(1) could not amount to completion of assessment so as to bar an assessee from filing of revised return under section 139(5)?

The High Court held in favour of assessee as under-

1)The provision of section 143(1)(i) contemplates an assessment without prejudice to the provisions of Section 143(2).

2)Section 143(2) allows Assessing Officer (AO), if he considers it necessary, to serve on the assessee a notice requiring him, on a date to be specified therein, to attend his office or to produce or cause to be produced thereon, any evidence on which the assessee may rely on in support of the return and after taking into account all relevant materials the AO shall by an order in writing make an assessment.

3)Thus, AO could resort to the provisions of section 143(2) even after issuing of intimation under section 143(1) and, therefore, processing of return under section 143(1) could not be said to be completion of assessment so as to restrict assessee from filing a revised return under section 139(5)- TATA METALIKS LTD V. CIT [2014] 52 taxmann.com 480 (Calcutta)

Excel template for Ind-AS Financials

IndAS standards have been gathering momentum to replace existing Accounting Standards. IndAS provides disclosures for a particular topic but none of the standards provide the format of balance sheet, statement of profit and loss and statement of changes in equity. Although MCA and ICAI provides for proposed Ind AS but one of the key elements missing till date was the format of the financial statements as per Ind AS. Now an exposure draft has been released which provides the format of Ind AS financials complying with Schedule III of the Companies Act, 2013.

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TWISTS AND TURNS IN TAX ACCOUNTING STANDARDS: TAS v. AS

In December, 2010 the CBDT constituted the Committee to harmonize the AS issued by the ICAI with the provisions of the income-tax Act for the purposes of notification under the Act and to suggest amendments to the Act. The Committee recommended that some of the AS issued by ICAI related to 'disclosure' requirement, whilst some other contained matter that was adequately dealt within the Act. In view of this, the Committee formulated the drafts of only fourteen Tax Accounting Standards ('TAS') issued by the ICAI. It submitted its final report along with draft of TAS in August, 2012 which was placed in the public domain for comments. After examining the comments, the CBDT revised the draft of twelve TAS submitted by the Committee. It has withdrawn draft of TAS which corresponded to AS-4 on "Contingencies and Events Occurring After the Balance Sheet Date" and AS-5 on "Net Profit or Loss for the Period, Prior Period Items and changes in Accounting Policies". Click here to view comparative study of Accounting Standards issued by ICAI, TAS and revised TAS issued by CBDT.

A Comprehensive Guide to Accounts and Audit

 
Accounts and Audit from Taxmann

Petitioner couldn't ask for transfer of case for his convenience to participate in proceedings, says High Court

Facts:

a)Petitioner was residing with her husband at Tanjore till 2008, after which they moved to Chennai. Petitioner's husband as well as the petitioner were Income-tax assessee and the petitioner's husband died on 29-3-2013, leaving behind two sons and a daughter as his legal heirs.

b)The Income-tax Officer (‘ITO’) issued notices to the petitioner and her two sons under section 148, calling upon them to produce the accounts and documents pertaining to the estate of her husband.

c)Pursuant to the notice, the petitioner had sought for transfer of the files from Tanjore to Chennai.

d)The assessee submitted that merely because notices were issued at Tanjore and statement of the petitioner's son was recorded at Tanjore, it could not be a ground to compel the petitioner to travel from Chennai to Tanjore on each occasion for participating in the assessment proceedings.

The High Court held in favour of revenue as under:

1)On a reading of the provisions of section 127, it was seen that the object for which such provision was enacted is for the purpose of administrative convenience. The said provision does not empower the Assessing Officer to transfer a case from his jurisdiction to that of another and even when the Director General or the Chief Commissioner or the Commissioner exercising such power, can transfer any case after recording his reasons for doing so.

2)For the purpose of recording reasons, it is obvious that the Commissioner has to consider the circumstances involved in each case.

3)When the transactions have taken place within the jurisdiction of the ITO and the transaction pertained to the immovable property, the petitioners could not insist that the files should be transferred from Tanjore to Chennai solely on the ground that it would be convenient for the first petitioner to partake in the assessment proceedings.

4)The ITO after considering the representation of petitioner, called for a report from the Assessing Officer and the contentions raised by the representative of the petitioner was considered and reasoned order had been passed.

5)Thus, the impugned order being a reasoned order and nothing has been placed before Court to show that the impugned order was either ex facie perverse or vitiated by any patent error. In the impugned order reasons have been assigned for rejecting the request for transfer, which was based on the records. Therefore, Court was not inclined to interfere with the discretion exercised by the ITO in refusing to transfer the case from Tanjore to Chennai. - D.V. MERCY V. ITO [2014] 52 taxmann.com 519 (Madras)

Insurer rightly rejected claim for damages as complainant didn’t intimate to it transfer of interest in property

Where complainant in terms of insurance policy failed to intimate insurer about transfer of interest of insured property in favour of bank, insurer was not guilty of unfair trade practice in rejecting complainant's claim for damages as a result of fire

Facts:

a) The complainant-company obtained Standard Fire and Special Perils Policy (‘The Policy’) from the Insurer in respect of the plant, machinery and stocks.

b) The Policy provided for cessation of insurer's liability on failure of insured to intimate if property remained unoccupied or if interest of property passed from insured otherwise than by will or operation of law.

c) The complainant had taken loan from bank, but failed to repay the same and as a result of recovery proceedings its property was attached. While the property was lying sealed, a fire broke out resulting in damages and, accordingly, the complainant informed the insurer about the fire incident.

d) The Insurer rejected complainant’s claim for damages. The complainant filed petition under section 36B of the Monopolies And Restrictive Trade Practices Act, 1969 declaring that decision of insurer amounted to unfair trade practice.

The Competition Appellate Tribunal held as under:

1) As complainant had not informed insurer about sealing of property and that custody of property was with bank and not with insured, the complainant had violated general conditions of policy and, therefore, the insurer was not guilty of unfair trade practice and complainant was not entitled to any compensation or damages-- Anu Texchem Products (P.) Ltd. V. New India Assurance Co. Ltd. [2014] 52 taxmann.com 463 (CAT)