Thursday, December 31, 2015

No abuse of dominance by 'Uber' in providing taxies at low fares; CCI rejects complaint of Meru Cabs

Where there was existence of yellow taxis which posed a significant competitive constraint on other taxi operators in the city of Kolkata. In such a scenario, it was difficult to accept the contention of the Meru cabs regarding UBER Group’s dominance in providing the radio taxi services in Kolkata

Now AOs to issue scrutiny notice along with questionnaire to convey compliance requirement

It was noticed that while issuing the initial/first notice for cases selected under scrutiny, Assessing Officers (‘AO’) do not convey the specific compliance requirements like production of accounts, furnishing of documents, information, evidences, etc.

Taxpayers or their authorised representatives needs to appear before the AO as they are required to comply with the statutory notice issued by the AO. Thus, their appearance before the AO does not serve any fruitful purpose except recording of their presence. This causes undue hardship to the taxpayers and unnecessary wastage of their time.

Monday, December 28, 2015

How Govt. intends to reduce fraud reporting burden of auditors

The Companies Act, 2013 requires reporting of frauds by an auditor that are found in the course of the performance of an audit to the central government. Sub-section 12 of Section 143, read with Rule 13 of the Companies (Audit and Auditors) Rules, 2014 of the Companies Act, 2013 contains such provisions. Section 143(12) is applicable with effect from 14th December, 2015.

The extant norms provide that if an auditor of a company in the course of the performance of his duties as auditor, has reason to believe that an offence of fraud involving such amount or amounts as may be prescribed, is being or has been committed in the company by its officers or employees, the auditor shall report the matter to the Central Government within such time and in such manner as may be prescribed. Rule 13 of the Companies (Audit and Auditors) Rules, 2014 prescribes time and manner of reporting of fraud to the government.

Recently, the Ministry of Corporate Affairs (MCA) amended the Rule 13 of the Companies (Audit and Auditors) Rules, 2014 vide notification no. G.S.R. 972(E). Now, the revised Rule 13 prescribes amount of fraud that should be reported, time-limit and the manner of reporting of fraud.

Major changes are as follows:-

1.  Now a statutory auditor requires to report only those frauds which involve an amount of Rs. 1 Crore or more.

2.  The auditor should report the fraud, first of all, to the Board or the Audit Committee, as the case may be, within 2 days of his knowledge of the fraud, seeking their reply or observations within 45 days. Earlier, the auditor had to report to the Board or Audit Committee

POEM - An insight into draft guidelines

Prior to amendment to Section 6(3) by the Finance Act, 2015, a company was said to be resident in India in any previous year only if it was an Indian Company or if during that year, the control and management of its affairs was situated wholly in India. A company can easily avoid becoming a resident by simply holding a board meeting outside India. This encourages creation of shell companies which are incorporated outside but are controlled from India. To address these concerns, section 6(3) was amended vide the Finance Act, 2015 to provide that a company is said to be resident in India, if it is an Indian company or its place of effective management ('POEM') in that year is in India.

POEM has been defined as a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are in substance made.

Now the CBDT has issued draft guidelines for determination of POEM.

The process of determination of POEM would primarily depend on whether or not the company is “engaged in active business outside India”. If company is engaged in “active business outside India” then its POEM shall be presumed to be outside India if majority of board meetings are held outside India.

A company shall be deemed to be engaged in "active business outside India" if following conditions are satisfied:
(i) Passive income is not more than 50% of its total income and,

(ii)  less than 50% of its total assets are situated in India; and

(iii)  less than 50% of total number of employees are situated in India or are resident in India; and

(iv)  The payroll expenses incurred on such employees is less than 50% of its total payroll expenditure.

For the purpose of determining whether the company is engaged in active business outside India the average of the data of the previous year and two years prior to that year shall be taken into account. In case the company has been in existence for a shorter period, data of such period shall be considered.

