No disallowance u/s 40(a)(ia) when taxpayer is claiming exemption under sec. 11

The issue before the ITAT was

Whether the provisions of section 40(a)(ia) are applicable when income is computed under sections 11, 12 and 13?

The ITAT held as under:

1) Sections 11, 12 and 13 deal with income from property held for charitable or religious purposes and the mode of computation of income subject to certain conditions. Accordingly, income of any charitable trust or society is exempt from tax if such conditions are fulfilled. Section 40(a)(ia) falls under chapter IV-D which deals with computation of profits and gains from business or profession.

2) Therefore, the provisions of section 40(a)(ia) are relevant if income is computed under the head 'profits and gains of business or profession". The concept of computation of income under section 11 is real income concept which is computed on the principles of real income generated from property held under trust and not notional income under other provisions of the Act.

Service Tax Default or Evasion –Relevant Aspects of Penalty under section 76

1. Section 76 of Finance Act,1994 : Penalty under section 76 of the Finance Act, 1994, as amended by the Finance Act,2015, w.e.f.14.05.2015, is to be levied in following circumstances where:

(a)			Service tax has not been levied or paid, or has been short-levied or short-paid, or erroneously refunded,
(b)			Such non-levy, non-payment, short-levy, short-payment or erroneous refund has occurred for any reason, other than the reason of fraud or collusion or wilful misstatement or suppression of facts or contravention of any of the provisions of the Act or of the rules made thereunder with the intent to evade payment of service tax, and
(c)			The person has been served a notice under section 73 (1).

2. Maximum amount of penalty:-

A person who has been served a notice under section 73(1) would be liable to pay penalty under section 76, not excluding 10% of such amount as mentioned in notice .The penalty is in addition to service tax and interest thereon as specified in the notice. Further, the Adjudicating Authority may at his discretion to impose even lesser amount of penalty depending on the timing of the payment of service tax and interest and such lesser amount may be from nil to 25%as follows:

Shipping Co. earning income from slot charter is also entitled to benefits of 'Tonnage Tax Scheme'

Facts:

a. The assessee owned a qualifying ship and the income generated from the said qualifying ship was exigible to tax as per ‘Tonnage Tax Scheme. However, it also had 'slot charter' arrangements in other ships. The assessee had also included the income from such slot charter arrangements for the purpose of computation thereof under ‘Tonnage Tax Scheme’.

b) The AO was of the view that the income earned under slot charter arrangement did not qualify under ‘Tonnage Tax Scheme’ as this income was not generated by the assessee from its own ship, i.e., it is neither from the ship owned by the assessee nor from the entire ship chartered by the assessee.

c) He was of the view that in order to avail the benefit of ‘Tonnage Tax Scheme, the assessee was supposed to show that the ship operated by it was qualifying ship and for this purpose itwas incumbent upon the assessee to produce a 'valid certificate indicating its net tonnage' as provided in Section 115VX(1)(b).

d) The order of the AO was upheld by the CIT(A) and the ITAT. However, the High Court held in favour of assessee. Aggrieved revenue filed the instant appeal.

The Supreme Court held in favour of assessee as under:

Calcutta HC quashes Rs 1.5 cr. service tax demand on Sourav Ganguly

Facts

a. Assessee (Sourav Ganguly) was former captain of the Indian Cricket Team. He participated in the IPL Cricket tournament as a member of the Kolkata Knight Rider’s Team. He also acted as brand ambassador for various products and anchor in television shows.

b. He received amounts under following heads:

Writing Articles in Magazines ;

Anchoring TV Shows ;

Brand Endorsement ; and

Playing Cricket in IPL.

Department raised demand of service tax of Rs. 1.5 crores under ‘Business Auxiliary Service’ or ‘Business Support Service’ and invoked extended period. The assessee filed writ petition and challenged the demand.

The Calcutta High Court held as under :

1. Writing articles for newspapers or sports magazines or for any other form of media cannot by any stretch of imagination be said to be amounting to rendering business auxiliary service or business support service. Hence, the remuneration received by the assessee for writing articles would not attract service tax. 

2. Television shows are meant for entertainment of the viewers. The remuneration received by the assessee for anchoring TV shows cannot be brought within the service tax net under business auxiliary service or business support services.

Transfer of shares under scheme of amalgamation wouldn’t come under pre-emption clause of Articles – An Analysis

The Bombay High Court has held in the matter of Shakti Insulated Wires (P) Ltd. v. Great View Properties (P) Ltd. [2016] 135 SCL 80/68 taxmann.com 169 that the transfer of shares under the Scheme of Amalgamation sanctioned by the Court is not a transfer of shares but is transmission by operation of law which would not come within the pre-emptive clause of the Articles of Association of the company. This article highlights the nuances in determining the pre-emption clause in the Articles of Association and clarifies the difference between transfer of shares under the Scheme of amalgamation and transfer of shares covered under the pre-emption clause of the Articles of Association of the Company.

