CA shall not be deemed to be in practice if he is only running coaching classes for CA aspirants

Where a CA has given undertaking before Court (on charges of professional misconduct) that he would voluntarily not practice the profession of CA till next hearing, he could not be said to be practicing a CA profession when he has issued advertisements offering to take coaching classes to CA aspirants. Thus, such action of CA couldn’t treated as Contempt of Court. 

Facts:

a) Vinod Gupta, a CA had given an undertaking before Court (on charge of professional misconduct) that he would voluntarily not practice the profession of CA till the next date of hearing.

b) Later the respondent issued an advertisement offering to take coaching classes for CA asprints.

c) The petitioner filed a contempt petition contending that the respondent had willfully violated the contempt of court by issuing advertisements representing himself as a Chartered despite giving the undertaking that he would not practice the profession of CA till the next date of hearing.

The High Court held as under:

Excise Duty on Jewellery – 15 things you should know

The Central Government proposed to impose excise duty on manufacturing of jewellery except silver jewellery (other than studded with diamond and precious stones) in the Union Budget. However, the jewellers protested against such levy of excise duty. They went on strike across the Country demanding withdrawal of excise duty levy on jewellery. Finally the Govt. did not change its stance and retained such levy in the Finance Act, 2016.

Now the rate of excise duty on jewellery is 1% if assessee does not avail of any credit on inputs and capital goods. However, the rate of excise duty will be raised to 12.5% if assessee avails of credit on inputs and capital goods. Recently the CBEC has issued set of Circulars and Notifications with regard to excise duty on

Jewellery. Key takeaways from such Circulars/Notifications are given here under:

Prepayment charges on home loans are deductible as 'interest' under Sec. 24(b): Mumbai ITAT

Facts:

a) The assessee had been claiming deduction on account of payment of interest to six bankers from whom the assessee had taken loan for construction of property.

b) The assessee took fresh loan from Axis Bank which was utilized for exclusive purpose of repayment of loans to the aforesaid six parties. In the process of change over of lender, it paid prepayment charges and processing charges to these six bankers.

c) It claimed deduction of such prepayment charges and processing charges under Section 24(b). The AO disallowed assessee's claim. The CIT(Appeals) upheld order of AO. The aggrievedassessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) The only issue that needed to be decided was whether 'pre -payment charges' and 'processing fee' shall form part of 'interest' under section 24(b). The term 'interest' has been defined in section 2(28A) as under:

“Interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized”

Trust letting out its auditorium for marriage functions wasn't entitled to sec. 11 relief

Facts:

a) The assessee-trust was formed with the main objective of alleviating human suffering, eradication of illiteracy, poverty and imparting of sound education with opportunities for research. It was running an Auditorium in the name of community hall which was given on rent for different commercial activities like marriage functions, exhibition, etc.

b) The assessee claimed that the income earned from auditorium was not a business income and should be exempted under section 11 because the same income was used for the charitable purpose of the trust.

c) The AO denied such claim of exemption under section 11. The CIT(Appeals) confirmed the additions made by the AO. Aggrieved-assessee filed the instant appeal. 

The ITAT held as under:

Duty paid using DEPB scrip is also eligible for duty drawback: HC

FACTS

(a) Assessee was manufacturer and exporter of goods. It imported raw material and paid Basic Customs Duty using DEPB scrip. It claimed duty drawback of basic customs duty after exporting goods.

(b) The department denied its claim on the ground that the duty was not paid in cash but through DEPB scrip. Further, department also contended that the imports made under DEPB scheme were exempt from payment of customs duty and therefore, it could not be stated that the imports had suffered customs duty. But assessee was of the view that payment through DEPB scrip would also deemed as 'payment of duty' and it was eligible for drawback. 

The High Court held as under:

Govt. to allot PAN and TAN in one day through paperless hassle free process

Govt. has enabled filing of PAN and TAN application via digital signature certificates on the portals of PAN Service provides (i.e., M/s NSDL eGov and M/s UTIITSL). Under the new process PAN and TAN will be allotted to companies within one day after completion of valid on-line application 

Similarly, a new Aadhaar e-Signature based application process for Individual PAN applicants has been made available on the portals of PAN service providers M/s NSDL eGov.

The URL links for the above applications are available in ‘important links’ on the homepage of the departmental website ‘incometaxindia.gov.in’.

Introduction of Aadhaar based e-Signature not only ensures paperless hassle free PAN application process but also seeding of Aadhaar in PAN which will curb the problem of duplicate PAN to a great extent.

No Sec. 69C additions when assessee is covered by presumptive taxation Scheme of Sec. 44AD

Facts:

a) The assessee, being a civil contractor, had declared its profits under section 44AD. The Assessing O􀁹icer made additions under Section 69C for unexplained expenditure.

b) The assessee was of the view that the AO could not disturb the profits declared as per the scheme of presumptive taxation. The CIT(Appeals) dismissed this ground of appeal and upheld the additions made by AO.

c) The aggrieved-assessee filed the instant appeal.