Thursday, December 24, 2015

Allotment of shares in lieu of interest liability as per BIFR scheme held as actual payment under sec. 43B

a)  The assessee had borrowed loan from IDBI and there was outstanding interest on such loan. A rehabilitation scheme was sanctioned by the BIFR, wherein it was decided that the IDBI would be allotted equity shares by the assessee and the interest to the extent of shares would be taken as having been paid.
b)  The assessee allotted certain shares to the IDBI and claimed that the said allotment of shares should be taken to be against the interest amount 'actually paid' within the meaning of section 43B.
c)  The assessment was completed accordingly. Thereafter, the Assessing Officer reopened the case of assessee on the ground that mere allotment of equity shares in lieu of interest liability could not be construed as 'actually paid' as required under section 43B.
d)  On appeal, the Commissioner (Appeals) held that the reopening of the case was valid. However on merit, he deleted the addition. On second appeal, the Tribunal held that in the original assessment proceeding itself the Assessing Officer had raised a query on this issue which had been explained satisfactorily by the assessee and accepted by the Assessing Officer and, therefore, the instant case was a case of change of opinion. The Tribunal however upheld the decision of the Commissioner (Appeals) on merits.
The High Court held as under:
1)  This was indeed a case of mere change of opinion by the Assessing Officer. A specific query was raised by the Assessing Officer in the original assessment proceedings itself as regards the conversion of a portion of the interest into shares. 
2)  When pursuant to a settlement the creditor agrees to convert a portion of interest into shares, it must be treated as an extinguishment of liability to pay interest to that extent. In essence, there will be no further outstanding interest to that extent. Consequently, the situation where an interest payable on a loan is converted into shares in the name of the lender/creditor is different from the situation envisaged in Explanation 3C to section 43B, viz., conversion of interest into 'a loan or borrowing'. In the latter instance, the liability continues, although in a different form. However, where the interest or a part thereof is converted into equity shares, the said interest amount for which the conversion is taking place is no longer a liability. 

3)  The plea of the assessee, which was accepted by the Commissioner (Appeals) and the Tribunal that the said conversion of a portion of interest into shares should be taken to be 'actual payment' within the meaning of section 43B, merits acceptance. In that view of the matter, there is no legal infirmity in the impugned order of the Tribunal. - CIT v. Rathi Graphics Technologies Ltd [2015] 64 65 (Delhi)

Wednesday, December 23, 2015

Officer can have a Camp Office at taxpayer's house to examine him on oath after search and seizure


In the appellate proceedings, the Single Judge held that the Assessing Officer was not vested with the power to have a camp office at the residence of the assessee and get his attendance in connection with the proceedings under the Act and, therefore, the impugned notice issued under section 131 was one without authority of law.

The Karnataka High Court held as under:

1)  Sub-section (1) of section 131 confers the power on the authorities the powers of a Court under the Code of Civil Procedure in respect of matters mentioned in the said provision. One such provision is enforcing the attendance of any person including any officer of a banking-company and examining him on oath.

2)  Sub-section (1A) vests an officer to exercise the power conferred under section 131(1) even before initiating any proceedings with respect to such person under the provisions of the Act.

3)   Once such power is vested, the authorized officer has an option to summon the person to appear before him at his office or he can go to the place of such person and examine him on oath. The said provision enables the authorized officer to enforce attendance if the person is not willing to appear before him.

4)  The examination of such person on oath may be at the place of the authorized officer or at the place of person who has to be examined.

5)  Nothing could be read out of that phrase 'camp at your residence'. All that it means is, as he has already entered the premises of the residence, in order to comply with the legal requirement, he has served summons on him calling upon him to depose. To show the place where he should depose, the phrase, 'camp at your residence' is mentioned.

