Income arising to ‘Western Union’ from money transfer services isn’t taxable in India

‘Western Union’ isn’t liable to pay any tax in India for transferring money to India for their American clients even if it appoints agents in India to provide those services and setS-up a liaison office to interact with such agents.

Facts

a)    Western Union Financial Services Inc. (‘Western Union’), incorporated in USA, was engaged in the business of rendering money transfer services.

b)    In order to provide said services to citizens of the USA desirous of remitting money to India, Western Union had set-up a liaison office (LO) in India. It appointed agents in India and provided them software (Voyager) to access its mainframes in the USA. The agents were paid commission on completion of money transfer transactions.

c)    Western Union filed its return declaring ‘nil’ income by contending that it was not liable to pay any tax in India on income arising from money transfer services as it didn’t have any permanent establishment (PE) in India.

d)    The Assessing Officer was of the view that income arising to the Western Union from money transfer services was taxable in India both under the Income-tax Act (‘the Act’) and the India-USA DTAA.

e)    CIT(A) set aside the order of the AO. Aggrieved by the order of the CIT(A), revenue filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under-

1)   Though Western Union had business connection in India in terms of section 9 of the Income-tax Act, yet it did not have a PE in India under India-USA DTAA. It made following observations on different categories of PEs:

·         Fixed Place PE

It was held that Western Union could not be said to have fixed place PE in India as it did not have its own outlet in India and it was carrying on its business through agents appointed in India.

·         Liaison office as PE

It was held that LO could not be considered as Western Union’s PE in India as it carried out activities which were of a preparatory or auxiliary character. It had not carried on any trading activity for the assessee in India. It had only a small number of executives and a support staff. The LO had also filed status reports to the RBI listing out the activities which it actually carried out during the years. None of the activities could be described as anything other than of preparatory or auxiliary character. Therefore, the LO could not be considered to be the PE of the Western Union in India.

·         Software as PE

It was held that the software was the property of the Western Union and it had not parted with its copyright therein in favour of the agents. The agents had only been allowed the use of the software in order to gain access to the mainframe computers in the USA. Mere use of the software for the said purpose from the premises of the agents could not lead to the decision that the premises-cum-software would be the PE of the assessee in India. As per article 5 of India-USA DTAA, an installation might amount to a PE, provided it is used for the exploration of natural resources. Therefore, even if the software was to be considered as an installation, since it was not used for exploration or exploitation of natural resources, it could not per se be treated as a PE.

·         Dependent Agent PE

It was held that agents appointed by Western Union were acting in the ordinary course of their business and their activities were not devoted wholly or almost wholly to the Western Union. Further, commissions were paid to them at arm’s length price. Therefore, the agents were independent agents under Article 5.5 of the India-USA DTAA.

2)    Hence, in the absence of any PE in India the profits of the Western Union, if any, attributable to the Indian operations could not be taxed In India- Deputy DIT v. Western Union Financial Services Inc. [2015] 64 taxmann.com 230 (Delhi - Trib.)

Production and broadcasting of radio programme is manufacture or production under Sec. 32(1)(iia)

Issue

Whether assessee engaged in business of production or broadcasting of radio programmes could be said to be a manufacturer or producer of any article or thing so as to be entitled to additional depreciation under Section 32(1)(ii).

The Delhi High Court held in favour of assessee as under-

1)  The production of radio programmes involves the processes of recording, editing and making copies prior to broadcasting. When the radio programme is made there comes into existence a 'thing' which is intangible, and which can be transmitted and even sold by making copies.

2)  Therefore, it can definitely be stated that the radio programme produced by the Assessee is 'thing', if not an 'article’ as Dictionary meaning of the word envisages that "thing" could have intangible characteristic.

3)  The word 'manufacture' envisages subjecting any material or thing to certain processes in order to produce something which has a distinct characteristic. Hence, 'manufacture' includes various combinations of processes.

4)  In the context of 'broadcast', it includes the processes of producing, recording, editing and making copies of the radio programme followed by its broadcasting.

5)  Thus, assessee engaged in business of production or broadcasting of radio programmes could be said to be a manufacturer or producer of any article or thing so as to be entitled to additional depreciation under Section 32(1)(ii)- CIT v. Radio Today Broadcasting Ltd. [2015] 64 taxmann.com 164 (Delhi)

10 million USD penalty levied on Satyam for violating US Securities Exchange Act won't attract TDS

The applicant (‘Satyam Computer services ltd.’) approached Authority for Advance Ruling (‘AAR’) to consider whether payment of penalty levied by US Court (due to violation of provisions of US Securities Exchange Act, 1934) would attract provisions of section 195.

