Monday, November 7, 2016

Legal charges paid to UK firm for setting-up of bank branch outside India wasn't royalty or FTS: ITAT


a) The assessee was engaged in the banking business and paid certain legal fees to one legal firm situated in UK. The assessee had deducted and deposited 20% withholding taxes on such payment as per the agreement.

b) Subsequently, it filed an appeal before Commissioner (Appeals) and contended that the impugned payment was not liable to be taxed in India. Said contention was considered but dismissed by the Commissioner (Appeals) on the ground that no new source of income came into existence by obtaining the legal services, and hence, the impugned payment constituted 'Royalty'/'FTS' as per section 9(1)(vi)/(vii).

The ITAT held as under:

1) The impugned payments were made by assessee for creating or earning a new source of income outside India by way of establishment of new Bank Branch or acquisition of Bank.

2) Section 9 provides that royalty or FTS is deemed to accrue or arise in India if it is payable by a person who is resident, except where the fees are payable for the purposes of making or earning any income from any source outside India;

GST Council decides four-tier rate structure of 5%, 12%, 18% and 28%

The GST Council in its fourth meeting held on Nov. 3, 2016 has finalized the GST rates. The finalised rates are 5, 12, 18 and 28 percent. The sin items such as tobacco, aerated drinks, pan masala, etc., will be taxed at more than 28 percent. The rate of GST on Gold has not been decided yet. Items constituting half of the consumer price index (CPI) basket (including food grain) will be exempted from GST.

The additional cess would be levied in first five years after GST implementation to compensate States for any loss of revenue. The Corpus of Rs.50,000 Crore would be needed to pay compensation to States in the first year.

Mere default in furnishing Form 15G/15H doesn't call for sec. 40(a)(ia) disallowance


The issue before the ITAT was:

Whether section 40(a)(ia) could be invoked when Form 15G/15H was obtained from the deductee although not filed before proper authority?

The ITAT held as under:

1) Section 40(a)(ia) spells out that the amount cannot be allowed as deduction only in the event when tax is deductible at source and such tax has not been deducted or, after deduction has not been paid.

2) In the instant case, it was the case of the AO that the assessee was required to deduct tax in terms of the provisions of section 194A. Section 194A is further qualified by section 197A(1A) which is a non obstante clause. Section 197A(1A) provides that liability to deduct tax under section 194A ceases when a declaration (i.e., Form 15G, Form 15H, etc.) is received by a person responsible for paying income to the payee.

Trust promoting Jain Community entitled to registration if it was also working for benefit of general public


a) The assessee-trust applied for registration in terms of section 12A.

b) The Commissioner refused such registration on the ground that the objects and activities of the trust were not charitable and were mainly for the purposes of a Jain Community and, therefore, provisions of section 13(1)(b) were attracted.

c) On appeal, the Tribunal was of the view that the Commissioner could not mix the requirements of registration of a trust with that of granting exemption under section 13.

The High Court held as under:

1) It was seen that, the Commissioner focused his attention on particular clauses of the objects of the trust to come to the conclusion that the same were for the benefit of a certain religious communities only, in the process ignoring various other objects, for e.g., the trust would engage itself in activities relating to education by maintaining and running education centers, run hostels, training centers for creating awareness in the common people and to make the education available to the public.

2) It would also engage in imparting training in computers. The trust would engage in doing all activities for medical help and to establish and administer dispensaries, hospitals and laboratories etc. It would also help the patients by supplying medicines and financial assistance. Likewise the trust could engage in rural development schemes.