FAQs on Gold Monetization Scheme

The Government has released the draft Gold Monetization Scheme (GMS). The main objective of the Scheme is to mobilize gold held by the households in lieu of interest and to make it available to the gems and jewellery sector as raw material on loan. This scheme aims at reducing reliance on import of gold to meet the domestic demand.

According to the draft scheme, a person can open a "gold savings account" in banks for a minimum period of one year and earn interest on the gold deposited under the scheme.

The minimum quantity of gold that a customer can deposit is proposed to be 30 grams. The gold can be in any form, i.e., bullion or jewellery.

The banks will pay interest on ‘Gold Savings Account’ after 30/60 days of account opening. The rate of interest is proposed to be decided by banks directly. Both principal and interest to be paid to the depositor shall be valued in terms of gold

Amount earned from “Gold Saving Account” under this scheme is likely to be exempted under Income-tax Act.

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Harayana VAT must incorporate provisions to exclude value of land from works contract

Where assessee, a builder/developer, entered into agreements with prospective buyers to construct flats, etc. and thereafter sell same with some portion of land against valuable consideration, activity of assessee would be covered under term 'works contract' but Assessing Authority was to be directed to pass fresh assessment order

Facts :

1)Assessee, a builder/developer, entered into agreements with prospective buyers to construct flats, etc., and thereafter sell same with some portion of land against valuable consideration.

2)Assessing Authority in terms of circulars dated 7-5-2013, 4-6-2013 and 10-2-2014 providing for levy of VAT on builders, etc., levied VAT on transaction of sale of flats, floors and villas effected by assessee.

3)Assessee filed writ petition for declaring provisions which include value of land for charging VAT on developers to be ultra vires the Constitution.

High Court held partly in favour of assessee as under :

a)From a consideration of various decisions of the Supreme Court arising under article 366(29A) of the Constitution, it follows that the agreement between the promoter/builder/developer and the flat purchaser to construct a flat and thereafter sell the flat with some portion of land does involve construction which would be covered under the term 'works contract'.

b)Rule 25 provides for exclusions in respect of labour, services and other like charges and does not provide for any mechanism for exclusion of the value of land. Wherever developer/builder/promoter or the sub-contractor who carries on construction work in a works contract maintains proper accounts, it shall be on the basis of actual value addition on account of goods utilized in the property. Rule 25(2) provides for deduction of charges towards labour, services and like charges and where they are not ascertainable from the books of account maintained by a developer, etc., the percentage rates are prescribed in the table provided in the said rule.

c)It is necessarily required to provide mechanism to tax only the value addition made to the goods transferred after the agreement is entered into with the flat purchaser. The 'deductive method' thereunder does not provide for any deduction which relates to the value of the immovable property. The legislature has not made any express provision in rule 25 for exclusion of value of immovable property from the works contract and its method of valuation has been left to the discretion of the rule making authority.

d)Essentially the value of immovable property and any other thing done prior to the date of entering into the agreement of sale is to be excluded from the agreement value. The value of goods in a works contract in the case of a developer, etc., on the basis of which VAT is levied would be the value of the goods at the time of incorporation in the works even where property in goods passes later on.

e)Further, VAT is to be directed on the value of the goods at the time of incorporation and it should not purport to tax the transfer of immovable property. Consequently, rule 25(2) is held to be valid, but State Government shall bring necessary changes in the said rule inconsonance with the above observations - CHD Developers Ltd. v. State of Haryana (2015) 57 taxmann.com 315 (Punjab & Haryana).

Compilation of data and its transformation into e-book for foreign clients held as export of software u/s 10B

Where assessee was collecting text, compiling material, designing same and exported it in form of computer software, assessee was entitled to claim benefit of section 10B

Facts:

a)The assessee was involved in process of collecting text, compiling material, designing layout, scanning, etc., for projects of foreign clients. She claimed herself to be a software exporter and, accordingly, claim exemption under section 10B.

b)The Assessing Officer (AO) disallowed said claim holding that process deployed by the assessee was neither manufacture nor did it amount to creation of software.

c)On appeal, CIT(A) upheld the order of the AO which was reversed by the tribunal. Aggrieved with the order of tribunal, revenue filed the instant appeal before the High Court.

The High Court held in favour of assessee as under:

1)Section 10B uses the expression "manufactures or produces…… things or computer software". The four stage process of collecting text , compiling material, designing the layout, scanning, digital image editing (to remove distortion) and final arrangement of the data, ultimately transmitted according to the customer's specification - and ready to be used for printing, (or even e-Book publication) is undoubtedly manufacture or production.

