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.

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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.

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No sec. 68 additions on cash deposited in bank account if assessee wasn't maintaining books of account

Facts:

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

Facts:

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.)

Accretion of Hyundai brand due to its usage on Cars manufactured in India isn’t brand promotion: ITAT

Facts: 

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.

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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.

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