Sec. 54F doesn’t stipulate approval from Municipal Corporation for construction of residential house; says ITAT

Provisions of section 54F mandate construction of a residential house within period specified, however, there is no condition that building plan of residential house should be approved by Municipal Corporation.
Facts:

a)During relevant year, the assessee earned long-term capital gain on sale of shares. He claimed deduction under section 54F in respect of construction of a new residential property.

b)The Assessing officer denied benefit under section 54F to assessee and made additions. On appeal, the CIT(A) upheld the order of AO on the ground that since there was no approval plan for new construction the assessee was not entitled to section 54F benefit.

c)The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)The provisions of section 54F mandate construction of a residential house within the period specified, however, there is no condition that the building plan of the residential house should be approved by the Municipal Corporation.

2)If any person constructs a house without approval of building plan, he will be raising construction at his own risk and cost. As far as for availing of exemption under section 54F was concerned, approval of building plan was not necessary. The approved building plan, certificate of occupation, etc., are sought to substantiate the claim of new construction.

3)In the instant case, the fact that the assessee had raised new construction was evident from the interim order issued by the Municipal Corporation. It was evident that the assessee had put up a new construction in place of old residential building; thus, he was entitled to claim exemption under section 54F. – B. SIVASUBRAMANIAN V. ITO [2014] 45 taxmann.com 74 (Chennai - Trib.)

NR’s capital gains are taxable at concessional rate under Proviso to sec. 112(1); Cairn’s judgment followed

The first and second proviso to section 48 can't be said to be granting the same relief or benefit. Both provisos are neither identical nor they serve the same purpose. Hence, benefit of Proviso to section 112(1) is allowable to non-resident availing of benefit of first proviso to section 48.
Facts

a)'P', a Mauritian Company ('applicant'), purchased listed shares of an Indian company from 'I' (a US based Company).

b)The applicant sought advance ruling on the issue whether tax had to be deducted at 10% under section 195 on long-term capital gain arising to such non-resident as per proviso to section 112(1)?

The Authority held as under:

1)The observations of the High Court in case of Cairn UK Holdings Ltd. v. DIT [2013] 38 taxmann.com 179 (Delhi provided as under:

a)Proviso to section 112(1) gives an option to assessee to tax long-term capital gain at lower rate of 10% (without giving benefit of indexation as per second proviso to section 48) in case of transfer of listed securities, units or zero coupon bonds.

b)The first proviso to section 48 ensues that non-resident would be given benefit to adjust fluctuation in foreign exchange while computing capital gain.

c)The second proviso to section 48, which provides for cost inflation index, is applicable to all assessees including non-residents, if such non-residents are not covered by the first proviso.

d)The two provisos to Section 48 cannot be equated as granting same relief or benefit. They operate independently and have different purposes and objectives.

e)It is difficult to state that benefits under the first proviso and second proviso to section 48 are identical or serve the same purpose.

f)Thus, the legislative intent was to allow benefit of Proviso to section 112(1) to non-residents as well who are claiming benefit of first proviso to section 48.

2)Following the order of High Court (supra), the Mauritian Company was directed to deduct tax at source at the rate of 10% under proviso to section 112(1). - PAN-ASIA IGATE SOLUTIONS, IN RE [2014] 45 taxmann.com 322 (AAR - New Delhi)

‘Most Favoured Nation’ clause can be referred to interpret treaties and not to import ‘make available’ clause

Facts:

a)The applicant entered into a Management Service Agreement with 'S' France for various management services.

b)It was submitted that the 'make available' clause was not satisfied in the case and, hence, the services would not fall under the technical services as per the India-France Treaty.

c)Applicant stated that, although there was no 'make available' clause in the India-France Treaty, yet, pursuant to protocol signed between India and France, the restricted scope of FTS in the India-UK DTAA would be applicable.

d)Therefore, in absence of such 'make available' of the technical knowledge, experience, skill, know-how or processes, the services rendered by S would not fall under the definition of technical services.

The Authority held in favour of Revenue as under:

1)A Protocol cannot be treated as the same with the provisions contained in the treaty itself, though it may be an integral part of the Treaty.

2)Protocol to the said DTAA puts restrictions on the rates and 'make available' clause cannot be read in the items.

3)The Notification ratifying the protocol did not include anything about the 'make available' provision. Had the intention of the Protocol or the Government been to include 'make available' clause in the Tax Treaty between India and France, it would have been done so in the said Notification.

4)Protocol or Memorandum of Association can be used for interpreting provision of the Treaty. It will not be correct/proper to import words, phrases or clause, that are not available into the Treaties between two Sovereign nations, on the basis of Treaties with another countries.