6) In that view of the matter, the Single Judge was not justified in his view that the authorized officer has no right to enter the premises of the residence. The observation of the Single Judge that the authorized officer has trespassed into the house of the assessee and it deserves to be prosecuted before the competent criminal Court, has no legal basis. - Dy. DIT(I) v. Prakash V. Sanghvi [2015] 64 221 (Karnataka)

Reporting requirements of foreign payments - Distinctive features of Old Rules vs New Rules

Earlier remitter was required to report foreign remittances in Form 15CA only if such payment was chargeable to tax. Due to such requirement the income-tax department was not able to collect the information in respect of foreign remittances on which tax was deductible but was not deducted by the payer. The mechanism of obtaining of information in respect of remittances fulfilled twin objectives of ensuring deduction of tax at appropriate rate from taxable remittances as well as identifying the remittances on which the tax was deductible but the payer had failed to deduct the tax. Therefore, obtaining of information only in respect of remittances which the remitter declared as taxable defeated one of the main purposes of obtaining information for foreign remittances, i.e., to identify the taxable remittances on which tax was deductible but was not deducted.

In view of this fallacy, provisions of section 195 have been amended to provide that the person responsible for paying any sum, whether chargeable to tax or not, to a non-resident shall be required to furnish the information of the sum paid. However, Rule 37BB of income-tax Rules was not amended accordingly at that time.

Now, the Government has finally substituted old Rule 37BB with new Rule 37BB. It shall come into force with effect from April 1, 2016. Similarly, old Forms 15CA and 15CB have also been substituted with new Form 15CA and 15CB.

Job given to wife on accidental death of husband isn't pecuniary advantage under Motor Vehicle Act


a)   Raghbir Singh (the deceased) died in road accident.

b)   Tribunal awarded compensation of Rs. 21,52,000 which was calculated on the basis of salary of deceased.

c)   The appellant (i.e., Insurance Company) argued that the compensation awarded by the Tribunal was very high as the wife of the deceased was given compassionate appointment and she was getting a salary besides the pension.

The High Court held as under:

1) In case of Vimal Kanwar v. Kishore Dan  [2013] 35 545/216 Taxman 300 the Supreme Court held as under:

"Compassionate appointment" can be one of the conditions of service of an employee, if a scheme to that effect is framed by the employer. In case, the employee dies in harness, i.e., while in service leaving behind the dependents, one of the dependents may request for compassionate appointment to maintain the family of the deceased employee dies in harness. This cannot be stated to be an advantage receivable by the heirs on account of one's death and have no correlation with the amount receivable under a statute occasioned on account of accidental death. Compassionate appointment may have nexus with the death of an employee while in service but it is not necessary that it should have a correlation with the accidental death. An employee dies in harness even in normal course, due to illness and to maintain the family of the deceased one of the dependents may be entitled for compassionate appointment but that cannot be termed as "Pecuniary Advantage" that comes under the periphery of Motor Vehicles Act and any amount received on such appointment is not liable for deduction for determination of compensation under the Motor Vehicles Act.

2)   In aforesaid judgment, the Supreme Court held that Provident Fund, Pension, Insurance and similarly any cash, bank balance, shares, fixed deposits, etc. are all a "pecuniary advantage" receivable by the heirs on account of one's death but all these have no correlation with the amount receivable under a statute occasioned only on account of accidental death. Thus, such an amount will not come within the periphery of the Motor Vehicles Act to be termed as "pecuniary advantage" liable for deduction.

3)  Following the ratio of law laid down by Supreme Court in aforesaid case, the instant appeal was to be dismissed. - NATIONAL INSURANCE CO. LTD. V. LAKHWINDER KAUR [2015] 64 308 (Punjab & Haryana) 

Thursday, December 17, 2015

5 Key takeaways from amended FCRA Rules

The Govt. has notified amended Foreign Contribution (Regulation) Rules, 2015 whereby access to all FCRA services has been made easier. Now everything would be done online thereby reducing human interface to a minimum. However, the relaxation comes along with certain stringent provisions relating to disclosure requirements. The key changes in FCRA Rules are given here under:

1) Online platform:

E-registration: Now all applications for registration, renewal of registration and prior permission for accepting foreign contributions under FCRA shall be made online.

