The Finance Minister rose to present his third budget by stating that the global economy is weak but India has done well

The Finance Minister rose to present his third budget by stating that the global economy is weak but India has done well. With a fiscal deficit target of not exceeding 3.5% as budgeted, the Finance Minister surely seems to have done his bit to make it happen. The Finance Minister very clearly seems to have focused on empowering the ‘Make In India’ initiative by removing customs and excise duty exemptions on a variety of goods.

The thrust seems to be more on electronics, hardware and the infrastructure industry where duty exemption has been provided to imported parts and components for manufacture of chargers/adapters, speakers (to be used for manufacture of mobile phones), parts &components for use manufacture of routers, broadband modems, set-top boxes, DVRs, CCTV cameras etc.

These exemptions are available only when the companies import such items for their actual use since direct import of these items (without the importer actually using such imported goods) has been made taxable on import. Prolonged litigation seems to have taken a toll on Government’s administration machinery and this seems to be corrected by proposing a one-time Dispute Resolution Scheme allowing the tax payer to settle the tax dispute pending with the first appellate authority. The Budget also seems to encourage ‘export of goods’ by not only announcing a widening of the duty drawback schemesbut also providing a retrospective amendment to allow refund of input service tax credit on services used beyond the factory gate for manufacture of goods subsequently exported out of India.

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In the midst of the global slowdown and turbulence coupled with the beaten-up financial markets

In the midst of the global slowdown and turbulence coupled with the beaten-up financial markets, the Finance Minister has been able to present a pragmatic and well balanced budget rightly focusing on core sectors. Choosing to stick with FRBM target of 3.5% fiscal deficit is laudable. It was comforting to observe no change in two most discussed issues during pre-budget week, tinkering of capital gain tax regime and increase in the service tax rate. Budget has proposed noteworthy steps for reducing tax litigation and promoting affordable housing. This budget is rightly an onset to the long term expedition for a pensioned society and use of technology for interface between tax department and tax payer. 

As expected, the budget provides fillip to the start-ups be introduction of tax holidays. Deferral of POEM by a year a welcome move, but it would have been constructive if the deferral was till April 2017. However, on reduction in the corporate tax rate, much was expected than what is done. No mention on GST roadmap and completely missing the disinvestment targets were big dampener. Bringing dividend to tax in the hands of recipient, though only for super rich, would result in double taxation of the same income. Plethora of cesses would further complicate the intricate tax structure. 

Expectations from Union Budget 2016

The countdown for the Budget 2016 has begun. From average taxpayer to tax experts, all eyes are transfixed on the Union Budget 2016. Every year 'Taxmann' comes out with its expectations from the Union Budget. In our expectations for the Union Budget 2014 and 2015, we predicted as well as suggested certain changes consisting of substantive and procedural changes which were published in [2014] 47 taxmann.com 120 (Article), [2015] 54 taxmann.com 416 (Article) and [2015] 32 CPT 253 (Article). It is to our credit that many of our predictions came true in the Union Budget.

This time also we have recommended substantive/procedural changes and various other matters which CBDT should clarify to end the controversy and to bring about certainty in the Income-tax laws.

Click here to view expectations on Union Budget, 2016

Information Exchange on Tax Matters - Important Development in Indian legislation

As a part of a global drive to exchange information freely between countries, India has signed various agreements with other countries for information exchange. For instance, India has signed "Tax Information Exchange Agreements" with certain countries. Further, India has signed Inter-Governmental Agreement (IGA) and Memorandum of Understanding (MOU) on 9th July 2015 with the United States to improve international tax compliance and to implement FATCA. India has also joined Multilateral Competent Authority Agreement (MCAA) on 3rd June 2015.