5)Therefore, the payments made by the applicant for the services rendered would come under the definition of fees for technical services both under the Act and the Treaty and would be liable to tax in India.- STERIA (INDIA) LTD., IN RE [2014] 45 taxmann.com 281 (AAR - New Delhi)

Rules uploaded on MCA portal under Companies Act, 2013 won't be effective until their publication in gazette; HC

Bombay High Court questions application of Rules framed under Companies Act, 2013 from 1-4-2014, without they being notified in Gazette

The Bombay High Court held as under:
1)The website of the Ministry of Corporate Affairs3 has, on its front page, a link to a single scanned PDF file entitled "COMPANIES ACT 2013 - STATEMENT OF NOTIFICATION OF RULES".4 Some 21 rules are listed. They are all said to be effective 1st April 2014. Several of these are not yet gazette.

2)A question was raised that how any such rules can be made effective on this basis where a ministry simply puts up some scanned document under the signature of one of its officers but sans any publication in the official gazette. That publication is not an idle formality. It has a well-established legal purpose. That purpose is not and cannot be achieved in this ad-hoc manner.

3)Therefore, till such time as these rules are gazetted, or there is some provision made for the dispensation of official gazette notification, none of the rules in the Ministry of Corporate Affairs PDF document that are not yet gazetted can be said to be in force. - WADALA COMMODITIES LTD., IN RE [2014] 45 taxmann.com 245 (Bombay)

Postal ballot voting can't completely serves as substitute for actual meeting; doesn't apply to court-convened meetings

Provisions for compulsory voting by postal ballot and by electronic voting to the exclusion of an actual meeting cannot and do not apply to court-convened meetings.
Facts:

The issue before the High Court was:

Whether in view of the provisions of Section 110 of the Companies Act, 2013, a resolution for approval of amalgamation Scheme can be passed by a majority of the shareholders casting their votes by postal ballot, which includes voting by electronic means, which would eliminate need for an actual meeting?


The High Court held as under:
1)Provisions for compulsory voting by postal ballot and by electronic voting to the exclusion of an actual meeting could not and do not apply to court-convened meetings; 2)At such meetings, provision ought to be made for postal ballots and electronic voting, in addition to an actual meeting. Electronic-voting would also be made available at the venue of the meeting;

3)Any shareholder who has cast his vote by postal ballot or by electronic voting from a remote location (other than the venue of the meeting) would not be entitled to vote at the meeting. He or she might attend the meeting and participate in those proceedings. - WADALA COMMODITIES LTD., IN RE [2014] 45 taxmann.com 245 (Bombay)

Notice is required while contemplating attachment of bank a/c and not for initiating action for such attachment

No notice is required for initiating action for attaching account of tax defaulter; notice required when such act is contemplated.
Facts:
a)The assessee filed an application for stay before the assessing authority when the matter was pending before the CIT (A). The Assessing Officer did not dispose of the stay application without any explanation for nearly two years.

b)During the pendency of that application, the authorities passed an order for attachment of bank account of assessee under section 226(3) in haste without giving any prior notice.

c)The aggrieved-assessee filed the instant writ petition. One of the issues for consideration of High Court was:

Whether before taking recourse to section 226(3), the authorities should have issued a prior notice to the assessee?

The High Court held as under:

1)In Golam Momen v. Asstt. CIT [2003] 132 Taxman 826 (Cal.), it was held that mere filing of an appeal does not tantamount to stay of the recovery proceedings. Section 226(3) contemplates the notice to be issued to the assessee but it does not prescribe issuing of prior notice to assessee before taking course to the aforesaid provision.

2)The section does not postulate that before an action is set into motion, a notice is required to be served on the assessee but what is held is that if such an action is contemplated, the notice should also be served to the assessee. Therefore, the judgment rendered in the case of Golam Momen (supra) depicted the correct proposition of law. - ANIL KUMAR BANERJEE V. UNION OF INDIA [2014] 44 taxmann.com 465 (Calcutta)

No sec. 80G approval to trust created for benefit of Hindu community even if religious exp. was less than 5%

Where assessee-trust was established with objects of religious nature for benefit of a particular community, it could not be granted approval under section 80G(5) merely because expenditure incurred by trust on religious activities was less than 5 per cent of its total income.
Facts:
a)The assessee-trust moved an application before the Commissioner for approval under section 80G(5).

b)The Commissioner noticed that the dominant objects of the assessee-trust were for the benefit of Hindu Community only and were purely religious in nature. It was, therefore, opined that these objects contravened the provisions of section 80G(5). c)Accordingly, the Commissioner rejected the application of assessee-trust on the ground that assessee-trust was not established for charitable purpose. The Aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of revenue:
1)The provisions for grant of approval under section 80G(5) apply to donations to any institution or fund only if it fulfills certain conditions mentioned therein. One of the conditions prescribed by section 80G is that the assessee-trust should be established for charitable purpose only and the institution or fund is not for the benefit of any particular religious community or caste;

2)The assessee pleaded that since the expenditure incurred by it on religious activities was less than 5 per cent of the total income, it would be given benefit of section 80G(5B). However, the benefit of section 80G(5B) is provided to that trust which is established for charitable purpose only and it incurs expenditure on religious activities not exceeding 5 per cent of its total income;

3)In the instant case, the Commissioner on going through the dominant objects of the assessee-trust had specifically held that they were religious in nature and for the benefit of Hindu Community;

4)Thus, as the assessee had failed to satisfy the conditions of section 80G(5), it was not entitled to approval under the section 80G. – YUG CHETNA PARMARTH TRUST V. CIT [2014] 44 taxmann.com 446 (Agra - Trib.)