The ITAT held as under:

1) The provisions of the section 44AD are quite unambiguous to the effect that in case of an eligible business based on the gross receipts/total turnover, the income under the head 'profits & gains of business' shall be deemed to be @ 8% or any higher amount. It is undisputed that 'deemed' means presuming the existence of something which actually is not.

FAQs on Income-tax Returns for Assessment Year 2016-17

The deadline for filing Income-tax return for financial year 2015-16 is around the corner. It marks the beginning of worries among taxpayers as various doubts arise in their minds. The CBDT has issued various notifications, circulars and instructions to bring clarity among taxpayers so as to achieve maximum filing of income-tax returns. FAQs may help you to clear all your confusions and file returns timely to avoid last minute hassles.

Few FAQs are listed hereunder:

1. Do I need to furnish details of my assets and liabilities in ITR 1?

2. Whether a firm can file ITR-4S for presumptive income?

3. I am an Individual and resident of India. Do I need to file return if my income is below taxable limit but I am having an account in a foreign bank?

4. I am a resident individual and have income from any source outside India. Whether I can file my income-tax return in paper mode?

Click here to view all FAQs

Prize money paid to service provider for good performance isn't liable to service tax

Facts:

a. Assessee was a registered service provider under the category of ‘site formation and clearance and excavation services’. It was discharging its service tax liability on basis of bills raised and amount paid by the service recipient.

b. One service recipient provided specific quantities of explosives and diesel oils for rendering services. There was agreement that if assessee used quantity of explosives and diesels below agreed quantity, it would be paid bonus/incentive by the service recipient.

c. Revenue contended that explosives and diesel oils which were provided free of cost and amount of bonus paid in shape of incentives would form part of assessable value of services. Assessee did not pay service tax on aforesaid amount and a show cause notice was issued to it.

No denial of Sec. 54F relief if taxpayer is unable to get possession of flat due to builder’s fault

Section 54F relief cannot be denied to assessee when he has invested entire sales consideration in purchase of residential house but he is unable to get possession of flat, which is under construction, due to fault of builder.

The issue before the ITAT was:

Whether Section 54F relief could be denied when assessee was not able to get the title of the flat or unable to get possession of the flat, which was under construction, due to fault of the Builder?

The ITAT held as under :

Commercial expediency of loan to AE not relevant for computing ALP of interest: ITAT Special Bench

The issue before the special bench of ITAT was as under:

Whether ALP adjustment was required to be made in respect of interest free loan granted by the assessee, a non-resident company, to its wholly owned subsidiary in India?

The Special Bench of Kolkata ITAT held as under:

1) The commercial expediency of a loan to subsidiary is wholly irrelevant in ascertaining arm’s length interest on such a loan. There is indeed no bar on anyone advancing an interest free loans to anyone but when such transactions are covered by the international transactions between the associated enterprises, Section 92 of the Act mandates that the income from such transactions is to be computed on the basis of arm’s length price.

2) The assessee is not really correct in contending that when the assessee has not reported any income from a particular international transaction, the ALP adjustment cannot compute the same. The computation of income on the basis of arm’s length price does not require that the assessee must report some income first, and only then it can be adjusted for the ALP. Section 92(1) is not an adjustment mechanism; it is a computation mechanism. The arm’s length price principle requires that an arm’s length price is assigned to the transactions between the associated enterprise, and if the income in computed, if any, on the basis of the

arm’s length price so assigned.

Now Cos. must obtain written consent from Cost Auditor prior to his appointment

MCA has amended the Companies (cost records and audit) Rules, 2014. The major changes brought in the rule are as under:

1) Written Consent by Cost auditor: Now it’s mandatory for the companies to take prior written approval/Consent from proposed cost auditor before his appointment.

2) Declaration/Certificate: Cost auditor appointed as per the Companies Act, 2013 has to submit a declaration that:

a) He is eligible for appointment and is not disqualified form appointment under the act, rules and regulations

b) He satisfies the criteria provided in the section 141 of the companies act, 2013

c) The proposed appointment is within the limits laid down by authority

Effective rate of tax isn’t reduced to 31% under Income Declaration Scheme; CBDT clarifies

The Income Declaration Scheme, 2016 provides an opportunity to persons who have not paid full taxes in the past to come forward and declare their undisclosed income and assets.

CBDT has received queries from various stakeholders whether the payment under the Scheme can be made out of undisclosed income without including the same in the income declared, thereby bringing down the effective rate of tax, surcharge and penalty payable under the Scheme to around 31%.

Now the CBDT has clarified that the intent of the clarification issued vide Question No.5 of Circular No.25 of 2016 was limited to conduct of enquiry by the Department. It in no way intends to modify or alter the rate of tax, surcharge and penalty payable under the Scheme which have been clearly specified in the Scheme itself. Sections 184 & 185 of the Finance Act, 2016 unambiguously provide for payment of tax, surcharge and penalty at the rate of 45 per cent of undisclosed income.