The MCAA is a multilateral framework agreement that provides a standardized and efficient mechanism to facilitate the automatic exchange of information. As a step towards the implementation of FATCA provisions and with a view to provide automatic exchange of information to other countries under MCAA, necessary legislative changes have been made in India.¹ 

OECD and G20’s Guide to Low Value-Added Intra-Group Services

The OECD and the G20 provide specific guidance within the Transfer Pricing Guidelines for low value added intra-group services.¹ Section D of Section VII within these Guidelines specifically addresses these low-value added intra-group services. The official text of these provisions refer to "value adding" activities rather than to "value added" activities. The authors of this piece use the more commonplace standard, value added. The OECD and G20, as transnational institutions, divide Section D into four parts:

•		Section D1 contains the OECD and G20 definition of "low value added intra-group services."
•		Section D2 provides for a simplified benefits test. This section sets out a simplified benefits election for the multinational enterprise. The simplified approach determines arm's length charges for low value added intra-group services.
•		Section D3 contains guidance for the OECD and G20's documentation and reporting requirements. The multinational enterprise needs to meet these requirements when electing to apply this simplified transfer pricing approach.
•		Section D4 addresses the levying of withholding taxes and customs issues that apply when the multinational enterprise provides low value added intra-group services.

Arrest could be made for evasion of excise even on basis of prima facie quantification of duty

Facts

1.    Petitioner was one of the Directors of an Industrial Unit engaged in manufacture and sale of Iron & Steel Product.

2.    A search and seizure operation was carried out by the officers of the Directorate General of Central Excise Intelligence, Jamshedpur at the factory site. Accordingly, the petitioner was summoned to give evidence and documents on several occasions.

3.    Petitioner claimed that in spite of all cooperation, he was arrested. It was submitted by him that evasion of excise duty is treated as cognizable offence only when amount exceed Rs. 1 crore. Further, arrest could be made only whenfinal quantification of the alleged evasion of duty is made by the department, which was not made in his case.

IndiGo's predatory recruitment of Air India's trained pilots is an employment issue: CCI

Mere recruitment of trained pilots of an airline by another airline will not bring about structural changes in the operations of the market. CCI rejected Air India's allegation of predatory recruitment of its trained pilots against IndiGo saying the matter is more of an employment issue Facts:

a) The informant, Air India Ltd. filed complaint against InterGlobe Aviation Limited (the ‘IndiGo’) under section19(1)(a) of the Competition Act, 2002 (the ‘Act’) alleging, interalia,

contravention of the provisions of section 4 of the Act

b) It was alleged that the IndiGo has systematically indulged in predatory recruitment of trained pilots of the Air India for its proposed expansion and inducing them to breach contractual and other obligations.

c) It is further alleged that the IndiGo, by indulging in unlawful predatory recruitment practice, acquired a 52% market share in the non-metro to non-metro flight sector, making it a monopoly in that sector.

d) The Informant also stated that the Director General of Civil Aviation (DGCA) had made it

mandatory for pilots to obtain ‘No Objection Certificate’ and, accordingly, all Airlines must

ensure that the pilots hired by them have to serve the required six month notice period however, the IndiGo continued to disregard this direction of DGCA

Investment in house property need not be sourced from capital gains only for availing of sec. 54F relief

Section 54F does not put any restriction on source of investment in new asset. Therefore, exemption couldn’t be denied on ground that investment was made out of loan and not from sale consideration received on transfer of original capital asset.

Issue

Whether it is mandatory for availing of benefit of section 54F that investment in new asset should be entirely sourced from capital gain?

ITAT applies Sec. 50 to determine cost of shares allotted in pursuance of demutualization of BSE

Cost of shares allotted pursuant to corporatization of BSE would be calculated as per Section 50 and not as per Section 55(2(ab) if depreciation was claimed on BSE membership. Further, indexation benefit on sale of such share would be available from the date of corporatization of BSE and not from the date of acquisition of original membership of BSE.