Earlier the applicant was required to forward the hard copy of on-line application (duly signed by the Chief Functionary of the association) to Government within 30 days of the submission of the application. Now under the amended norms, the applicant can directly upload the normally signed or digitally signed application along with scanned documents directly at online portal of FCRA.

E-payment of fees: Now the fees for various services under FCRA shall be accepted through online payment gateway. Further, the condition of applying for renewal one year before the expiry of existing registration certificate has been done away with.

2) Declaration from person receiving foreign contributions

The person receiving foreign contributions shall file declaration under Form FC – 4 containing following undertakings:

i) The utilization of foreign contribution is not in the contravention of the provision of FCRA,

Wednesday, December 16, 2015

Income arising to ‘Western Union’ from money transfer services isn’t taxable in India

‘Western Union’ isn’t liable to pay any tax in India for transferring money to India for their American clients even if it appoints agents in India to provide those services and setS-up a liaison office to interact with such agents.
a)    Western Union Financial Services Inc. (‘Western Union’), incorporated in USA, was engaged in the business of rendering money transfer services.
b)    In order to provide said services to citizens of the USA desirous of remitting money to India, Western Union had set-up a liaison office (LO) in India. It appointed agents in India and provided them software (Voyager) to access its mainframes in the USA. The agents were paid commission on completion of money transfer transactions.
c)    Western Union filed its return declaring ‘nil’ income by contending that it was not liable to pay any tax in India on income arising from money transfer services as it didn’t have any permanent establishment (PE) in India.
d)    The Assessing Officer was of the view that income arising to the Western Union from money transfer services was taxable in India both under the Income-tax Act (‘the Act’) and the India-USA DTAA.
e)    CIT(A) set aside 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)   Though Western Union had business connection in India in terms of section 9 of the Income-tax Act, yet it did not have a PE in India under India-USA DTAA. It made following observations on different categories of PEs:
·         Fixed Place PE
It was held that Western Union could not be said to have fixed place PE in India as it did not have its own outlet in India and it was carrying on its business through agents appointed in India.
·         Liaison office as PE
It was held that LO could not be considered as Western Union’s PE in India as it carried out activities which were of a preparatory or auxiliary character. It had not carried on any trading activity for the assessee in India. It had only a small number of executives and a support staff. The LO had also filed status reports to the RBI listing out the activities which it actually carried out during the years. None of the activities could be described as anything other than of preparatory or auxiliary character. Therefore, the LO could not be considered to be the PE of the Western Union in India.
·         Software as PE
It was held that the software was the property of the Western Union and it had not parted with its copyright therein in favour of the agents. The agents had only been allowed the use of the software in order to gain access to the mainframe computers in the USA. Mere use of the software for the said purpose from the premises of the agents could not lead to the decision that the premises-cum-software would be the PE of the assessee in India. As per article 5 of India-USA DTAA, an installation might amount to a PE, provided it is used for the exploration of natural resources. Therefore, even if the software was to be considered as an installation, since it was not used for exploration or exploitation of natural resources, it could not per se be treated as a PE.
·         Dependent Agent PE
It was held that agents appointed by Western Union were acting in the ordinary course of their business and their activities were not devoted wholly or almost wholly to the Western Union. Further, commissions were paid to them at arm’s length price. Therefore, the agents were independent agents under Article 5.5 of the India-USA DTAA.

2)    Hence, in the absence of any PE in India the profits of the Western Union, if any, attributable to the Indian operations could not be taxed In India- Deputy DIT v. Western Union Financial Services Inc. [2015] 64 230 (Delhi - Trib.)

