SEBI proposes to make mandatory appointment of monitoring agency for IPOs above Rs. 100 crore

SEBI in its board meeting held on April 26, 2017 has taken various decisions towards development of derivative market in India. Following are the major steps to give boost to the primary market:

a. Mandatory appointment of monitoring agency: SEBI has proposed to make mandatory appointment of monitory agency where the issue size is more than Rs. 100 crore.

b. E-wallets for mutual funds: To promote digitalization in mutual funds, SEBI has proposed to allow investment up to Rs. 50, 000 per year in mutual fund schemes through e-wallets. However, redemption of such investment can be made only through bank account of the unit holder.

c. Amendments to Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012: To enable the Commodity Derivatives Exchanges to organize trading of ‘options', SEBI has approved of a proposal to amend the relevant provisions of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012.

d. Inclusion of RBI registered systemically important NBFCs in the category of QIBs: SEBI has approved of the proposal of inclusion of systemically important NBFCs registered with RBI having a net worth of more than Rs. 500 crore in the category of QIBs.

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SC upholds HC’s ruling on Formula One Championship; Budh International Circuit treated as PE

Facts:

a) Formula One World Championship Limited (FOWC) granted Jaypee Sports International Ltd. (Jaypee) right to host, stage and promote F-1 Grand Prix of India event for a consideration of US$ 40 millions.

b) Authority for Advance Ruling (AAR) held that consideration paid to FOWC wasn’t taxable in India as FOWC did not have any PE in India. However, High Court of Delhi reversed the findings of AAR and treated Buddh International Circuit as PE for FOWC. 

The issue before the Supreme Court was as under:

Whether FOWC was having any 'Permanent Establishment' (PE) in India in terms of Article 5 of DTAA?

The Supreme Court held as under:

1) As per Article 5 of the DTAA, the PE has to be a fixed place of business ‘through’ which business of an enterprise is wholly or partly carried on.

2) During the event and as well as two weeks prior to it and a week succeeding it, FOWC had full access through its personnel to the Buddh International Circuit.

3) Such access or right to access was not permanent but was for a period up to six weeks at a time during the F-1 Championship season. Further, as the tenure of contract was for five years, it meant that such an access for the period in question was of repetitive nature.

4) Since FOWC carried on business in India through a fixed place of business, namely, the Buddh International Circuit, It couldn’t be denied that Buddh International Circuit was not a PE for FOWC. - [2017] 80 taxmann.com 347 (SC)

Debtor can’t raise dispute on existence of debt to avoid initiation of insolvency process by creditor

Disputes raised by Debtor in reply to demand notice from operational creditor were not sustainable as corporate debtor didn’t raise any objection for disputing existence of debt against operational creditor before issuance of statutory notice under section 8 of the Insolvency and Bankruptcy Code, 2016.

Merely mentioning dispute in reply to the notice u/s 8 will not amount to dispute being in existence. Therefore, petition for initiation of Corporate Insolvency Resolution process by Operational Creditor was to be admitted - [2017] 80 taxmann.com 320 (NCLT - Mum.)

Payment for Usage of Marks/Logos - Whether Royalty?

How crucial marks/logos/designs (collectively hereinafter referred to as "marks") are for an enterprise is a well acknowledged fact. In the current dynamic business scenario an entity's identity and existence are dependent on how well it is able to establish itself in the minds of the people. To achieve this objective, organisations constantly undertake extensive advertisements and promotional activities. With businesses being carried on across the borders, multinationals join hands to increase their global presence.

Taxation in India, being based on "source based taxation" principles, revenue authorities perceive every cross border transaction with suspicion and attempt to levy tax on the premise that the source (accrual) of a payment is based in India. Accordingly, revenue has always regarded the payment for use of marks as Royalty, both in terms of section 9 of the Income-tax Act, 1961 (hereinafter referred to as "Act") and under the provisions of the Double Taxation Avoidance Agreement ('DTAA').

In this article, an endeavour has been made to touch upon the sensitive issue of taxability of consideration received by the foreign companies with respect to use of their marks in India.

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Sale proceeds of land appurtenant to residential house is entitled to section 54 relief: ITAT

The issue before the Tribunal was as under:

Whether sale proceeds of land appurtenant to the building areentitled to deduction under section 54?

Tribunal held in favour of assessee as under

1) The land sold by the assessee was forming part of the residence and all the property was duly assessed to house-tax and was self-occupied by the occupants, viz., the assessee and his family members. Under section 54, the legislature has used the expression "being buildings or lands appurtenant thereto and being a residential house’.

2) The Karnataka High Court had examined these expressions while construing the provision of section 54in the case of C.N. Anantharam v. Asstt. CIT [2015] 55 taxmann.com 282/230 Taxman 34 (Kar.)and had held that the deduction under section 54 is available even if the land, which is appurtenant to the residential house is sold. It is not necessary that the whole of the residential house should be sold because the legislature

has used the words "or" which is distinctive in nature.

3) In the instant case, it was not the case of Assessing Officer (AO) and CIT(A) that the land was not appurtenant to the residential house. Here assessee had sold only the land appurtenant to the house and not residential house which, according to the Karnataka High Court, was not a requirement under the law and exemption under section 54 was also available to the land which was appurtenant to the house.

4) The sale deed itself showed that the land was part of residential house. Therefore, the exemption claimed under Sec. 54 had to be allowed to assessee. - [2017] 80 taxmann.com 223 (Delhi - Trib.)