The AAR held as under:

(1)  It is a trite law that unless the payment made attracts the tax under the Income-tax Act, there would be no liability to deduct tax under section 195.

(2)  Penalty ordered by the US Court does not attract any tax liability, thus, applicant would not be required to withhold tax on such penalty under section 195.- Satyam Computer Services Ltd., In re [2015] 64 taxmann.com 162 (AAR - New Delhi)

CBDT provides new facility of pre-filling TDS data for online rectifications

Central Board of Direct Taxes has simplified the process of online rectification of incorrect TDS details filed in the Income Tax Return.

Earlier taxpayers were required to fill in complete details of the entire TDS schedule while applying for rectification on the e-filing portal of the Income-tax Department ( www.incometaxindiaefiling.gov.in). Errors due to incomplete TDS details in rectification applications were leading to delays in processing of such applications thereby causing hardship to the taxpayers. To avoid this inconvenience, a new facility has been provided for pre-filling of TDS schedule while submitting online rectification request on the e-filing portal to facilitate easy correction or up-dating of TDS details. This is expected to considerably ease the burden of compliance on the taxpayers seeking rectification due to TDS mismatch.-Press Release, dated: 10-12-2015.

Attachment of property isn't restricted only in hands of accused involved in money laundering

There is no restriction in respect attachment of property of person in possession of proceeds of crime. Section 5 of Money Laundering Act, 2002 does not have restriction that property in hands of persons involved in Money Laundering alone can be attached pending confiscation. Thus, provisional attachment of property is not restricted in hands of accused persons alone.

Facts

a)    ‘G’ was accused of having played fraud and obtained a loan of Rs.15 Crores by producing bogus and fabricated documents. Out of the said amount, the property in question was purchased by him in the names of his Benamies. ‘A’ was appointed as their Power Agent. One ‘GS’ purchased the property through the Power Agent ‘A’, later on, ‘GS’ sold property to appellants.

b)    The respondent- Deputy Director, PMLA, Directorate of Enforcement filed a complaint under Section 5(5)of the PMLA, 2002 against the appellants and ‘G’ having reason to believe that property in the hands of appellants was part of proceeds of crime u/s 2(1)(u) of the PMLA,2002 and appellants and ‘G: were involved in the offence of money laundering and held them liable for adjudication and confiscation in terms of Section 8 of PMLA, 2002

c)   The appellants said that they were bonafide purchasers of the land and the consideration was paid through legal source of income through agricultural operations and transactions were carried out through bank also and they were not aware of that property bought by them was a proceed of crime.

d)    The adjudicating authority held that property represented the proceeds of crime and 

National Herald's case: 5 top office bearers of congress to face criminal proceedings

Delhi HC orders 5 Top Office-bearers of Congress Party to face criminal proceedings for forming and misusing a section 25 company as SPV for clandestine acquisition of 99% stake in Old defunct real-estate rich newspaper publication company (AJL) and for misappropriating funds of Congress Party for the purpose

Facts

a)    An Old defunct real-estate rich newspaper publication company (AJL) having property worth Rs.2000 crores in many cities but owed Rs.90 crore to employees. In 2008, company was closed and printing of newspapers stopped

b)   If company was liquidated and Rs.90 crores would have been paid off , the old shareholders of the company who bought shares long long ago when rupee had much greater value would have received a fortune

c)   One of the top officer bearers of Congress Party(Treasurer) was Chairman of this company, Instead of liquidating assets, paying off employees and distributing surplus to shareholders, the top office-bearers adopted the following steps to get hold of real estate of AJL :

Interest-free unsecured loan of Rs.90 crores was given by Congress Party to AJL to pay off employees

Now that AJL had no activity, no employees and no liabilities except Rs.90 crores to Congress Party and had Rs.2000 crores real-estate

A section 25 company(YI) was formed by 5 Top Office-bearers of the Congress Party including the Treasurer who was also chairman of AJL

Congress Party assigned Rs.90 crores debt to YI(this new section 25 company) in return for just Rs.50 lakhs and wrote off the balance

Now the new section 25 company(YI) stepped into the shoes of Congress Party and became creditors of AJL for Rs.90 crores

AJL in Board Meeting allotted shares to YI satisfy this Rs.90 crore debt and this gave 99% stake in AJL to YI

Thus the Rs.2000 Cr assets came into the control of office bearers by investing just Rs.50 lakhs, by misappropriating Rs. 89.5 crores of Congress Party and thus the old shareholders who stood with the company in thick and thin were reduced to 1% minority and cheated of their fortune

d) Private criminal complaint was filed against these 5 Office-bearers and summons were issued by Magistrate. The said 5 Office-bearers of Congress Party filed a petition in Delhi HC to quash the criminal proceedings and summons

The Delhi high Court held as under:

1)   Delhi HC finding that the facts of the case prima facie reeked of criminality dismissed the petitions and ordered the 5 petitioners-office-bearers to face criminal proceedings before the Magistrate and also denied exemption from personal appearance.

2)    The Delhi HC rejected arguments of petitioners based on separate legal entity of YI and lifted the corporate veil– Rahul Gandhi v. DR. Subramanian Swamy [2015] 64 taxmann.com 117 (Delhi)

Amendment to NI Act regarding place of filing cheque bounce compliant has retro-effect

The amendments made to the Negotiable Instruments Act, 1882 by the Second Ordinance of 2015, as regards territorial jurisdiction for filing cheque bounce complaints, retrospectively apply to pending cases filed before the Ordinance came into force. The words "….as if that sub-section has been in force at all material times…."used wrt new section 142(2) in new section 142A(1) gives retrospective effect to new section 142(2)

Facts:

a)   A cheuqe was drawn on the Union Bank of India, Chandigarh by the respondent to the appellant - M/s Bridgestone India Pvt.Ltd. The appellant presented the said cheque at IDBI Bank in Indore for realization, the same was dishonoured on account of insufficient funds.

b)   On failing to discharge obligation by respondent, the appellant initiated proceeding in the Court of the Judicial Magistrate, First Class, Indore (‘Magistrate’) under Section 138 of the Negotiable Instruments Act, 1881

c)   The Magistrate by an order held that he had the territorial jurisdiction to adjudicate upon the controversy raised by the appellant under Section 138 of the Negotiable Instruments Act, 1881. The decision rendered by the Judicial Magistrate, First Class, Indore, was assailed by the accused-respondent in another petition under Section 482 of the Criminal Procedure Code, in the High Court of Madhya Pradesh before its Indore Bench

d)   The High Court accepted the prayer made by the accused-respondent - Inderpal Singh by holding, that the jurisdiction lay only before the Court wherein the original drawee bank was

located, namely, at Chandigarh, where-from the accused-respondent had issued the concerned cheque, drawn on the Union Bank of India, Chandigarh.

e) Dissatisfied with the order passed by the High Court, the appellant has approached Supreme Court. The appellant cited the decision rendered by a three-Judge Bench of this Court in Dashrath Rupsingh Rathod v. State of Maharashtra and another, (2014) 9 SCC 129

The Supreme Court held as under:

1)  In view of the decision rendered by this Court in Dashrath Rupsingh Rathod's case, it was apparent, that the impugned order passed by the High Court of Madhya Pradesh, Bench at Indore, was wholly justified. Howeve, Section 142(2)(a), amended through the Negotiable Instruments (Amendment) Second Ordinance, 2015, vests jurisdiction for initiating proceedings for the offence under Section 138 of the Negotiable Instruments Act, inter alia in the territorial jurisdiction of the Court, where the cheque is delivered for collection (through an account of the branch of the bank where the payee or holder in due course maintains an account).

2)   Based on Section 142A(1) to the effect, that the judgment rendered by this Court in Dashrath Rupsingh Rathod's case, would not stand in the way of the appellant, insofar as the territorial jurisdiction for initiating proceedings emerging from the dishonor of the cheque in the present case arises.

3)   Since cheque was drawn on the Union Bank of India, Chandigarh, was presented for encashment at the IDBI Bank, Indore, which intimated its dishonor to the appellant we are of the view that the Judicial Magistrate, First Class, Indore, would have the territorial jurisdiction to take cognizance of the proceedings initiated by the appellant under Section 138 of the Negotiable Instruments Act, 1881, after the promulgation of the Negotiable Instruments (Amendment) Second Ordinance, 2015. The words "...as if that sub-section had been in force at all material times..." used with reference to Section 142(2), in Section 142A(1) gives retrospectivity to the provision.

4)  In the above view of the matter, the instant appeal was allowed, and the impugned order passed by the High Court of Madhya Pradesh, was set aside - Bridgestone India (P.) Ltd. v. Inderpal Singh [2015] 64 taxmann.com 50 (SC) 

During course of international voyage traffic between Indian ports deemed as 'international traffic'

Journey of a vessel between two Indian ports deemed as "international traffic" under Article 8 of India-Singapore DTAA as same was part of a larger journey between two foreign ports

Facts

a)    Assessee-company had acted as an agent of three vessels which had transported goods from Kandla Port to Vizag.  The vessels had undertaken such freight transportation during the journey from Singapore to Dubai.

b)    The freight beneficiary was one M/s. Jaldhi Overseas Pte Limited, who claimed benefit under Article 8 of India-Singapore DTAA.

c)    The Assessing Officer (AO) contended that transportation between Kandla to Vizag cannot be considered as international traffic in terms of India-Singapore DTAA.

d)    The tribunal set aside the order of AO. Aggrieved by the order of tribunal, revenue filed the instant appeal before the High Court.

The High Court held in favour of assessee as under-

1)    The word ‘international traffic' is defined in Article 3 of DTAA between India and Singapore as under:

"the term "international traffic" means any transport by a ship or aircraft operated by an enterprise of a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State."

2)    The term 'international traffic', as noted above, is defined to mean any transport by a ship or aircraft operated by an enterprise of a contracting state. This definition, however, has an exceptional clause which excludes the transport when the ship or aircraft is operated solely between the places in the other contracting state.

3)    Hence, it is only when a ship or aircraft is operating 'solely' between places in other contracting state that the transport is excluded from scope of "international traffic". 

4)    In the instant case, the transportation between two Indian ports was undertaking during a larger journey of the vessels from Singapore to Dubai. Therefore, the requirement of such journey being solely between places in the other contracting state was not satisfied.

5)    Thus, journey of a vessel between two Indian ports would be deemed as "international traffic" under Article 8 of India-Singapore DTAA if the same was part of a larger journey between two foreign ports- CIT v. Taurus Shipping Services [2015] 64 taxmann.com 64 (Gujarat)

Now employees can file PF withdrawal claims without employers’ attestation

Claiming Provident Fund will become easier now as employees can now directly submit forms to their respective regional office without having to seek employer’s signatures. Employees’ Provident Fund Organisation has also come out with new forms – 19UAN, 10CUAN and 31UAN

– for all employees whose Aadhaar number and bank details have been duly verified by the employer, using digital signature.

Aadhaar-seeded Universal Account Number (UAN) holders will, with immediate effect, no longer require employer attestation to make provident fund claims.

Employees whose details like Aadhaar Number and Bank Account Number have been seeded in their UAN and whose UAN have been activated, may submit claims in Form-19, Form-lOC and Form 31 directly to the Commissioner without attestation of their employers, in such form and manner as may be specified by the Central Provident Fund Commissioner for fast settlement of claims.

 Click here to view circular

No need to deposit in Cap Gain Scheme if house is purchased within time limit of sec. 54F

Issue

Whether exemption under Section 54F could be denied to assessee who had purchased a new residential house within 2 years from the date of transfer of original asset on ground that he had not deposited the amount in capital gain account scheme before the due date of filing of return under section 139(1)

The tribunal held in favour of assessee as under-

1.  A combined reading of sections 54F(1) and 54F(4), makes it clear that the assessee would be entitled to exemption under section 54F in the event he purchases new asset within two years from the date of transfer of original asset or the amount is utilized before the date of furnishing the return under section 139. In a case it is not utilized for the purpose of aforesaid and within the period aforementioned, section 54F(4) mandates the assessee to deposit such amount in capital gain account scheme before due date of filing of return under section 139(1).

2.  Therefore, there is no ambiguity in the provision; so far deposit of the unutilized amount is concerned, it has to be deposited in a specified capital gain account before the due date of filing of return under section 139(1).

3.  In the instant case, the return was filed by assessee in response to a notice issued under Section 148 and not under section 139(1). Therefore, the contention of the assessee was that he should be allowed exemption under section 54F even if had not deposited the amount in capital account scheme.

4.  The Karnataka High Court in the case of CIT v. K. Ramachandra Rao [2015] 56 taxmann.com 163 held that when the assessee had invested the entire sale consideration in construction of a residential house within the three years from the date of transfer, he could not be denied exemption under section 54F on the ground that he did not deposit the said amount in capital gain account scheme before the due date prescribed under section 139(1).

5.  Under section 54F (1), the exemption would be available if the assessee purchased the residential house within two years after the date when transfer took place. Hence, as per judgment of Karnataka High Court, the provisions of section 54F(4) would not be attracted if assessee has purchased or constructed the residential house within period prescribed under section 54F(1).

6.  In the instant case, there was no dispute with regard to the fact that the assessee had purchased a new asset within two years from the date of transfer of the original asset. Therefore, following the ratio laid down by the Karnataka High Court in the case of K. Ramachandra Rao (supra), the court directed Assessing Officer to re-compute the assessed income after granting the benefit of section 54F to the assessee- Ashok Kapasiawala v. ITO [2015] 63 taxmann.com 284 (Ahmedabad - Trib.)