2)CBDT vide Notification No. 11521, dated 26.09.2000 had specified ‘content Development or animation’ or ‘Data Processing’ as information technology enabled products or services.

3)"Content Development or animation" covers compilation of material or data and its transformation into a ready to print/ready to publish book.

4)In the instant case, the work which ultimately results in the culmination of the assessee's efforts of compiling, editing, digital designing, etc. “is transmitted or exported from India to any place outside India by any means”. It is, therefore, computer software that is produced or manufactured, to qualify for benefit under section 10B.

5)Hence, tribunal rightly allowed assessee’s claim of deduction under section 10B. - CIT v. Ms. Kiran Kapoor [2015] 57 taxmann.com 39 (Delhi)

SC rejects High Court's order quashing search warrant due to non-communication of reasons thereof to assessee

Facts :

a)The block assessment of the assessee was sought to be initiated under Section 153A of the Income-tax Act ('the Act') following a search conducted on the assessee. The same has been interdicted by the High Court rejecting the validity of the warrant authorizing the search under section 132 of the Act;

b)The High Court held that it was the Director General who took the decision to issue the search warrant but the said decision was not on the basis of its own satisfaction but was issued on the basis of the satisfaction recorded by the Director of Income-tax (Investigation). Consequently, the High Court held that the satisfaction mandated by Section 132 of the Act was not that of the authority who issued the search warrant, there by vitiating the authorization issued;

c)Aggrieved by the order of High Court the revenue filed the instant appeal.

Supreme Court held in favour of revenue as under :

1)The necessity of recording of reasons in case of search under Section 132 has been repeatedly stressed upon by the Courts so as to ensure accountability and responsibility in the decision making process;

2)The necessity of recording of reasons also acts as a cushion in the event of a legal challenge being made to the satisfaction reached. Reasons enable a proper judicial assessment of the decision taken by the Revenue. However, it would not confer on the assessee a right of inspection of the documents or to a communication of there a sons at the stage of issuing of the authorization. Any such view would undermine the entire exercise contemplated by Section 132 of the Act. It is only at the stage of commencement of the assessment proceedings after completion of the search and seizure, if any, that the requisite material may have to be disclosed to the assessee;

3)The High Court had committed a serious error in reproducing in great details the contents of the satisfaction notes containing the reasons for the satisfaction arrived at by the authorities under the Act. We have already indicated the time and stage at which the reasons recorded may be required to be brought to the notice of the assessee. Thus, we could not approve of the aforesaid part of the exercise undertaken by the High Court which has the potential of conferring an undue advantage on the assessee;

4)A careful reading of the order of the Director General would go to show that all he did was to record the view that the satisfaction of the Director, Income-tax (Investigation) was reasonable and therefore administrative approval should be accorded. The view taken by the High Court, therefore, could not be sustained. In view of the foregoing discussions the order of the High Court was to be set aside. - DGIT (Investigation) v. Spacewood Furnishers (P.) Ltd. (2015) 57 taxmann.com 292 (SC)

No sec. 80QQB relief on royalty received for writing a cookery book as it wasn’t earned in exercise of profession

Facts:

a)Assessee received royalty for writing a cookery book on which she claimed deduction under Section 80QQB.

b)The Assessing officer (AO)disallowed deduction on ground that coking was not an 'art' and was a 'skill'.

c)Further, the CIT(A) sustained the disallowance made by AO for the reasons that firstly, according to requirement of Section 80QQB, such income should have been earned in the exercise of the profession and secondly, the cookery does not come in the definition of "art". The aggrieved-assessee filed the instant appeal before the Tribunal.

Tribunal held in favour of revenue as under:

1)"Profession includes vocation" as per the definition of profession given under Section 2(36) of income-tax Act. There should be some special qualification of a person apart from skill and ability which are required for carrying on any activity which could be considered as "profession". This could be education in a particular system either in the college or university or it may be through experience.

2)In the instant case, the Ld. Counsel for assessee submitted that assessee did not write any other book before or after release of cookery book. Further, no particulars had been placed on record to show that assessee was specially qualified apart from skill and ability to write book.

3)There was also no material available on record to show that assessee was having education in the field of cookery either in the college or university or even by experience. Thus, there was no material on record to suggest that the assessee had qualified the parameters laid down for considering particular activity as a professional activity.

4)Income earned by assessee as royalty could not be said to be have been earned"in exercise of her profession". Thus, non-fulfillment of such condition would disentitle the assessee to claim deduction under Section 80QQB.Mrs. Pratibha A. Kothavale v. DCIT [2015] 57 taxmann.com 257 (Mumbai - Trib.)

Effluent couldn't be regarded as goods; its transportation through pipeline not liable to service tax

Movable property in general trade parlance is considered as a property in goods which can fetch certain price; hence, effluent waste, which is not being purchased by any person, cannot be regarded as 'goods' and transport thereof through pipeline cannot be charged to service tax.

Assessee was providing services of transportation/disposal of 'effluent waste' through its pipeline or conduit on certain consideration. Department demanded service tax thereon under Section 65(105)(zzz).

Section 65(105)(zzz) reads as under:

'Taxable service' means any service provided or to be provided to any person by any other person, in relation to transportation of goods other than water, through pipeline or other conduct.

Assessee argued that effluent waste is not goods; hence, service is not taxable.

Tribunal held in favour of assessee as under:

As per definition of 'goods' given in Section 65(50) of the Finance Act, 1994 the meaning of 'goods' for the purpose of Service Tax law has to be as assigned in Clause (7) of Section 2 of the Sale of Goods Act, 1930.

As per the provisions of Section 2(7) of Sale of Goods Act, 1930 the goods has to be a category of 'movable property'. Movable property in general trade parlance is considered as a property in goods which can fetch certain price.

In the present facts and circumstances of the case the effluent discharge facility is for disposal of a waste which is not being purchased by any person but is only being disposed of by utilizing the services of the appellant. As the relevant facilities/services of transportation provided by appellant are not for the 'goods' as defined in Section 2(7) of the Sale of Goods Act, 1930, the same cannot be considered as a service provided for transportation of goods, hence not taxable - Gujarat State Fertilizers And Chemicals Ltd. v. Commissioner of Central Excise, Vadodara [2015] 56 taxmann.com 448 (Ahmedabad - CESTAT).

Editor's note:

Under present law, if waste is not 'goods', transport thereof is taxable because negative list contains transport of 'goods' only.

Sum Received in lieu of relinquishment of right to sue 'Coca-Cola' was capital receipt: ITAT

Consideration received on relinquishment of right to sue is not taxable under section 28; it is a capital receipt

Fact:

a)The assessee-company entered into a franchisee soft drink bottling agreement with Cadbury Schweppes Beverages India (P) Ltd. (CSBIPL) to sell its soft drinks. CSBIPL transferred its soft drink brands to Coca Cola. Coca Cola refused to encourage sale of cold drink sold by assessee to avoid competition to its own products.

b)Assessee suffered huge losses, thus filed a complaint under Monopolies and Restrictive Trade Practices Act (MRTP) before the MRTP Commission. Thereafter, the assessee and coca cola had entered into a settlement agreement through which the assessee had transferred its bottling business assets as well as immovable property to Coco Cola against a consideration.

c)Assessee submitted that the entire compensation received was in lieu of withdrawing the right to sue against Coca Cola and was patently a capital receipt. But Assessing Officer treated the compensation as revenue in nature under section 28(ii)(c) and taxed accordingly.

d)CIT (Appeals) held that provisions of section 28(va) were applicable and not section 28(ii)(c).Consequently the part of compensation indicated by Assessing Officer was held taxable under section 28(va). Aggrieved-assessee filed instant appeal before tribunal.

Tribunal held in favour of assessee as under:

1)All the clauses of the agreement between the assessee and coca colareflect that the real intent, objective and purpose of the payment of compensation as per settlement agreement was to ensure withdrawal of all the pending litigation by assessee, from various forums instituted for breach of terms or conditions.

2)The dominant consideration for compensation being surrendering the right to sue; its neither in lieu of surrender of any agency or agreement for non-competition and thus, the compensation neither fell in the ambit of section 28(ii)(c) nor under section 28(va).

3)Assessee had vehemently denied having anywhere admitted that part of the compensation was for non-competition. The compensation in question was meant, intended and paid for withdrawal of aforesaid litigation instituted by assessee which could have resulted in many adverse consequences for the reputation of Coca Cola besides entailing huge cost and efforts of litigation.

4)Thus, the impugned amount was a capital receipt hence not liable to Income-tax. Satyam Food Specialities (P.) Ltd. v. DCIT [2015] 57 taxmann.com 194 (Jaipur - Trib.)

In case of transit sales via dealer, consignee can take credit on basis of invoice issued by manufacturer/importer

The Government vide Notification No. 8/2015 - Central Excise (NT), dated 1-3-2015inserted 3rd and 4th proviso to rule 11 of Central Excise Rules, 2002. The amendment provided facility to direct dispatch of goods to customer’s premises without bringing them to premises of dealer/importer.

It has been clarified that the purpose of inserting said provisos is to allow an additional facility for direct transport of goods from the manufacturer/importer to the consignee where the consignee can avail Cenvat Credit on the basis of the Cenvatable invoice issued by the registered dealer/registered importer. This facility obviates the need for the goods to be brought to the premises of the registered importer/registered dealer for subsequent transport of the goods to the consignee.

