Monday, March 20, 2017

Reimbursement of salary of seconded employees held as FTS; ITAT relies on HC’s ruling of Centrica


a) Assessee, a swiss company was engaged in providing operations and management services to airports. It had entered into an agreement with Bangalore International Airport Ltd. (BIAL) for secondment of its skilled personnel.

b) Assessing Officer (AO) held that the payment received by the assessee from BIAL was in the nature of Fees for Technical Services (FTS) and, accordingly, chargeable to tax in India.

c) Assessee claimed that the seconded personnel work under the direct control and supervision of BIAL as it had the right to issue directions to the seconded employees. Therefore, aforesaid receipts cannot be considered as FTS.

d) CIT(A) upheld the order of AO, aggrieved-assessee filed the instant appeal before the Tribunal.

Tribunal held in favour of revenue as under:

1) Secondees were holding high managerial position and also holding the position in the management as CEO and CCO. This clearly establish the fact that they were not ordinary employees but having the expertise in the field of management. Therefore, the purpose of assignment was to avail the services of highly qualified personnel.

2) The Hon'ble Delhi High Court in the case of Centrica India Offshore Pvt. Ltd. v. DCIT [2014] 44 300 (Delhi) had held that where employees used their technical knowledge and skills while assisting in conducting business of quality control and management, sum reimbursed to overseas companies towards salaries of seconded employees amounted to FTS.

3) Therefore following the decision of Hon'ble Delhi High Court in the case of Centrica (Supra),amount received in terms of secondment agreement was in nature of FTS, chargeable to tax under section 9 as well as under article 12 of India-Switzerland DTAA. – [2017] 79 199 (Bangalore - Trib.)

Reshuffling of specified investment by a trust doesn't lead to denial of sec. 11 exemption


a) The assessee-trust was running an educational institution, registered under section 12AA. It was collecting moderate fees from the students and expenses of the Institution were always more than educational receipts, which were met out of dividend/interest income of its investment made as per section 11(5).

b) In the course of assessment, the Assessing Officer opined that assessee was carrying on its activities on commercial lines and there was sale of mutual funds in violation of provisions of section 11(5). He, thus, rejected assessee's claim for exemption of income under section 11.

c) The Commissioner (Appeals) allowed the assessee's claim by holding that there was no violation of the provision of section 11(5) for making investment and, moreover, profits derived from sale of mutual fund and dividend income were again re-invested into the specified mode of investment, i.e., mutual funds as per section 11(5).

d) The aggrieved-revenue filed the instant appeal.

The ITAT held in favour of assessee as under:

1) Under the provisions of section 11, there is no lock-in period nor there is any stipulation that investments so made cannot be reshuffled during the outer limit of five years' period. In this context, the Assessing Officer's observation that one set of mutual funds were divested of within the period of sixty days would be untenable.

2) During the year, the assessee-trust had reshuffled one set of investments only with the purpose of safeguarding interest of the trust and in the view of the apprehension that value of said mutual fund was fast declining. By doing so, the trustees of the trust had acted, in the best and paramount interests of the trust and not for the purpose of any benefit or a pecuniary gain to any person specified under sub-section (3) of section 11.

3) Again by doing so, the trust had not violated any stipulation or conditions, as a matter of fact there was no stipulation under section 11(5) placing restriction on the reshuffle of specified investment. Thus, assessee-trust was entitled to exemption under Section 11. – [2017] 79 97 (Mumbai - Trib.)

Date of allotment letter to be considered and not date of sale deed registration to compute holding period of asset


a) The assessee sold her office unit and claimed that she had earned long-term capital gain as the office unit was held for more than 36 months.

b) The Assessing Officer noted that though allotment of the said office was done prior to 36 months from the date of sale but the agreement to sale was registered during the period of 36 months only, therefore, he computed the holding period from the date of registration of the agreement. Accordingly, he held that the said asset was 'short-term capital asset'. Consequently, the resultant gain was assessed as short-term capital gain.

c) The Commissioner (Appeals) upheld the order of Assessing Officer. The aggrievedassessee filed the instant appeal before the Tribunal.

The Tribunal held as under:

a) A perusal of definition of section 2(42A) shows that the legislature has used the expression 'held'. It is further noted that in various other allied or similar sections, the Legislature has preferred to use the expression 'acquired' or 'purchased', e.g., in section 54/54F. Thus, it shows that the Legislature was conscious while making use of this expression.

b) The expression like 'owned' has not been used for the purpose of determining the nature of asset as short-term capital asset or long-term capital asset. Thus, the intention of the Legislature is clear that for the purpose of determining the nature of capital gain, the Legislature was concerned with the period during which the asset was held by the assessee for all practical purposes on de facto basis.

c) The Legislature was apparently not concerned with absolute legal ownership of the asset for determining the holding period. Thus, one has to ascertain the period of holding of asset from which it can be said that assessee started holding the asset on de facto basis.

d) Thus, it is clear that for the purpose of holding an asset, it is not necessary that the assessee should be the owner of the asset based upon a registration of conveyance conferring title on him.

e) Therefore, holding period of office unit should be computed from the date of issue of allotment letter and not from the date of registration of sale deed. - [2017] 79 67 (Mumbai - Trib.)