Monday, December 14, 2015

Production and broadcasting of radio programme is manufacture or production under Sec. 32(1)(iia)

Whether assessee engaged in business of production or broadcasting of radio programmes could be said to be a manufacturer or producer of any article or thing so as to be entitled to additional depreciation under Section 32(1)(ii).
The Delhi High Court held in favour of assessee as under-
1)  The production of radio programmes involves the processes of recording, editing and making copies prior to broadcasting. When the radio programme is made there comes into existence a 'thing' which is intangible, and which can be transmitted and even sold by making copies.
2)  Therefore, it can definitely be stated that the radio programme produced by the Assessee is 'thing', if not an 'article’ as Dictionary meaning of the word envisages that "thing" could have intangible characteristic.
3)  The word 'manufacture' envisages subjecting any material or thing to certain processes in order to produce something which has a distinct characteristic. Hence, 'manufacture' includes various combinations of processes.
4)  In the context of 'broadcast', it includes the processes of producing, recording, editing and making copies of the radio programme followed by its broadcasting.

5)  Thus, assessee engaged in business of production or broadcasting of radio programmes could be said to be a manufacturer or producer of any article or thing so as to be entitled to additional depreciation under Section 32(1)(ii)- CIT v. Radio Today Broadcasting Ltd. [2015] 64 164 (Delhi)

Saturday, December 12, 2015

10 million USD penalty levied on Satyam for violating US Securities Exchange Act won't attract TDS

The applicant (‘Satyam Computer services ltd.’) approached Authority for Advance Ruling (‘AAR’) to consider whether payment of penalty levied by US Court (due to violation of provisions of US Securities Exchange Act, 1934) would attract provisions of section 195.

The AAR held as under:

(1)  It is a trite law that unless the payment made attracts the tax under the Income-tax Act, there would be no liability to deduct tax under section 195.

(2)  Penalty ordered by the US Court does not attract any tax liability, thus, applicant would not be required to withhold tax on such penalty under section 195.- Satyam Computer Services Ltd., In re [2015] 64 162 (AAR - New Delhi)

Friday, December 11, 2015

CBDT provides new facility of pre-filling TDS data for online rectifications

Central Board of Direct Taxes has simplified the process of online rectification of incorrect TDS details filed in the Income Tax Return.

Earlier taxpayers were required to fill in complete details of the entire TDS schedule while applying for rectification on the e-filing portal of the Income-tax Department ( Errors due to incomplete TDS details in rectification applications were leading to delays in processing of such applications thereby causing hardship to the taxpayers. To avoid this inconvenience, a new facility has been provided for pre-filling of TDS schedule while submitting online rectification request on the e-filing portal to facilitate easy correction or up-dating of TDS details. This is expected to considerably ease the burden of compliance on the taxpayers seeking rectification due to TDS mismatch.-Press Release, dated: 10-12-2015.

Thursday, December 10, 2015

Attachment of property isn't restricted only in hands of accused involved in money laundering

There is no restriction in respect attachment of property of person in possession of proceeds of crime. Section 5 of Money Laundering Act, 2002 does not have restriction that property in hands of persons involved in Money Laundering alone can be attached pending confiscation. Thus, provisional attachment of property is not restricted in hands of accused persons alone.


a)    ‘G’ was accused of having played fraud and obtained a loan of Rs.15 Crores by producing bogus and fabricated documents. Out of the said amount, the property in question was purchased by him in the names of his Benamies. ‘A’ was appointed as their Power Agent. One ‘GS’ purchased the property through the Power Agent ‘A’, later on, ‘GS’ sold property to appellants.

b)    The respondent- Deputy Director, PMLA, Directorate of Enforcement filed a complaint under Section 5(5)of the PMLA, 2002 against the appellants and ‘G’ having reason to believe that property in the hands of appellants was part of proceeds of crime u/s 2(1)(u) of the PMLA,2002 and appellants and ‘G: were involved in the offence of money laundering and held them liable for adjudication and confiscation in terms of Section 8 of PMLA, 2002

c)   The appellants said that they were bonafide purchasers of the land and the consideration was paid through legal source of income through agricultural operations and transactions were carried out through bank also and they were not aware of that property bought by them was a proceed of crime.

d)    The adjudicating authority held that property represented the proceeds of crime and