Compliance barriers on the road to GST- An Analysis of Model GST Law

1. Introduction

"Will you walk into my parlour?" said the Spider to the Fly, '

Tis the prettiest little parlour that ever you did spy;

The way into my parlour is up a winding stair,

And I've a many curious things to show when you are there."

Oh no, no," said the little Fly," to ask me is in vain,

For who goes up your winding stair can ne'er come down again."

(an extract of the poem 'The spider & the fly', by Mary Botham Howitt)

With the advent of Goods and Services Tax (GST) in India, the above extract appears to be a fitting & interesting one. While there have been several discussions of how the GST regime would be beneficial to the Indian Economy, the aspect of compliances was never on the agenda. Recently released Model GST Law, throws light on this aspect. While the assessees should revamp their IT systems to be compliant with the new regime, it is also of utmost importance to understand how complying with the statutory timelines could have an impact on their cash flows and credit mechanism. Is tax becoming one of the key factors to drive a business or are we still in an era where business drives the tax. This article attempts to examine whether the compliance aspects under the model GST law are flight's of winding stairs to the spider's parlour or otherwise.

SEBI facilitates transition for listed entities covered under IND-AS

Background

MCA vide notification no. G.S.R. 111(E) dated 16th February, 2015 had issued the Companies (Indian Accounting Standards) Rules, 2015 ('IND-AS Rules'). According to IND-AS Rules, the Companies and their auditors shall comply with the IND-AS Rules in preparation of their financial statements and auditor's reports respectively. IND-AS Rules are aligned with the International Financial Reporting Standards (IFRS) and are mandatorily applicable on certain class of companies from April 1, 2016.

List A

(a)		companies whose equity or debt securities are listed or are in the process of being listed on any stock exchange in India or outside India and having net worth of rupees five hundred crore or more;
(b)		companies other than those above and having net worth of rupees five hundred crore or more;
(c)		holding, subsidiary, joint venture or associate companies of companies covered by sub-clause (a) and (b) above;

List B

(a)		companies whose equity or debt securities are listed or are in the process of being listed on any stock exchange in India or outside India and having net worth of less than rupees five hundred crore;
(b)		companies other than those covered under List A and (a) above, that is, unlisted companies having net worth of rupees two hundred and fifty crore or more but less than rupees five hundred crore.
(c)		holding, subsidiary, joint venture or associate companies of companies covered by sub-clause (a) and (b) above under List B:

Narendra Modi’s non-adversarial tax regime

Introduction

1.1 On 19 March 1955, Shri Jawaharlal Nehru, while addressing the members of the High Court of Punjab at the inauguration of its new building in Chandigarh, had said: "Justice in India should be simple, speedy and cheap". He remarked that litigation was a disease and it could not be a good thing to allow any disease to spread and then go out in search of doctors. What he meant to embark upon was the fact that the judiciary of India is looked up with great respect and with a feeling of trust, faith and confidence by its various stakeholders. Thus, it would not be a good sign if the litigation syndrome would be allowed to broaden without having the adequate number of doctors, i.e. the courts, available to cure such diseases.

1.2 As per the data released by the Ministry of Law and Justice recently in relation to pending cases, as on 19 February 2016, 48,418 civil cases were pending in the Supreme Court (out of this, 1,132 cases have been pending for more than 10 years). Further, as on 31 December 2014, 31,16,492 civil cases were pending in the High Courts (out of this, 5,89,631 cases have been pending for more than 10 years).Often it has been observed that once a matter goes into the judiciary pipeline, it can take around 10-15 years until the final verdict can be delivered by the Supreme Court of India; off course, it is true that not all matters would travel till the Supreme Court, but the long drawn litigation battle in India still does not get over in 3-4 years to say the least.

Directors can attend board meeting via videoconferencing without intimation at beginning of calendar year

Companies Act: Directors can attend board meeting via video-conferencing without intimating at beginning of calendar year as prior intimation required for conducting e- board meeting under Rule 3 (3)(e) is directory, not mandatory Rule 3(3)(e) of the Companies (Meeting of the Board and its Power) Rules, 2014 provides that if intimation is given at the beginning of the calendar year such declaration shall be valid for one calendar year. It is not said anywhere that if intimation is not given at the beginning of the year, video-conferencing is not to be provided in that calendar year. Therefore, it does not mean that the directors are not entitled to video- conferencing if intimation is not given at the beginning of the calendar year

Facts:

a) Applicant and his mother were the directors of the company. They wanted to attend the board meeting through video-conferencing as they were going outside India. Further, they requested to participate in Board Meeting through electronic mode.

b) As per the Rule 3 of the Companies (Meetings of Board and its power) Rules, 2014, any director who desires, to participate may express his intention of participation through the electronic mode at the beginning of the calendar year.