AN ANALYSIS

1. Introduction

Section 58(2) of the Companies Act, 2013 provides that any contract or arrangement between two or more persons in respect of transfer of securities should be enforceable as a contract. This section has clarified the major issue of enforceability of pre-emption rights and options being exercised by the shareholders. This article highlights the nuances in determining the pre-emption clause in the Articles of Association and clarifies the difference between transfer of shares under the Scheme of amalgamation and transfer of shares covered under the pre-emption clause of the Articles of Association of the Company. The same has been explained by a landmark judgment dated 1^st March, 2016 of the Bombay High Court in the matter of Shakti Insulated Wires (P) Ltd (supra)

Insolvency and Bankruptcy Code 2016

Insolvency and Bankruptcy Code 2016 is welcome step and need of hour being part of ease of doing business in India. This Code has been passed by both Houses and got President assent on 28-05-2016 whereby Sick Industries Companies Act, 1985 (SICA), Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act, 1920 have been repealed, winding up provisions of Companies Act, 2013 have been restructured and laws relating to winding up has been consolidated in single code. This Code offers a uniform, comprehensive insolvency legislation encompassing all Companies, LLPs, partnerships and individuals. This code will facilitate a formal and time bound insolvency resolution process and liquidation. This code is a special Act and its provisions have overriding effect over other laws. This Code has two parts i.e. Part II for Corporate Debtors (applicable for Companies and LLPs) and Part III, IV and V applicable to individuals and partnership firms. Company Law Tribunal is the Adjudicating Authority for Corporate debtors and whereas Debt Recovery Tribunal is the Authority for individuals and partnership firms. The Author would like to discuss provisions applicable to Individuals and partnership firms in this Article.

Destruction of invoices in fire incident won't lead to denial of credit when all invoices recorded in ledger

Facts:

a)   During the course of audit of the assessee’s record, audit officers observed that original invoices were not available. Assessee submitted that original invoices were lost/destroyed in an accident of fire.

b)  Therefore, department contended that Cenvat credit was availed in respect of non-existing invoices as assessee was not having original input invoices to be produced for verification. The Adjudicating authority demanded interest and imposed penalty. The assessee filed appeal before the Commissioner (Appeals) which was allowed. Aggrieved by the impugned order, revenue filed the instant appeal.

The CESTAT held as under:

Model GST law - Feast after a decade long fast

Indian Indirect tax payers have been greeted with a bouquet of complexities from the time immemorial. These taxpayers were in need of a single flower as antidote, which they now see budding in form of Model GST law released by the Union Government. The proposed scheme of GST aims to reduce the existing intricacies in administration of multiple indirect taxes. The much debated beauty and barriers of GST as a unified tax on goods and services has finally come to the rescue of taxpayers in the form of model GST law, framed by the Empowered Committee of State Finance Ministers.

The model law is designed in a manner that it can also be used by the states as blue print for state GST. At the outset, the model law proposes its applicability to whole of India and provides that different dates may be appointed for different provisions of the Act. The draft law appears to be largely premised on the existing state VAT laws and an attempt has been made to reconcile the philosophies of existing Central Excise, VAT and Service tax laws.

Golden chance to declare domestic black money at e􀁹ective tax rate of 31%

The Govt. has given an opportunity to persons who have not paid full taxes on their income of earlier years to come forward and declare the undisclosed income under the ‘Income Declaration Scheme’ (IDS). They are required to pay tax of forty-five per cent of such undisclosed income. The IDS is e ective from June 1, 2016 and will remain open up to September 30, 2016. The declarant is required to pay tax up to November 30, 2016.

However, various queries have been received by CBDT on IDS. Thus, the CBDT had issued three sets of FAQs till date. In the recent tranche of FAQs issued on June 30, 2016 the CBDT has clarified that once the person had declared undisclosed income, no question will be asked from where such income or tax is coming from. This assurance in the lasts FAQs (Question 5) issued by dept. will bring down the e ective tax rate from 45% to 31% on the undisclosed income. Let us understand this scenario with the help of illustration.

Cash payments to liquor dealers to maintain su􀁹icient quantity of stock doesn't call for sec. 40A(3) disallowance

Facts:

a) Assessee engaged in the business of country liquor had made cash purchases from two parties 'A' and 'P'.

b) Since, the payments for the purchases were exceeding Rs. 20,000, Assessing Officer (AO) disallowed said payments by invoking provisions of section 40A(3).

c) Commissioner (Appeals) confirmed the action of the AO and upheld the disallowance. Aggrieved assessee filed the instant appeal before the tribunal. 

The tribunal held in favour of assessee as under:

1) The primary object of enacting section 40A(3) is two folds, firstly, putting a check on trading transactions with an intent to evade the liability to tax on income earned out of such transaction and, secondly, to inculcate the banking habits amongst the business community.

2) Apparently, this provision is directly related to curbing of the evasion of tax and inculcating the banking habits in business community.

3) In the instant case, assessee was the only authorized dealer in the area for the supply of country liquor to authorized Excise vendors. He was to keep sufficient stock of country liquor as prescribed by the Excise Department and in case stock fell short of the prescribed limit, the department used to impose penalty.