Sec. 194-I applicable if vehicle hired for employee is at his disposal; Chauffeur cost covered under sec. 194C

Hiring of vehicle and at disposal of employee shall be subject to Section 194-I. A reasonable sum towards chauffeur and fuel charges are to be deducted from composite sum and the balance amount would fall under Section 194-I.

Facts:

The issue before the Tribunal was:
Whether payment for hiring of vehicle (including chauffeur and fuel cost) for a designated person or class of persons, for a particular time, would fall under section 194C or under section 194J for the purpose of deduction of tax at source?

The Tribunal held as under:
1)Where payment was made for solitary transaction of hiring of vehicle or where a pick and drop facility was provided, it would clearly fall under Section 194C as payment was made for a specified work.

2)In this case, the arrangement was for making available cars for a designated person or class of person for a particular time, which was at the disposal of the employee.

3)As the arrangement also included services of a chauffeur and the fuel cost of transportation. The same could not by any means be considered as towards car rental.

4)Therefore, after deduction of a reasonable amount towards chauffeur and fuel charges, the balance amount would fall under section 194-I.

5)As it was a finding of fact, AO was directed to decide the case after due verification and after giving reasonable opportunity to assessee. – ITO v. Bharat Sanchar Nigam Ltd. [2014] 45 taxmann.com 124 (Mumbai - Trib.)

Subsidy provided by Govt. to theater owners in form of entertainment tax was capital receipt

Facts: a)The assessee was running a cinema hall. It had shown certain receipts, which included entertainment tax.

b)In the profit and loss account, the assessee had transferred a part of receipts to entertainment subsidy account and claimed it as exempt from tax being in the nature of capital receipts. The Assessing Officer treated said receipt as income of assessee.

c)The CIT (A), however, deleted the entire addition by treating the entertainment subsidy as a capital receipt. The Tribunal upheld the order of the CIT (A). The aggrieved-revenue filed the instant appeal.

The High Court held in favour of assessee as under: 1)In the instant case, it was apparent that the State Government proceeded to exempt entertainment tax for a period of 5 years payable by a "new" cinema hall; subject to the condition that commercial exhibition of films in such cinema hall was required to be started by 31-3-2000.

2)Merely because the amount was not directly meant for repaying the amount taken for construction of the cinema hall, its purpose could not be considered to be other than that of promoting construction of new cinema hall.

3)The submission that once the assessee had collected the entertainment tax and had not deposited the same with the Government, it was to be treated as revenue receipt remained devoid of substance.

4)The remission by the Government had been to the proprietor of the entertainment and not to the person admitted to the entertainment. The remission had been the methodology adopted by the State Government to provide assistance to the new cinema hall; and had been essentially in the nature of a subsidy, i.e., the assistance from the Government to the new cinema hall. Thus, the entertainment subsidy was to be treated as capital receipts. – CIT V. SAMTA CHAVIGARH [2014] 44 taxmann.com 337 (Rajasthan)

Sum paid to acquire rights of telecasting from outside India, in absence of its link with PE in India, wasn’t royalty

Sum paid to acquire rights of telecasting from outside India had no connection with the marketing activities carried out through Permanent Establishment ('PE') of assessee in India. Thus, impugned payments couldn't be deemed as royalty in view of Article 12(7) of India-Singapore DTAA.
Facts:
a)The assessee, a Singaporean company, was engaged in the business of acquiring rights in television programmes and exhibiting the same on its television channels from Singapore.
b)The issues for consideration before High Court were:
i.Whether the payment to G (a Singaporean Company)for acquisition of telecasting rights were in the nature of 'royalty' covered by Explanation 2 to section 9(1)(vi)(c)?
ii.Even if payments would be deemed as royalty, whether they would not be chargeable to tax as per Article 12(7) of India-Singapore DTAA?
The High Court held as under:
1)The appellate authorities had already held that payment was made only for broadcasting operations carried out from Singapore, which had no connection with the marketing activities carried out through alleged Permanent Establishment ('PE') of assessee in India;
2)Thus, there was no economic link between the payments. The payer was not a resident of India and the liability to pay royalty had not been incurred in connection with and was not borne out by the PE of the payer in India
3)The absence of economic link was thus the foundation on which the Tribunal's conclusions were based. Thus, the Appeal was to be dismissed as no substantial question of law was involved. – DIT (INTERNATIONAL TAXATION) V. SET SATELLITE (SINGAPORE) PTE LTD. [2014] 45 taxmann.com 100 (Bombay)