Golden chance to declare domestic black money at effective tax rate of 31%

The Govt. has given an opportunity to persons who have not paid full taxes on their income of earlier years to come forward and declare the undisclosed income under the 'Income Declaration Scheme' (IDS). They are required to pay tax of forty-five per cent of such undisclosed income. The IDS is effective from June 1, 2016 and will remain open up to September 30, 2016. The declarant is required to pay tax up to November 30, 2016. However, various queries have been received by CBDT on IDS. Thus, the CBDT had issued three sets of FAQs till date. In the recent tranche of FAQs issued on June 30, 2016 the CBDT has clarified that once the person had declared undisclosed income, no question will be asked from where such income or tax is coming from. This assurance in the lasts FAQs (Question 5) issued by dept. will bring down the effective tax rate from 45% to 31% on the undisclosed income. Let us understand this scenario with the help of illustration. Suppose Mr. A offers his undisclosed income of Rs. 290 crores under IDS. Now out of Rs. 290 crores he will declare his undisclosed income of Rs. 200 crores by paying tax of Rs. 90 crores (Rs. 200 crores × 45%). As per the clarification no questions will be asked from where such income of Rs. 200 crores has come. Similarly, the remaining income of 90 crores (290-200) from which he has paid taxes will also be treated as his legitimate income. Thus, ultimately Mr. A has paid tax of around 31% on undisclosed income of Rs. 290 crores. The dept. had also clarified that such information will not be shared with other law enforcement agencies. Thus, it is the golden opportunity for taxpayers to come clean by paying effective tax rate of 31%.

Transfer of shares of retail investors via fake demat accounts amounted to unfair trade practice: SC

SEBI’s investigations revealed that shares meant for Retail Individual Investor’s were cornered by the respondent through hundreds of benami/fictitious demat account holders in violation of the provisions of Section 12A (a), (b), (c) of the SEBI Act, 1992, However, SAT set aside order passed by SEBI without mentioning any strong and justifiable reason. Thus, impugned order of SAT was liable to be quashed

Facts:

a) In matter of IPO of two companies, it was brought to the notice of the SEBI that several serious irregularities/illegalities had been committed by respondents so as to corner shares of the said companies by adopting certain unscrupulous, immoral and improper

b) As a result, the respondents got undue benefit. They got the shares transferred from the so called demat holders by way of off market trading at a price which was less than the market price of the shares.

c) SEBI’s investigations revealed that shares meant for Retail Individual Investor’s were cornered by the respondent through hundreds of benami/fictitious demat account holders in violation of the provisions of Section 12A (a), (b), (c) of the SEBI Act, 1992 and Regulations 3 and 4(1) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003

d) However, on appeal, the SAT set aside order passed by SEBI without mentioning any strong and justifiable reason.

SEBI to enable Portfolio Managers to act as Eligible Fund Managers

Introduction

1.0 Following the insertion of Section 9A in the Income-tax Act, 1961 ('Act, 1961') (popularly known as "Safe Harbour Norms"), SEBI has hailed to foreign fund management activity in the country and has come up with a consultation paper seeking comments from public for the amendments to the SEBI (Portfolio Managers) Regulations, 1993 wherein it is proposed that an existing or new SEBI registered Portfolio Manager maybe permitted to act as Eligible Fund Manager ("EFM") to manage Eligible Investment Funds ("EIFs").

Amendment to clause (b) of section 9A

2.0 The said amendment came in the backdrop of the amendment to clause (b) of Section 9A of the Finance Act, 2016 where the scope of the tax relief of funds is widened by including the words"is established or incorporated or registered in a country or a specified territory notified by Central Government in this behalf" which until now was limited to the countries with which India had entered into Double Tax Avoidance Agreement (DTAA) under Section 90 or the agreement between specified associations for double taxation relief under Section 90A (1). After the amendment, the funds established or incorporated or registered in a country or a specified territory notified by the Central Government shall also be treated as EIFs.

Ministry’s Removal of Difficulty Order- Clarifies the position w.r.t appointment of auditors

Introduction

1.0 Under the Companies Act, 2013 ('Act, 2013'), the provisions w.r.t. appointment of auditors had undergone a paradigm shift in comparison with the erstwhile provisions of the Companies Act, 1956. One of the major changes which was introduced w.r.t. auditors was the bar on re-appointment of auditors in certain class of companies specified under Section 139(2) of the Act, 2013, if he had already held: (a) one term of 5 years in case of an individual; or (b) two consecutive terms of 5 years in case of a firm. Once the bar on reappointment applies, there is a mandatory cooling-off period of 5 years.

To comply with the above provision, transition period of 3 years was provided from the date of the commencement of the Act, 2013, i.e., companies shall appoint another auditor till April 01, 2017 which at the first blush would mean that at the upcoming AGM for the FY ended 2016, new auditor needs to be appointed.