Further, various issues referred by the trade are clarified as follows:

1)Consignee can avail cenvat on the basis of invoice issued by the manufacturer/registered importer where registered dealer negotiates-

osale of an entire consignment from manufacturer/registered importer and orders direct transport of goods to the consignee

osale of goods from the total stock ordered on a manufacturer/importer to multiple buyers and orders direct transportation of goods to the consignees where the manufacturer/importer is willing to issue individual invoices for each sale in favour of the consignees for such individual sale. In both the forgoing cases, dealer won’t issue cenvatable invoice but it can issue commercial invoice.

2)Consignee can avail cenvat on the basis of invoice issued by registered dealer where such dealer negotiates sale by splitting a consignment procured from a manufacturer/registered importer and issues Cenvatableinvoices for each of the sale. In such case, it would now be possible for the dealer to order direct transport of the consignments as per the individual sales to the consignee without bringing the goods to his godown.

3)Where goods are sold by the registered importer to an end-user (say a manufacturer) who would avail credit on the basis of importer's invoice and the goods are transported directly from the port or warehouse at the port to the buyer's premises, the amendment prescribes that for such movement the factum of such direct transport to the buyer's premises needs to be recorded in the invoice - CIRCULAR NO.1003/10/2015-CX, DATED 5-5-2015.

LPG subsidy isn't taxable as it is for welfare of people; Govt. clarifies provision in Finance Bill, 2015

A subsidy is a form of financial aid or support extended to an economic sector (or institution, business, or an individual) generally with the aim of promoting economic and social policy. Subsidies come in various forms - direct one (cash grants, interest-free loans) and indirect ones (tax breaks, insurance, low-interest loans, depreciation write-offs, rent rebate etc.).

There was an unendingdispute between the revenue and the taxpayers about the tax treatment of the subsidy received from Government or any other authority. The revenue always tried to treat subsidy as revenue receipt but the assessees always opposed such treatment and wanted to treat it as capital receipt.

The Government tried to settle this dispute by proposing amendments to the Finance Bill, 2015 as passed by Lok Sabha. It has been proposed that assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession, etc. (by whatever name called) by the Government or any authority or body or agency, in cash or kind to the assesse (other than one considered under Explanation 10 to Section 43(1)) would be includible in income.

In view of aforesaid amendment certain doubts had arisen on tax treatment of LPG subsidy received by individuals under direct benefit transfer. Certain tax experts were of the view that this proposal would deem such LPG subsidy as income of individuals and they would be required to pay taxes on subsidy received in their bank accounts.

In this regard, the CBDT has clarified that the proposed amendment in the Finance Bill, 2015 would not be applicable to individuals not having any income chargeable under the head "Profits and gains of business or profession" and receiving LPG subsidy or any other subsidy which is for the welfare of the individuals. Thus, it has been clarified that LPG subsidy received by Individuals would not be taxable.

CAT dismisses complaint of Adidas against Nike as latter had taken permission of ICC to use Sachin’s name on T-shirts

Where pursuant to sponsorship agreement with International Cricket Association Nike was permitted to use names of cricketers including Sachin Tendulkar on its sports products for purpose of advertising, it could not be said that Nike had violated separate agreement between Adidas and Tendulkar entered for advertising Adidas sports product; unfair trade practice could not be alleged

Facts:

a)The complainant-company Adidas and the respondent-company Nike were engaged in business of manufacturing, distributing and selling quality footwear, sports equipments and other products and were competitors in the market.

b)The Complainant's brand, i.e., Adidas was endorsed by Cricketer Sachin Tendulkar pursuant to an agreement between both parties.

c)Later on, Nike signed an agreement for sponsorship and supply of footwear, apparel and related cricketing accessories with International Cricket Association and sold T-shirts bearing names of various members of Indian Cricket Team including Sachin Tendulkar’s

d)Accordingly, Adidas filed complaint alleging unfair and restrictive trade practice indulged by Nike.

The Competition Appellate Tribunal held as under:

1)Since sponsorship and licence agreement entered between Nike and Cricket association permitted former to use name of members of cricket team for purpose of advertising in different ways, same did not amount to unfair trade practice

2)The products such as T-shirts and Tees manufactured by Nike did not violate agreement entered between Adidas and Tendulkar; hence, Nike could not be held to have indulged in any unfair trade practice and, thus, complaint was to be dismissed - ADIDAS INDIA MARKETING (P.) LTD. V. NIKE INDIA (P.) LTD. [2015] 56 TAXMANN.COM 344 (CAT)