Addition of 'speed post' as valid mode of service is clarificatory and retrospective in nature, rules Orissa High Court

Addition of term "speed post" in section 37C of the Central Excise Act, 1944 by Finance Act, 2013 is: (a) clarificatory, (b) procedural for purpose of communication of decisions, etc.; (c) curative.

a)An adjudication order dated 12-7-2011 was served on assessee by speed post.

b)Assessee argued that service through 'speed post' was not a valid mode of service before amendment by the Finance Act, 2013 by saying that when statute had provided for service of orders by "registered post" on the petitioner, sending the order by "speed post" was not in strict compliance with the law and, hence, such notice served was in a manner not prescribed by law. Therefore, the same could not be held to be adequate service on the petitioner.

High Court held in favour of revenue as under:

1)In view of Section 28 of the Indian Post Office Act, 1898, read with Rule 66-B of Indian Post Office Rules, 1933, any postal article registered at post office and a receipt issued in respect of such article is to be treated as "registered post". