HC flaks AO for passing draft assessment order against a Mauritian firm by treating it as a foreign Co.

Facts:

a)    Assessee (“ESPN Star Sports”), a partnership firm established under the laws of Mauritius, entered into an agreement with “Star Sports India Private Limited” for allotting advertisement slots to various advertisers and advertising agencies in India.

b)    Assessing Officer (AO) passed draft assessment order as per section 144C(1) of the Income tax Act (‘Act’) treating assessee as “Foreign company”.

c)    Assessee filed objection before Dispute Resolution Panel (DRP) that it wasn’t an ‘eligible assessee’ as per section 144C(15) because it was neither a ‘foreign company’ nor any TP adjustment was made in its case. Therefore, no draft assessment order could be passed against it.

d)    DRP accepted the plea of assessee and declined to issue any direction but AO proceeded to pass final order on basis of such draft assessment order.

e)    Aggrieved assessee filed the instant writ petition before the High Court challenging the final assessment order passed by the AO.

The Insolvency and Bankruptcy Code at a glance

Lok Sabha has passed the Insolvency and Bankruptcy Code 2016 on May 05, 2016. It covers individuals, companies, limited liability partnerships and partnership firms. The new code will speed up the resolution process for stressed assets in the country. It attempts to simplify the process of insolvency and bankruptcy proceedings. The highlights of bankruptcy code are enumerated hereunder:

1. Strict deadlines : Authority to decide insolvency applications within 180 days further, an extension of additional 90 days can be allowed

2. Fast track Insolvency process: Fast track process is available for Corporate- Debtor with low income and assets, Specified class of creditors and any other category notified by Govt. Under fast track process, 90 days time-limit to complete whole process and further an extension of 45 days is allowed

3. Adjudicating Authority:

NCLT for Corporates

DRTs for Individuals and Partnerships Firms

NCLAT to act as Appellate Authority

4. Insolvency Regulator: To exercise regulatory authority over insolvency professionals, insolvency professional agencies and informational utilities

RBI revisits ECB provisions for infra-sector

Background

The basic objective of the extant External Commercial Borrowings (ECB) policy is to supplement domestic capital for creation of capital assets in the country, limited by considerations for capital account management. The earlier ECB policy¹ had gone through thorough revamping during the month of November, 2015² (Framework, 2015) based on the recommendations made by the Sahoo Committee, under the chairmanship of M.S Sahoo, in February, 2015³. This framework brought in a host of changes in the ECB framework.

Salient features of Framework, 2015 are as under:-

1.		Inclusion of financial lease as a forms of borrowings
2.		Relaxing rules for NBFCs but restricting it to INR denominated borrowings
3.		Segmenting the Minimum Average Maturity (MAM) in three tracks - Track I, Track II, Track III
4.		A more liberal approach, with fewer restrictions on end uses, higher all-in-cost ceiling, etc. for long term foreign currency borrowings as the extended term makes repayments more sustainable and also minimizes roll-over risks for the borrower;
5.		A more liberal regime for INR denominated ECBs where the currency risk is borne by the lender;
6.		Expansion of the list of overseas lenders to include long-term lenders, such as, Insurance Companies, Pension Funds, Sovereign Wealth Funds;
7.		Only a small negative list of end-use restrictions applicable in case of long-term ECB ( Track II) and INR denominated ECB ( Track III);

Interest on Continuing Debit Balance– Notional or Real!

Introduction

Over the years since the introduction of the Indian Transfer pricing regulations, the transfer pricing audits based on the experience and learnings gained have seen numerous interpretations of the provisions, thereby leading to transfer pricing adjustments. The Indian transfer pricing litigation scenario has seen the trend of adjustments shifting from mere dispute on comparable companies to larger issues such as location savings, management cross charges, intangibles, share valuations, business restructuring, etc.