However, the auditors are appointed at the AGM of the company and hold office till the conclusion of the next AGM. Therefore, to comply with the 3 years provision, the new auditor must have been appointed in the AGM for FY ended 2017. Hence, there was chaos among the corporates and auditors regarding the contradictory provisions in relation to effective date for appointment of new auditor. In order to clarify this position which was subject to interpretation, the Ministry of Corporate Affairs (MCA) has issued a Companies (Removal of Difficulties) Third Order, 2016, dated June 30, 2016 (hereinafter referred to as "Order").

Non-resident not having PAN get a breather

Permanent AccountNumber (PAN) is an India tax identification number. Over the years, revenue authorities have been using PAN to track high value transactions, curb tax evasion, and thereby increase the tax base. In line with this objective section 206AA of the Income-tax Act, 1961 (Act) was introduced in Finance Act, 2009 with effect from 1 April 2010, which provides that if PAN is not furnished by the payee, the withholding tax would be applicable at the rate specified in the relevant provision of the Act or rate in force or 20%, whichever is higher.

India has tax treaties with various countries which provides for reduced rate of withholding tax for various sources of income like interest, royalties, fees for technical services.

With the introduction of section 206AA, a non-resident payee not having a PAN was caught in the rigour of these provisions and the reduced tax treaty rate got increased to 20% under section 206AA.

This was so because section 206AA starts with a non-obstante clause viz. "notwithstanding anything contained in any other provisions of this Act,..". Considering the wordings of section 206AA of the Act there was a view that it may override the beneficial provisions of the tax treaty.

Concerns were raised whether the provisions of section 206AA overrides the treaty provisions, and whether the non-resident payee will not be eligible to avail benefit of lower rate prescribed under the tax treaty if PAN is not furnished.

The Income Declaration Scheme, 2016: Certain Aspects

1. Last year, it was a one-time compliance window under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 ('the BM Act') to report the undisclosed offshore assets. Now it is an IncomeDeclaration Scheme, 2016 ('IDS, 2016') to declare undisclosed income from a domestic source. The former scheme received lukewarm response in terms of tax yield, given the high tax rate (60% incl. tax and penalty) and the concept of fair market value for valuing the asset for computing the tax liability. Similar doubts are being raised regarding the latter scheme as it has both these features, i.e., high tax rate (45% incl. tax, surcharge, and penalty) and the fair market value concept to value the asset if the undisclosed income is in the form of investment in any asset. A key argument is often presented that a voluntary disclosure scheme with more generous terms (such as lower tax rate, immunities from various laws) is needed to encourage delinquent taxpayers to pay their due taxes which can be utilised to improve the much-needed infrastructure in the country. In that case, presumably, the counter argument is that such a scheme would be discriminatory against the law-abiding taxpayer (in fact, the VDIS, 1997 could have been struck down by the Supreme Court but for the Government assuring the Court that henceforth they would not come out with such schemes). Thus, the introduction of any such scheme often involves economic efficiency, morality, and constitutionality issues. This article, however, is restricted to certain issues arising from the IDS, 2016.

No garnishee proceedings against service recipient if it didn't owe anything to service provider: HC

Facts:

a. Petitioner, Food Corporation of India (FCI), engaged Kailash Enterprises (KE) for handling wheat cargo. Services provided by KE were exempt from service tax being services in relation to agricultural produce. However, FCI paid service tax under mistaken belief which was not deposited by KE to Government.

b. There were multiple disputes between FCI and KE because of deficiency in service. Therefore, FCI recovered amount of Rs.3.5 crore by invoking bank guarantee. In the meanwhile, department issued notice against KE for recovery of service tax being collected by KE from FCI. It also issued notices under section 87 for recovery of amount due against FCI. The petitioner challenged garnishee proceedings before High Court.

The High Court of Gujarat held as under:

Halfhearted approach in proposing the Income Declaration Scheme, 2016

The Finance Minister in his Budget Speech on 29^th February, 2016 surprised all by introducing the Income Declaration Scheme, 2016 which is proposed to come into effect from 1^st June, 2016. For persons who have not paid full taxes in the past, the Scheme provides a one-time window to come forward and declare the undisclosed income of any financial year upto 2015-16 and pay tax, surcharge and penalty aggregating to 45% of such undisclosed income declared. The FM has indicated in his Budget Speech that the window will be open from 1st June till 30th September, 2016 with an option to pay amount due within two months of declaration. Post Budget the FM has mentioned that the four-month compliance window for domestic black money holders is not a VDIS (Voluntary Disclosure of Income Scheme) and it is not an amnesty scheme. Interestingly the FM has used the phrase 'past trangressions' recognising the past wrongdoings of tax evaders and offer them an exit door on payment of 45% of undisclosed income. Such persons would further enjoy immunity from prosecution under Income Tax Act, Wealth Tax Act, and Benami Transaction (Prohibition) Act, 1988. As per our FM, the Government is fully committed to remove black money from the economy. The Scheme as mentioned in clauses 178 to 196 of the Finance Bill, 2016 (in short referred as the 'Bill') is analysed hereunder:

