‘Ready to use’ rig isn’t an Installation PE as per India-USA DTAA; HC denies interpreting term ‘used’ as per I-T Act

When 'rig' was lying 'ready for use', it could not be considered as 'used' for purpose of Article 5  of India-USA DTAA. The Tribunal had rightly concluded that the word 'used' as specified in said DTAA clarifies usage of an installation or structure for exploration of natural resources and if it was so used for a period of 120 days in 12 months, only then it can be considered as PE in India.

Facts:

a)  The assessee operated the rigs for its clients in India. Those rigs remained unused during the period specified by assessee due to maintenance and repair.

b)  The Assessing Officer (‘AO’) was of the view that India-USA DTAA (‘Agreement’), specified the word "used" without furnishing meaning to the said word and, accordingly, its meaning thereof to be culled out from the Income-tax Act, 1961 (‘I-T Act’), which includes term 'ready for use'.

c)  He further held that as the rig was lying ready for use and, as such, the rig having been used for more than 120 days during the relevant assessment year, the assessee had a permanent establishment (‘PE’) in India.

d)  The CIT(A) accepted the said decision and the Tribunal had reversed the findings of AO and the CIT(A).

The High Court held as under:

1)  The term 'PE' includes an installation or structure used for exploration or exploitation of natural resources, but only if so used for a period of more than 120 days in any twelve calendar month period;

2)  Thus, the Tribunal was of the view that the word ‘used’ had been explained in the Agreement and, thus, there was no scope to refer to the I-T Act.

3)  The Tribunal had rightly concluded that the word 'used' as specified in said DTAA clarifies usage of an installation or structure for exploration of natural resources and if it was so used for a period of 120 days in 12 months, only then it can be considered as PE in India;

4)  There was no infirmity in the order of Tribunal and he had rightly reversed the findings of the AO as well as the CIT(A). – DIT(International Taxation) v. R & B Falcon Offshore Ltd. [2014] 44 taxmann.com 400 (Uttarakhand)

ITAT devises formula for claiming lease equalization charges – gap of annual lease charges and depreciation as per Income-tax Act

While allowing deduction on account of lease equalization charges, only difference between annual lease charge of leased assets and depreciation allowed on said leased asset under the Income-tax (‘I-T’) Act should be taken into consideration

The Tribunal held as under:

1) The concept of lease equalization charge could also be followed for the purpose of computing the total income under the I-T Act. However, the same has to be done with proper care and caution, otherwise it might result in absurdity and give misleading result;

2) In the instant case the relevant transactions were treated as finance lease transaction and, the depreciation allowed as per the rates prescribed in the I-T Act could be more than the depreciation claimed by the assessee at the rate prescribed under the Companies Act;

3) For example, the assessee might be entitled to claim depreciation at 100 per cent on the leased assets in the first year itself under the I-T Act whereas in the books of account, it might have claimed depreciation on the said leased assets under the Companies Act at the rate of 10 per cent;

4) In such a case if the annual leasing charge was equivalent to 30 per cent of the value of leased assets, the assessee would debit its profit
and loss account by lease equalization charges to the extent of 20 per cent of the value of asset as per the guidance note issued by the ICAI;

5) If the lease equalization charges so debited were to be allowed as deduction while computing the total income of the assessee under the I-T Act in addition to 100 per cent depreciation already allowed, the assessee would get the deduction of 120 per cent of the value of asset in the first year itself and the very purpose of adopting the concept of lease equalization would be defeated. This would result in absurdity and give misleading results;

6) It was, therefore, necessary that while allowing deduction on account of lease equalization charges for the purpose of computing total income under the I-T Act, the difference between the annual lease charge of the leased assets and depreciation allowed on the said leased asset under the I-T Act should be taken into consideration - Infrastructure Leasing & Financial Services Ltd v. Dy.CIT [2013] 38 taxmann.com 40 (Mumbai - Trib.)

Cremation services are covered in negative list

Cremation services provided by a crematorium operated by any assessee, including a local authority, are covered under negative list under section 66D(q)

In the instant case, the assessee, a charitable association, was operating a crematorium in the town of Halle. It made an application to the Department, seeking information as to the tax reference number under which the last notice of tax assessment was issued to Lutherstadt Eisleben, a local authority, which also operated a crematorium. The Department denied any such information. So, the moot question that arose for consideration of Court was:

Whether a private taxable person which is in competition with a body governed by public law may rely on the second sub-paragraph of Article 4(5) of the Sixth Directive in order to assert that its rights have been infringed upon by the treatment of that body as a non-taxable person or when under taxed?

European Court of Justice held as under

1) Second sub-paragraph of Article 4(5) of the Sixth Directive is intended to ensure compliance with the principle of neutrality of the tax, which, in particular, precludes treating similar supplies of services, which are in competition with each other, differently for VAT purposes;

2) That provision contains derogation from the rule of treatment of bodies governed by public law as non-taxable persons in respect of the activities or transactions engaged in by them as public authorities, where such treatment would lead to significant distortions of competition;

3) Consequently, if the exemption of the economic activity in question from VAT was to give rise to distortions of competition within the meaning of the second sub-paragraph of Article 4(5) of the Sixth Directive, the operation of a crematorium by Lutherstadt Eisleben would be taxable by virtue of same provision;

4) It is for the national Court to determine whether there are economic circumstances which justify, in particular case, an exception to the rule of the treatment of bodies governed by public law as non-taxable persons;