Salary deduction for not serving during notice period couldn’t be taxed: ITAT

Facts :

a) Assessee declared salary income after deducting amount for not serving during notice period with two of his employers.

b) During the course of reassessment proceedings, Assessing Officer (AO) added the salary amount deducted by the employers for not serving during notice period to the income of assessee.

c) On appeal, CIT(A) upheld order of AO that no such deduction is available under Section 16 of the Act and the salary income is taxable on due basis or on paid basis. Aggrieved-assessee filed the instant appeal before Tribunal.

Tribunal held in favour of assessee as under:-

1) Employers had made deduction from the salary which was paid to the assessee during the year under consideration because of leaving the services as per agreement made between the assessee and the respective employer.

2) This was a case of recovery of the salary which was already made to the assessee for which Section 16 of the Act couldn’t be referred to.

3) Assessee had actually received the salary from his previous employers after deducting the notice period amount as per the job agreement with them.

4) Therefore, salary received by the assessee could only be taxed in the hands of assessee. - [2017] 80 taxmann.com 297 (Ahmedabad - Trib.)

Govt. extends due date for deposit under PMGKY to April 30, 2017

Government has extended date for making interest-free deposits for declarants who have paid tax and penalty under the Pradhan Mantri Garib Kalyan Yojna (PMGKY).

Under the PMGKY scheme, declarants had to deposit 25% of amount declared, in a bank for 4 years without interest. Due date for deposit such amount was March 31, 2017 which has now been extended till April 30, 2017.

Earlier, CBDT had also notified that if an assessee had made payment of tax, surcharge, penalty and deposit in the banks by the closing hours of 31st March, 2017, he shall be allowed to file declaration under the Scheme by the 10th of April, 2017.

Sec. 69A additions upheld as assessee failed to prove that bedroom from where cash was seized belonged to his sister

Facts:

a) Search action was carried out at the residence of the assessee. During search, some unexplained cash was found and seized from bedroom of assessee's sister.

b) Assessee contended that cash received from the bedroom of sister belonged to his sister who came to stay with him few days back and, therefore, the same could not be included as unexplained cash in the hands of the assessee.

c) Assessing Officer (AO) did not accept the contention of the assessee and added entire amount of cash found as unexplained under section 69A.

d) CIT(A) and ITAT confirmed the order of AO. Aggrieved-assessee filed instant appeal before the High Court.

High Court held in favour of revenue as under:

1) Assessee failed to bring on any record that the bedroom was in exclusive possession of the sister. Even, there were contradiction in the statement of assessee recorded under section 132(4) and the affidavit of the sister.

2) Assessee had stated that out of amount found in cash, Rs. 2,50,000 lakh belonged to his sister whereas sister in her affidavit stated to had cash possession of Rs. 6,38,800 which was received by her from in-laws being Stridhan.

3) There were material contradiction in the statement of assessee and his sister with respect to ownership of actual amount in cash. Further no evidence was produced with respect to any share received from her in laws.

4) Therefore, seized cash was rightly included in income of assessee as unexplained money under section 69A. - [2017] 80 taxmann.com 175 (Gujarat) 

AO's participation in raid doesn’t make reassessment void when he isn’t biased against assessee

The issue before the High Court was as under:

Whether ITAT fell into error in concluding that there was no infirmity in the framing of the assessment by an Officer who was involved in the search and seizure operations?

High Court held in favour of revenue as under:

1) Assessing Officer (AO) has been given the power under the Act to gather information for the purposes of assessment. The mode of gathering such information may vary from the mere issuance of a notice under Section 142 to the more intrusive method of entry and search/seizure envisaged under Section 133A, Section 133B and Section 132.

2) There is nothing inherently unconstitutional in permitting AOto gather the information and to assess the value of the information himself. It was not open to the High Court to have disabled AO from discharging his statutory functions.

3) If the assessee would establish that AO was in fact biased in the sense that he was involved in his personal capacity in the outcome of the assessment, it would be a good ground for setting aside the assessment order.

4) But to hold that bias was established only because the authorised officer under Section 132 and AO were the same person was an incorrect approach.

5) Assessee has, in addition to relying on the circumstance that the AO was a participant in the raiding party, not placed any other material to substantiate the allegation of bias.

6) No personal bias or malice or past history with the said official was alleged, much less proved. Thus, the argument that assessment was void on account of bias was unsustainable and had to be rejected. - [2017] 80 taxmann.com 257 (Delhi)

Grant of scholarship to deserving students to pursue higher studies was charitable in nature: HC

Facts:

a) The assessee was a society registered under Societies Registration Act, 1860 and was running several educational institutions in the State of U.P.

b) Assessing Officer (AO) disallowed payment of scholarship to the incumbent on the ground that it was not for charitable purpose and it would be considered as income of assessee.

c) On appeal, CIT (Appeals) deleted additions made by AO which was affirmed by the Tribunal on further appeal. Revenue filed instant appeal before the High Court

High Court held in favour of assessee as under:-

1) Scholarship to the incumbent was granted for pursuing Engineering course from University of California, Los Angeles, USA. The candidate was selected after a thorough process of selection and finding him most deserving candidate, scholarship was granted to the said incumbent.

2) This was in the process of charitable object of assessee Society for advancement of higher technical education to deserving students. It could not be doubted that advancement of education was a 'charitable purpose'.

3) The candidate, beneficiary, was directly or indirectly not related to Members of Society nor otherwise had any bearing or connection with the Society Members. Financial status of the said student or other things were immaterial so far as purpose for which scholarship to said incumbent was concerned.

4) Therefore, CIT (Appeals) was justified that grant of scholarship to deserving students to pursue higher studies was charitable in nature. [2017] 80 taxmann.com 96 (Allahabad)