AS 18: Names of KMP having control over entity should be disclosed even if there is no transaction with them

Query

A Managing Director (MD) (Mr. A) of a company (B Ltd) has 21% voting power in the company. Key Management Personnel (KMP) include MD of a company as per the definition given in AS 18, 'Related Party Disclosures'. So, Mr. A is a related party of B Ltd. As per an agreement between Mr. A and B Ltd., he has the power to direct financial and operating policies of A Ltd. So, he has control over B Ltd. as per the definition of 'Control' given in AS 18. During the year there were no transactions between Mr. A and B Ltd. In the financial statement B Ltd. has not made any disclosure in respect of Mr. A. The management of B Ltd. is of view that disclosure is not required if there is no transaction with related party (i.e., Mr. A).

Is contention of B Ltd. correct?

Answer

No.

Para 21 of AS 18 requires that name of the related party and nature of the related party relationship where control exists should be disclosed irrespective of whether or not there have been transactions between the related parties.

In this case Mr. A is a related party of B Ltd. having control over it. So, with reference to Para 21 of AS 18 as mentioned above, B Ltd. should disclose the name of Mr. A and nature of relationship with him in the financial statement.

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No disallowance under sections 40(a)(ia) and 43B if assessee-trust was enjoying exemption under section 11

Issue

Whether disallowance under sections 40(a)(ia) and 43B could be made in a case of trust enjoying exemption under section 11 of the Income-tax Act (‘Act’)?

The tribunal held as under-

1)    Sections 11, 12 and13 deal with income from property held for charitable or religious purposes and the mode of computation of income subject to certain conditions. Accordingly, income of any charitable trust or society is exempt from tax, if such conditions are fulfilled.

2)    Sections 40(a)(ia) and 43B fall under Chapter IV-D of the Act. The said Chapter deals with computation of profits and gains from business or profession. The profits and gains from business or profession are computed under section 28. Section 29 provides the manner of computation of income under the head "profits and gains of business or profession", which states that the income referred to in section 28 shall be computed in accordance with the provisions of sections28 to 43D.

Comments on the Draft Rule for giving Foreign Tax Credit

1. Introduction:

Finance Act 2015, inserted, w.e.f. 01.06.2015, clause (ha) in sub-section 2 of Section 295. It enables the Board, subject to the control of Central Government, by a notification in the Gazette of India, to make rules specifying the procedure for grant of relief, deduction of any Income tax paid in any country or specified territory outside India u/s 90, or Section 90A or Section 91, against the income-tax payable under the Act. Accordingly, the Board has, in accordance with the recommendation made by the Committee constituted by it, vide LETTER [F.NO.142/24/2015-TPL], DATED 18-4-2016, announced Draft Rules for granting relief or deduction under section 90/90A/91 of the Income-tax Act, 1961.

2. Salient features of Draft Rule:

The salient features of the Rules are:

i.

For the purpose of giving credit, Foreign tax means-

(a)		Tax covered in the Double Taxation Avoidance Agreement entered into by India with a country in terms of Section 90/90A.
(b)		Tax, being in the nature of Income tax referred to in clause (iv) of the Explanation to section 91, payable under the laws in force in a country, with which India does not have Double Taxation Avoidance Agreement.

No more ‘self-declaration’ - Employees now required to give declaration in a new form

Presently, employees who wanted to claim tax deductions are required to file self-declarations of tax savings/deductions to employer  along with the evidences  of such tax savings for every financial  year.  Employer  was  liable  to  deduct tax  at  sources  on  the  estimated income  of employees a  er considering such self-declarations of tax savings.

Now the CBDT has notified new form no. 12BB for such purposes. Employees are now required to submit evidences/particulars of tax savings to employer in Form no. 12BB.

The CBDT has also notified  revised due dates  for filing of quarterly  TDS returns  by persons (other than government). Due dates  for filing TDS return for the quarter ended 30th June, 30th September, 31st December and 31st March has been extended to 31st July, 31st October, 31st January and 31st May respectively  (old dates  were 15th July, 15th October, 15th January and 15th May respectively).