Facts

a) Assessee, engaged in the business of share broking, earned long-term capital gain on sale of shares of BSE Limited.

b) The said shares were allotted to the assessee under the scheme of corporatization of Bombay Stock Exchange (BSE), in lieu of BSE membership card.

c) Assessee contended that the original cost of acquisition of BSE membership shall be taken as cost of acquisition of shares of BSE Ltd by virtue of Section 55(2)(ab) of the Income-tax Act (‘Act’). Further, the period of holding shall be reckoned from the date of acquisition of original membership of BSE by virtue of Explanation 1(ha) to Section 2(42A).

d) On the other hand, revenue contended that as the assessee was claiming depreciation on membership card of BSE, WDV of the membership card on the date of BSE shall be taken as the cost of acquisition of shares in view of the provisions of Section 50 of the Act. Further, period of holding for the indexation purposes shall also be reckoned from the date of corporatization of BSE and not from the date of acquisition of original membership of BSE by the assessee.

e) The stand taken by AO was affirmed by CIT(A). Aggrieved assessee filed the instant appeal before the tribunal.

The tribunal held in favour of revenue as under-

1) Section 55(2)(ab) stipulates that cost of acquisition of shares allotted pursuant to scheme of corporatization of a recognized stock exchange shall be deemed to be the cost of acquisition of original membership of the exchange.

2) Explanation 1(ha) to Section 2(42A) provides that in determining the period of holding of shares allotted in pursuance of the corporatization of the recognized stock exchange, there shall be included the period for which the person was a member of the recognized stock exchange immediately prior to such corporatization.

3) Section 50 stipulates that notwithstanding anything contained in Section 2(42A) of the Act, while computing capital gain in case of depreciable asset, the cost of acquisition of asset shall be deemed to be written down value of the block of asset as at the beginning of the previous year and actual cost of any asset falling with the block of asset acquired during the previous year. Further, the capital gain shall be deemed to arise from the transfer of short-term capital assets.

4) Section 50 is a special provision for computation of capital gain in case of depreciable asset. It is well-settled proposition that special provisions shall prevail on the general provisions.

5) As in the instant case depreciation was claimed on original membership of stock exchange, cost of acquisition of membership shall be computed as per section 50 and not as per section 55(2(ab).

6) Therefore, cost of acquisition of shares shall be taken as WDV of the membership card on the date of corporatization of BSE and not the original cost of membership paid by the assessee.

7) Further, it was held by the ITAT that as Section 50 overrules Section 2(42A), the benefit of indexation shall be available from the date of corporatization of BSE and not from the date of acquisition of original membership of BSE by the assessee. - [2016] 66 taxmann.com 258 (Mumbai - Trib.)

Amendments proposes by MCA to Ind ASs and ASs

MCA has proposed certain amendments to Indian Accounting Standards (Ind ASs) and Accounting Standards (ASs). These are as follows:-

1. Deferment ofInd AS 115 and introduction of new Ind AS 11 & 18

By accepting the proposal of the National Advisory Committee on Accounting Standards (NACAS), MCA has proposed to defer the applicability of Ind AS 115, ‘Revenue from Contracts with Customers’ to April 1, 2018. Further, two new standards on revenue recognition (Ind AS 11 and Ind AS 18) have been proposed. Companies to which Ind AS are applicable should follow Ind AS 11 & 18 for revenue recognition until Ind AS 115 comes into force.

Apart from above, MCA has also proposed amendments to:

(i)           Ind AS 1, ‘Presentation of Financial Statements’

(ii)          Ind AS 19, ‘Employee Benefits’

(iii)         Ind AS 28, ‘Investments in Associates and Joint Ventures’

(iv)         Ind AS 34, ‘Interim Financial Reporting’

(v)          Ind AS 101, ‘First-time Adoption of Indian Accounting Standards’

(vi)         Ind AS 105, ‘Non-current Assets Held for Sale and Discontinued Operations’

(vii)        Ind AS 107, ‘Financial Instruments: Disclosures’

(viii)       Ind AS 110, ‘Consolidated Financial Statements’ and

(ix)         Ind AS 112, ‘Disclosure of Interests in Other Entities’.

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