1. Backdrop and comparison of present Scheme with some aspects of VDIS, 1997:

It would be relevant to mention that the prime reason for accumulation of black money has been the fact that our country had the maximum tax rate of 97.75% (tax @ 85% plus surcharge @ 15%) in seventies. That means a person declaring income of Rs. 10 Lakhs in those years was required to pay tax of almost Rs. 9,77,500/- only (if we ignore the initial exemption limit). In addition to that one was required to pay wealth tax. Now the maximum rate of tax is 30% plus education cess of 3% plus surcharge in some cases which is much reasonable to the tax rates in 1970's. The present Income Disclosure Scheme, 2016 announced in Budget, 2016 has some positive aspects as well as some not so positive aspects if we compare with the Voluntary Disclosure of Income Scheme, 1997 (VDIS) declared for Indian tax payers. The rate of tax payable under the present scheme is 45 per cent (tax @ 30% plus surcharge 7.5% plus penalty 7.5%) which is 1.5 times of the tax payable under VDIS, 1997. It may be noted there was no penalty in case of VDIS.

Capital gain on sale of property situated in Sri Lanka is taxable only in Sri Lanka

Facts:

a) The case of assessee was selected for scrutiny by revenue under CASS. She had earned capital gains on sale of property situated in Sri Lanka.

b) Assessee submitted that such capital gains were taxable only in Sri Lanka as per Article 13 of India-Sri Lanka DTAA.

c) The AO and the CIT(A) rejected the contentions of assessee and taxed such long-term capital gains. The aggrieved-assessee filed the instant appeal.

The Tribunal held as under:

1) As per Article 13(1) read with Article 13(6) of the India-Sri Lanka DTAA, the capital gain arisen to the assessee from sale of immovable property situated in Sri-Lanka is taxable in Sri-Lanka as the Government of Sri-Lanka has right to tax the same because the immovable property is situated in Sri-Lanka. The Government of India cannot brought the same to tax under the provisions of the Act as the provisions of DTAA will prevail being beneficial to the assessee over the provisions of the Act.

2) Even though the word ‘may be taxed’ is used in Article 13(1) of DTAA between India and Sri- Lanka as the same is to be read in a manner that it takes away the power of the other Contracting State to tax the same income, of which power to tax is vested by virtue of DTAA in the Contracting State in which the immovable property is situated.

Cash deposits in bank can't be held as undisclosed income without verifying source of deposits

Facts:

1) The assessee was found to be maintaining a savings bank account in which it had made cash deposits. He did not file any return of income.

2) To verify the source of the said cash deposit, an inquiry letter was written to the assessee by the AO. However, as there was no response to the inquiry letter, the AO formed the belief that income of the assessee had escaped assessment.

3) The AO completed assessment by making additions on account of undisclosed cash deposit in the bank account of the assessee and also addition on account of undisclosed interest income. The CIT(A) confirmed addition. Aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

A comparative analysis of new income declaration scheme and settlement scheme

Amongst the various new schemes and changes brought about by the Budget, 2016, one of the most talked about and significant change is Income Declaration Scheme, 2016 (" herein after referred to as "the Scheme" or "New Scheme" or "Disclosure Scheme, 2016" in the context in which it is required) . The Scheme which has come into effect from 1st June, 2016 vide notification dated 19th May, 2016 is expected to bring about a change in the manner of disclosure/declaration of undisclosed/undeclared income. The Scheme has been introduced as a separate chapter, Chapter IX, to Finance Act, 2016.Further, the government has notified the Income Declaration Rules, 2016(hereinafter referred as the Rules)to give effect to various provisions of the Scheme.

Presently, the penal consequences of not disclosing income (technically speaking concealment or furnishing of inaccurate particulars of income) are so harsh and rigid that they may act as a deterrence for the assessee, who might wish to disclose the income, though there may be various others reasons for not disclosing the true income. In view of this, introduction of new Scheme of Disclosure of Income is a welcome change.

Income Declaration Scheme, 2016 – Effective Rate of Tax?

Introduction

1. The Government has introduced Income Declaration Scheme, 2016 which has come into force from 1st June, 2016. The scheme provides an opportunity to persons who have not paid full taxes in the past to come forward and declare the undisclosed income and pay tax, surcharge and penalty totaling in all to 45% of such undisclosed income declared. Further, as per scheme, declaration of undisclosed income in the form of assets is to be made at Fair Market Value of such assets as on 1st June, 2016.

It is felt everywhere that the total impact of tax in case of declaration of undisclosed income under the scheme is quite high and, therefore, the initial response of the taxpayers regarding the scheme is not encouraging one.

Clarifications issued by CBDT

2. The CBDT has issued three sets of Frequently Asked Questions (FAQs) containing 36 clarifications relating to various controversial aspects clarifying doubts regarding the operation of the scheme. One clarification has been issued by the CBDT by way of Circular No. 25/2016, dated 30th June, 2016 addressing question no. 5 which is reproduced as under:—

No disallowance u/s 40(a)(ia) when taxpayer is claiming exemption under sec. 11

The issue before the ITAT was

Whether the provisions of section 40(a)(ia) are applicable when income is computed under sections 11, 12 and 13?