Cl ick h ere to vie w Fo rm n o. 12B B and amen ded Ru l es

Principal of unjust enrichment couldn't be applied to deny refund even if tax amount was written off in P&L account

Merely because amount of tax paid is shown as expenditure, it cannot be concluded that incidence of duty was passed onto buyers; hence, doctrine of unjust enrichment would not apply to deny refunds merely because tax amount was written off in Profit & Loss Account

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Demand stayed by ITAT as huge sum was locked up with dept. in relation to disputed tax liability of earlier years

IT/ILT: Where demand was raised on account of transfer pricing adjustment, disallowance of claim u/s 80-IA and disallowance of long term capital loss, in view of fact Tribunal had already granted stay with reference to similar demand raised for earlier assessment years and that huge sums of assessee stood lock up in disputed tax liability of earlier years, stay was to be granted.

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No exemption under sec. 13A to a political party if it fails to maintain books of account

Facts:

a) The assessee (the then ‘Janata Party’) was a political party registered under the Representation of the People Act, 1951 ('RP Act'). It claimed exemption under Section 13A in respect of voluntary contribution received from members.

b) Assessing Officer (AO) taking a view that assessee did not maintain proper books of account, rejected its claim for exemption.

c) The CIT(A) confirmed the order of the AO. However, on further appeal by assessee, the tribunal reversed the order of the AO.

d) Aggrieved by the order of the tribunal, revenue filed the instant appeal before the High Court.

The High Court held in favour of revenue as under-

No penalty on ‘Aishwarya Rai’ for TDS default if she relied on her CA’s advice

Facts:

a) Assessee (Aishwarya Rai Bachchan) made payment of US $ 77,500 to a non-resident for development of website without deducting TDS under Section 195.

b) The Assessing Officer (AO) observed that payment made for development of website would fall within the meaning of 'fees for technical services' as per Explanation 2 to Section 9(1)(vii). Therefore, payment so made was taxable in India in hands of non-resident and, hence, assessee had made default for not deducting TDS while making such payment. Consequently, the AO imposed penalty under section 271C for not deducting the TDS.

c) Assessee submitted that she had not deducted TDS by relying upon advice of her CA. Therefore, penalty shouldn’t be imposed as there was no mala fide intension on her part.

d) CIT(A) confirmed 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-

Key Transfer Pricing updates for March 2016

Introduction

The Finance Minister, Arun Jaitley announced the Union Budget 2016 on 29 February 2016, amidst high expectations from several stakeholders including taxpayers, investors and consumers. From a Transfer Pricing (TP) perspective, one of the most important development is the introduction of Country-by-Country (CbyC) reporting norms for TP documentation with effect from the Financial Year (FY) beginning 1 April 2016. The Organisation for Economic Co-operation and Development (OECD) and G20¹ countries as part of their Base Erosion and Profit Shifting (BEPS) project under Action Plan 13, introduced the three-tier TP documentation structure, which includes master file, local file and CbyC reporting. India, being an active participant of OECD's BEPS project, has proposed to adopt the above recommendations of the OECD's Action Plan 13 in the TP regulations announced during this budget. Some other amendments in the TP arena have also been proposed.

Recently, the Delhi High Court (High Court) in the case of Denso India Limited², rejected aggregation of an import transaction under the Transactional Net Margin Method (TNMM), since the facts of the case demonstrated that the arrangements made in relation to the transaction, when viewed in their totality, differed from those which would have been adopted by independent enterprises behaving in a commercially rational manner. In a Tribunal ruling in case of Essilor India Pvt Ltd³, the Bangalore Tribunal (the Tribunal) held that in the absence of an arrangement and agreement between the taxpayer and its Associated Enterprise (AE), incurrence of more expenditure on Advertisement, Marketing and Sales Promotion (AMP) compared to comparable companies cannot be inferred as an international transaction between the taxpayer and its AE.

No capital gain tax on amount standing in capital account received by partner on retirement from firm

IT: Amount received by assessee on retirement as partner from firm, on account of credit balance standing in capital account and current account, and not for relinquishing or extinguishing his rights over any assets of firm, would not be chargeable under section 45(4) as capital gains

IT: While computing total taxable income of EOU, depreciation loss of non-eligible units could not be set off against income of eligible units involved in activity of export

IT: Profits derived from export of articles alone are to be considered for claiming deduction under section 10B and not miscellaneous receipts from eligible profits

IT: Section 115J does not empower Assessing Officer to embark upon a fresh enquiry in regard to entries made in books of account of company

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