Existence of undisclosed bank deposits non-mandatory on date of PMGKY payment: CBDT

PMGKY scheme has commenced and it is open for declarations till March 31, 2017. Representations have been received from various stakeholders seeking clarification as to whether the deposits made in bank account or cash in hand which are eligible for declaration should exist on the date of filing of declaration under PMGKY.

The CBDT vide Circular No. 8/2017 has clarified that, it is not necessary that the said undisclosed deposits should exist on the date of making payments under PMGKY. However, undisclosed cash should exist on the date of making payment of tax, surcharge and penalty under PMGKY.

Works contractor not eligible for sec. 80-IB deduction


a) The land owner sold undivided co-ownership rights in the property to various individual purchasers. These purchasers further entered into construction agreement with assessee-firm for construction of flats.

b) Assessee filed return of income and claimed deduction under section 80-IB on construction receipts.

c) Assessing Officer (AO) held that the assessee though called developer was only a contractor and was not eligible to claim deduction under section 80-IB. 

d) On appeal, the CIT(Appeals) confirmed the order of AO. Aggrieved-assessee filed the instant appeal before the Tribunal.

Tribunal held in favour of revenue as under:

1) In the instant case, assessee had entered into an agreement with the land owner for development of vacant land into the multi-storied residential complex.

2) The main activity was construction of flats by virtue of the agreement into with the buyers.

3) Assessee's job included only controlling and directing the work of building construction as per plan and design by the landlord and hand over the constructed flats on behalf of the landlord to the eligible flat owners who have got registered undivided right in the property.

4) Assessee had only performed the work as a contractor and its job was not related to designing the project and selling of the project. Further, itwas not entitled to get any share in the constructed area and in the undivided property.

5) Since, it was a case of mere 'works contract', assessee was not eligible for deduction under section 80-IB. - [2017] 79 10 (Chennai - Trib.) 

AO cannot examine sec. 37 conditions on “Privilege fees” paid for renewal of liquor Licence: HC


a) Assessee-company was an undertaking of the Government of Karnataka engaged in the business of canalization of liquor, beer and rectified spirit.

b) It had entered into agreement with the Government of Karnataka to pay ‘Privilege Fee’ for renewal of lease related to its liquor licence.

c) Assessing Officer (AO) while making assessment disallowed privilege fee by holding that it was not an expenditure incurred towards earning of income.

d) He further held that the Government Order to levythe privilege fee was nothing but the appropriation of the income.

e) Aggrieved-assessee filed writ petition before the High Court against the order of AO. High Court held in favour of assessee as under:

1) In the instant case, the character of liability to pay privilege fee was not only by virtue of the contract but was by way of a statutory obligation once lease was granted in favour of the assessee-company.

2) It was on account of the lease so granted, Company was in a position to undertake the business of the liquor as per the terms and conditions of the licence.

3) If any businessman or a professional had incurred expenses by way of discharge of statutory obligation to get a licence to do business, it can be termed as an expenditure on account of necessity of the business or profession.

4) AO have power to examine the commercial expediency for the expenditure incurred but it cannot be said that he will have jurisdiction to disallow the expenditure incurred for necessity or with a view to have a direct benefit in the business of liquor.

5) AO being a statutory authority is bound to respect all the laws may be made by the Parliament or may be made by the State Legislature. He had no jurisdiction to examine the constitutional validity of any Act or the statute or a subordinate legislation which creates statutory liability upon the assessee to make the payment by way of an expenditure incurred.

6) Therefore, disallowance of the expenditure for payment of privilege fees was without jurisdiction and ultravires to the power of AO. - [2017] 79 125 (Karnataka) 

No TP adjustment for AMP exp. just because incidental benefit accrued to foreign AE


a) Assessee-company had entered into an agreement with Widex, Denmark for distribution of digital hearing aids manufactured by it.

b) TPO noted that assessee had incurred huge AMP expenses which were disproportionate to that spent by comparable companies. He concluded that excess AMP expenses benefited AE only, for which assessee should be adequately compensated.

c) Accordingly, he applied Bright Line Test for determining non-routine spend on AMP by assessee. DRP confirmed said addition. Aggrieved-assessee filed instant appeal before the Tribunal.

Tribunal held in favour of assessee as under:

1) In the instant case, the AMP spend had been treated as an international transaction since it was found to be benefitting the foreign AE of assessee.