The ITAT held as under:

1) Sections 11, 12 and 13 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. Section 40(a)(ia) falls under chapter IV-D which deals with computation of profits and gains from business or profession.

2) Therefore, the provisions of section 40(a)(ia) are relevant if income is computed under the head 'profits and gains of business or profession". The concept of computation of income under section 11 is real income concept which is computed on the principles of real income generated from property held under trust and not notional income under other provisions of the Act.

Service Tax Default or Evasion –Relevant Aspects of Penalty under section 76

1. Section 76 of Finance Act,1994 : Penalty under section 76 of the Finance Act, 1994, as amended by the Finance Act,2015, w.e.f.14.05.2015, is to be levied in following circumstances where:

(a)			Service tax has not been levied or paid, or has been short-levied or short-paid, or erroneously refunded,
(b)			Such non-levy, non-payment, short-levy, short-payment or erroneous refund has occurred for any reason, other than the reason of fraud or collusion or wilful misstatement or suppression of facts or contravention of any of the provisions of the Act or of the rules made thereunder with the intent to evade payment of service tax, and
(c)			The person has been served a notice under section 73 (1).

2. Maximum amount of penalty:-

A person who has been served a notice under section 73(1) would be liable to pay penalty under section 76, not excluding 10% of such amount as mentioned in notice .The penalty is in addition to service tax and interest thereon as specified in the notice. Further, the Adjudicating Authority may at his discretion to impose even lesser amount of penalty depending on the timing of the payment of service tax and interest and such lesser amount may be from nil to 25%as follows:

Shipping Co. earning income from slot charter is also entitled to benefits of 'Tonnage Tax Scheme'

Facts:

a. The assessee owned a qualifying ship and the income generated from the said qualifying ship was exigible to tax as per ‘Tonnage Tax Scheme. However, it also had 'slot charter' arrangements in other ships. The assessee had also included the income from such slot charter arrangements for the purpose of computation thereof under ‘Tonnage Tax Scheme’.

b) The AO was of the view that the income earned under slot charter arrangement did not qualify under ‘Tonnage Tax Scheme’ as this income was not generated by the assessee from its own ship, i.e., it is neither from the ship owned by the assessee nor from the entire ship chartered by the assessee.

c) He was of the view that in order to avail the benefit of ‘Tonnage Tax Scheme, the assessee was supposed to show that the ship operated by it was qualifying ship and for this purpose itwas incumbent upon the assessee to produce a 'valid certificate indicating its net tonnage' as provided in Section 115VX(1)(b).

d) The order of the AO was upheld by the CIT(A) and the ITAT. However, the High Court held in favour of assessee. Aggrieved revenue filed the instant appeal.

The Supreme Court held in favour of assessee as under:

Calcutta HC quashes Rs 1.5 cr. service tax demand on Sourav Ganguly

Facts

a. Assessee (Sourav Ganguly) was former captain of the Indian Cricket Team. He participated in the IPL Cricket tournament as a member of the Kolkata Knight Rider’s Team. He also acted as brand ambassador for various products and anchor in television shows.

b. He received amounts under following heads:

Writing Articles in Magazines ;

Anchoring TV Shows ;

Brand Endorsement ; and

Playing Cricket in IPL.

Department raised demand of service tax of Rs. 1.5 crores under ‘Business Auxiliary Service’ or ‘Business Support Service’ and invoked extended period. The assessee filed writ petition and challenged the demand.

The Calcutta High Court held as under :

1. Writing articles for newspapers or sports magazines or for any other form of media cannot by any stretch of imagination be said to be amounting to rendering business auxiliary service or business support service. Hence, the remuneration received by the assessee for writing articles would not attract service tax. 

2. Television shows are meant for entertainment of the viewers. The remuneration received by the assessee for anchoring TV shows cannot be brought within the service tax net under business auxiliary service or business support services.

Transfer of shares under scheme of amalgamation wouldn’t come under pre-emption clause of Articles – An Analysis

The Bombay High Court has held in the matter of Shakti Insulated Wires (P) Ltd. v. Great View Properties (P) Ltd. [2016] 135 SCL 80/68 taxmann.com 169 that the transfer of shares under the Scheme of Amalgamation sanctioned by the Court is not a transfer of shares but is transmission by operation of law which would not come within the pre-emptive clause of the Articles of Association of the company. This article highlights the nuances in determining the pre-emption clause in the Articles of Association and clarifies the difference between transfer of shares under the Scheme of amalgamation and transfer of shares covered under the pre-emption clause of the Articles of Association of the Company.