5) Consequently, a private person who is in competition with a body governed by public law and alleges that that body is, in respect of the activities in which it engages in as a public authority, treated as a non-taxable person for VAT purposes or is under taxed is entitled to rely, before the national court, on the basis of second sub-paragraph of Article 4(5) of the Sixth Directive in proceedings, such as the main proceedings, between a private person and the national tax authorities -FINANZAMT EISLEBEN VS. FEUERBESTATTUNGSVEREIN HALLE EV [2013] 30 TAXMANN.COM 226 (ECJ) 

US Court hails Rajat Gupta’s ‘big heart and helping hand’ but jails him for insider trading

Rajat Gupta was the director of Goldman Sachs. He was privy to information which would affect company’s share prices but not known to public. Gupta was found guilty by the jury for insider trading i.e. for leaking some unpublished price sensitive information in 2008. Gupta tipped off Rajaratnam about Warren Buffett’s soon-to-be-announced infusion of $5 billion into Goldman Sachs. Rajaratnam purchased large quantities of Goldman stock just before the market closed and booked a gain of $1,231,630 by selling the stock next morning when the Buffett investment was announced and stock prices surged. The crimes merited a prison sentence of 78-97 months under the Sentencing Guidelines of the US. Given Gupta’s exemplary humanitarian record, the US District Court of New York let him off with a ‘non-Guidelines’ sentence of 2 years prison.

The Court noted Gupta’s devotion of a huge amount of time and effort to a very wide variety of socially beneficial activities, such as the Global Fund to Fight AIDS, TB and Malaria, the Public Health Foundation of India etc. Such activities were illustrations of his big heart and helping hand. The Court hailed Gupta’s “extraordinary devotion, not only to humanity writ large, but also to individual human beings in their times of need”.

On the other hand, Gupta's criminal acts represented the very antithesis of his humanitarian record. With Goldman Sachs in turmoil but on the verge of being rescued by an infusion of $5 billion, Gupta, within minutes of hearing of the transaction, tipped Rajaratnam, so that the latter could trade on this information in the last few minutes before the market closed. This was the functional equivalent of stabbing Goldman in the back.

The Court had to balance both extremes while awarding a sentence to Mr. Gupta. Taking Court observed that “meaningful punishment is still necessary to reaffirm society's deep-seated need to see justice triumphant. No sentence of probation, or anything close to it, could serve this purpose.”

The Court took note of the provisions of the United States Code which require that the Court had to consider the need to afford specific deterrence and general deterrence. As to specific deterrence (i.e. deterring the convict repeating it in future), the Court held that loss of reputation suffered by Mr. Gupta would deter him from repeating his transgressions in future and no further punishment is needed to achieve this result. The need for general deterrence (i.e. to set an example to others), however, suggested different conclusion. Insider trading is an easy crime to commit but a difficult crime to catch. It was necessary to send out the message “when you get caught, you will go to jail”. After carefully weighing the above, the Court sentenced Rajat Gupta to 24 months' imprisonment, concurrent on all counts, to be followed by one year of supervised release and a fine of $5,000,000.

Indians need not despair that, unlike US, legal system moves slowly in India. Two recent instances offer rays of hope. One, the death sentence of Ajmal Kasab for terrorist acts on 26-11-2008 upheld by the Supreme Court in 2012. The other being two Sahara companies found guilty by the Supreme Court of public issue of securities (Optionally Fully Convertible Debentures) in the garb of private placement in 2008. Companies ordered to refund amounts collected from public. This whole case was successfully handled by SEBI, Securities Appellate Tribunal and the Supreme Court in two years flat from 2010 to 2012.

Great tax calculation services available online

The tax calculation is one of the most vital things in your life, as you surely need to pay tax after calculating how much you can save legally. The Service tax for instance is something that you pay yearly, but if you are not aware of the Income tax act properly then you won’t be able to know how much you can actually claim for refund. That’s exactly why you need professional services which can work on the Income tax act and find you ways to save on Service tax as much as possible for you. This is one thing that has made calculating tax with professional services a popular option. The online tax calculation services can help for sure.

When you are looking for the tax calculation service you have to make sure that you select a trustworthy service that has the right experience of the job. The Service tax payment will become just a matter of few mouse clicks with these services, and your refund will be credited to your account. All you need to do is to register with the service and they will work according to the Income tax act and make sure that your tax is submitted in time, with proper tax exemption claims.

How tax adviser help for current income tax rules

Let’s put it this way. I am pretty baffled and confused about Income tax rules . So, the other day I sought an appointment with a tax consultant to understand the norms and implication. What I got to understand that the tax implication is a part and parcel of life. It is equally baffling for me to understand how people make their way easily through the mesh of income tax rules. That too they are pretty adept at handling the intricacies all by themselves. Despite my confusion, I do realize their overwhelming significance. Moreover, the tax consultant is too eager to help me through the deals of calculations.

The bracket of taxation varies from individual to individual. But, as long as you belong to the bare optimum tax bracket, you cannot avoid the bills of taxation. Income tax rules change with the passage of time. This again is done, keeping in mind the interests of one and all. Consequently, it is common to come across a new Income tax act . It is quite important for tax consultants, as well as the payers, to gather factual evidence about the newly passed income tax act. Last time, my consultant briefed me about the implications of service tax notifications.

He further explained how we indirectly contribute to Service tax notifications , despite not being the owner of a service. Entrepreneurs, business houses, as well as, the tax counselors need to be well aware of service tax notifications. Tax consultants have leading roles to offer in helping people like me deal with the prospect of disbursement. Income tax act revised from time to time has to be within their fingertips.