2) There was no finding of any clause in the agreement entered into between the two parties requiring the assessee to undertake brand promotion expenses on behalf of the AE.

3) The existence of some sort of arrangement between the assessee and the AE obliging the assessee to undertake AMP expenditure on behalf of the AE had not been demonstrated. Further, TPO had not been able to prove that the AMP expenses incurred was not for the benefit of the assessee.4) Merely because there was incidental benefit to foreign AE, it could not be said that AMP expenses incurred was for promoting brand of foreign AE. - [2017] 78 348 (Chandigarh - Trib.)

2-year ban on practicing CA as he was actively involved in business through companies and trust


a) Punjab National Bank filed complaint before council of the Institute of Chartered Accountant (ICAI) alleging that the respondent: a practicing chartered accountant (CA), had incorporated three companies, a trust and had diverted funds to companies and firms in which CA was associated with directly as a director or as a partner.

b) Council held that the CA was guilty of professional misconduct under Chartered Accountants Act, 1949 and recommended to the High Court that the name of the CA be removed from the Register of Members for a period of two years.

The High Court held as under:

1) There was evidence on record that CA was signing the balance sheet of various companies in the capacity as a director and was also operating the bank accounts and signing various applications submitted to the bank.

2) There was also evidence that CA had acted as the introducer when accounts of other companies were opened and significantly the addresses of these other companies were the same from where CA carried on his profession as a Chartered Accountant. 

3) A Chartered Accountant registered with the ICAI as practicing chartered accountant cannot be a director of a company without the permission of the ICAI. In the instant case, being a chartered accountant the respondent was actively carrying on business through companies, trusts and firms.

4) Thus, removal of CA’s name from the Register of Members of the Institute of Chartered Accountants for a period of two years was affirmed. - [2017] 79 9 (Delhi) 

Ahmedabad ITAT imports make available clause in India- Belgium DTAA from India-USA DTAA


a) Assessee made remittances to companies located at USA, Canada and Belgium towards technical consultancy and professional services without withholding tax in terms of section 195

b) Assessing Officer observed that the payments made to the foreign parties were in nature of included services/technical services and, thus, were taxable in India. AO held that assessee was liable to pay tax under section 201(1).

c) CIT (Appeals) held that the services would not fall within the purview of fees for technical services and, hence, there was no liability to withhold tax at source. Aggrievedrevenue filed instant appeal before the Tribunal.

Tribunal held in favour of assessee as under:

1) Because of the MFN clause, the scope of fees for technical services under the India- Canada DTAA and the India-USA DTAA was more restricted than that under India- Belgium DTAA. The language of article 12 of the aforesaid two treaties shall apply to the DTAA between India and Belgium.

2) After importing make available clause in India-Belgium DTAA, services provided by the non-resident parties would not fall within the purview of included services/technical services and, hence, there was no liability on the assessee to deduct TDS under section 195. [2017] 78 330 (Ahmedabad - Trib.)

SC to decide whether minor delay in furnishing Form 27C would make seller liable for no-collection of TCS; admits SLP

Assessing Officer made additions on the ground that the assessee had breached section 206C(1) as he failed to timely submit buyer’s declaration for non-collection of TCS in Form-27C. CIT(A) and the Tribunal ruled in favour of assessee.

On further appeal by the revenue, the High court held as under:-

a) Section 206C(1A) provides that the liability to collect TCS u/s 206C(1) does not arise if the buyer has furnished tax declaration in Form-27C to the Commissioner.

b) Section 206C(1A) itself does not provide for any time limit within which, such declaration is to be made. The main thrust of sub-section (1A) of section 206C is to make a declaration as prescribed, upon which the liability to collect tax at source under sub-section (1) would not apply.

c) When there was no dispute about such a declaration being filed in a prescribed format and there was no dispute about the genuineness of such declaration, mere minor delay in filing the said declaration would not defeat the very claim. Aggrieved by the order of the High Court, revenue filed Special Leave Petition (SLP)
before the Supreme Court. Now, the apex court has admited SLP against High Court's ruling. [2017] 78 295 (SC)

5-year ban on CA for issuing incorrect certificate of share application money

A Chartered Accountant (CA) issued certificates to company for listing of its shares for trading in stock exchange, without verifying same with statement of accounts issued by bank to company. On basis of report submitted by SEBI on unusual price movement of company's shares, Disciplinary Committee of ICAI found CA guilty of professional misconduct as he failed to render any explanation as to why he did not cross-check with the statement of account issued by bank to company. Accepting the report of the Disciplinary Committee, the Council (ICAI) at its meeting recommended removal of the name of the CA from the Register of Members of the ICAI for a period of 5 years.

The Delhi High Court sustained the decision of removal of the name of CA from the Register of Members of the ICAI for a period of 5 years. [2017] 78 304 (Delhi)