AN ANALYSIS

1. Introduction

Section 58(2) of the Companies Act, 2013 provides that any contract or arrangement between two or more persons in respect of transfer of securities should be enforceable as a contract. This section has clarified the major issue of enforceability of pre-emption rights and options being exercised by the shareholders. This article highlights the nuances in determining the pre-emption clause in the Articles of Association and clarifies the difference between transfer of shares under the Scheme of amalgamation and transfer of shares covered under the pre-emption clause of the Articles of Association of the Company. The same has been explained by a landmark judgment dated 1^st March, 2016 of the Bombay High Court in the matter of Shakti Insulated Wires (P) Ltd (supra)

Insolvency and Bankruptcy Code 2016

Insolvency and Bankruptcy Code 2016 is welcome step and need of hour being part of ease of doing business in India. This Code has been passed by both Houses and got President assent on 28-05-2016 whereby Sick Industries Companies Act, 1985 (SICA), Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act, 1920 have been repealed, winding up provisions of Companies Act, 2013 have been restructured and laws relating to winding up has been consolidated in single code. This Code offers a uniform, comprehensive insolvency legislation encompassing all Companies, LLPs, partnerships and individuals. This code will facilitate a formal and time bound insolvency resolution process and liquidation. This code is a special Act and its provisions have overriding effect over other laws. This Code has two parts i.e. Part II for Corporate Debtors (applicable for Companies and LLPs) and Part III, IV and V applicable to individuals and partnership firms. Company Law Tribunal is the Adjudicating Authority for Corporate debtors and whereas Debt Recovery Tribunal is the Authority for individuals and partnership firms. The Author would like to discuss provisions applicable to Individuals and partnership firms in this Article.

Destruction of invoices in fire incident won't lead to denial of credit when all invoices recorded in ledger

Facts:

a)   During the course of audit of the assessee’s record, audit officers observed that original invoices were not available. Assessee submitted that original invoices were lost/destroyed in an accident of fire.

b)  Therefore, department contended that Cenvat credit was availed in respect of non-existing invoices as assessee was not having original input invoices to be produced for verification. The Adjudicating authority demanded interest and imposed penalty. The assessee filed appeal before the Commissioner (Appeals) which was allowed. Aggrieved by the impugned order, revenue filed the instant appeal.

The CESTAT held as under:

Model GST law - Feast after a decade long fast

Indian Indirect tax payers have been greeted with a bouquet of complexities from the time immemorial. These taxpayers were in need of a single flower as antidote, which they now see budding in form of Model GST law released by the Union Government. The proposed scheme of GST aims to reduce the existing intricacies in administration of multiple indirect taxes. The much debated beauty and barriers of GST as a unified tax on goods and services has finally come to the rescue of taxpayers in the form of model GST law, framed by the Empowered Committee of State Finance Ministers.

The model law is designed in a manner that it can also be used by the states as blue print for state GST. At the outset, the model law proposes its applicability to whole of India and provides that different dates may be appointed for different provisions of the Act. The draft law appears to be largely premised on the existing state VAT laws and an attempt has been made to reconcile the philosophies of existing Central Excise, VAT and Service tax laws.

Golden chance to declare domestic black money at e􀁹ective tax rate of 31%

The Govt. has given an opportunity to persons who have not paid full taxes on their income of earlier years to come forward and declare the undisclosed income under the ‘Income Declaration Scheme’ (IDS). They are required to pay tax of forty-five per cent of such undisclosed income. The IDS is e ective from June 1, 2016 and will remain open up to September 30, 2016. The declarant is required to pay tax up to November 30, 2016.

However, various queries have been received by CBDT on IDS. Thus, the CBDT had issued three sets of FAQs till date. In the recent tranche of FAQs issued on June 30, 2016 the CBDT has clarified that once the person had declared undisclosed income, no question will be asked from where such income or tax is coming from. This assurance in the lasts FAQs (Question 5) issued by dept. will bring down the e ective tax rate from 45% to 31% on the undisclosed income. Let us understand this scenario with the help of illustration.

Cash payments to liquor dealers to maintain su􀁹icient quantity of stock doesn't call for sec. 40A(3) disallowance

Facts:

a) Assessee engaged in the business of country liquor had made cash purchases from two parties 'A' and 'P'.

b) Since, the payments for the purchases were exceeding Rs. 20,000, Assessing Officer (AO) disallowed said payments by invoking provisions of section 40A(3).

c) Commissioner (Appeals) confirmed the action of the AO and upheld the disallowance. Aggrieved assessee filed the instant appeal before the tribunal. 

The tribunal held in favour of assessee as under:

1) The primary object of enacting section 40A(3) is two folds, firstly, putting a check on trading transactions with an intent to evade the liability to tax on income earned out of such transaction and, secondly, to inculcate the banking habits amongst the business community.

2) Apparently, this provision is directly related to curbing of the evasion of tax and inculcating the banking habits in business community.

3) In the instant case, assessee was the only authorized dealer in the area for the supply of country liquor to authorized Excise vendors. He was to keep sufficient stock of country liquor as prescribed by the Excise Department and in case stock fell short of the prescribed limit, the department used to impose penalty.