One such issue being the continuing debit balance in the financials of multinational companies(MNC). Globally due to the financial exigencies, the MNCs often commercially require to defer the payables / receivables. The continuing debit balance / receivables have been treated by the tax authorities as an international transaction and thereby sought to impute arm's length interest on receivables outstanding from the associated enterprise (AE) that were not realized within the credit period.

The Section 92B of the Indian transfer pricing regulations provides the coverage of the transactions that could be treated as international transaction. Vide Finance Act 2012, a clarificatory Explanation was inserted with retrospective effect from 1 April 2002. By virtue of the said Explanation, inter alia the expression 'international transaction' included capital financing such as any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type o

Changes in the Finance Bill 2016 as passed by the Lok Sabha

On May 5, 2016, the Lok Sabha passed the Finance Bill, 2016. The Bill which was presented originally in the Lok Sabha on February 29, 2016 has not been passed in its original shape. Various changes have been made in the Bill. New amendments have been proposed. Some earlier proposed amendments have been removed, so on and so forth. A snippet of some changes made in the Finance Bill, 2016 as passed by the Lok Sabha viz-a-viz the Finance Bill, 2016 presented originally in the Lok Sabha are presented hereunder.

1. The Finance Bill, 2016 as passed by the Lok Sabha inserted a new clause to provide that unlisted shares of company would be treated as short-term capital asset if it is held for a period of 24 months or less immediately preceding the date of its transfer.

2. The Finance Bill, 2016 proposed a new section 80-IAC to provide 100 percent deduction for 3 assessment years to an ‘eligible Start-up’. The ‘eligible start-up’ is defined to mean a ‘company’ engaged in an eligible business. The Finance Bill, 2016 as passed by the Lok Sabha extends the definition of ‘eligible start-up’ to include ‘LLP’.

3. The Finance Bill, 2016 had proposed an additional tax of 10% if amount of dividend received by a taxpayer exceeds Rs. 10 Lakhs. The Finance Bill, 2016 as passed by the Lok Sabha provided that aggregate amount of dividend (i.e., dividend paid or declared or distributed by one or more domestic companies) shall be considered for the limit of Rs.10 lakhs.

4. The Finance Bill, 2016 proposed that every seller of a motor vehicle shall collect TCS at the rate of 1% of value of motor car if such value exceeds ten lakh rupees. Such tax was proposed to be collected from the buyer under section 206C at the time of debiting the amount receivable or at the time of receipt, whichever happened earlier. The Finance Bill, 2016 as passed by the Lok Sabha provides that tax shall be collected under Section 206C only at the time of receipt of consideration.

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Service tax can be levied on freight even if same is included in custom value of imported goods

Service Tax : There is no law that 'if customs duty is chargeable, Service Tax is not leviable on same component'; hence, service tax may be levied on imported service, even if customs duty was already paid thereon by inclusion in customs value

Service Tax : Expenditure or costs incurred by C&F Agent i.e., freight, insurance, loading, unloading, handling charges etc. are excluded from value, only if conditions enumerated in rule 5(2) of Service Tax Valuation Rules, 2006 are satisfied.

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An agricultural land couldn't be treated as non-agricultural land just because it was situated near a highway

Facts

a)    The assessee sold a land and claimed the same to be an agricultural land not being a capital asset within the meaning of section 2(14) of the Income-tax Act (‘Act’).

b)    The Assessing Officer (AO) opined that since the land was situated near a highway, it could not be considered as an agricultural land. Therefore, assessee was liable to pay tax on capital gain arising from sale of such land.

c)    CIT(A) reversed the order of the AO. Aggrieved by the order of the CIT(A), revenue filed the instant appeal before the tribunal.

The tribunal held in favour of assessee as under-

1)    The term 'agricultural land' is not expressly defined under the Act. In the case of CWT v. Officer-in-Charge (Court of Wards) [1976] 105 ITR 133 (SC), the Supreme Court held that the agricultural land must be a land which could be said to be either actually used or ordinarily used or meant to be used for agricultural purpose.

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.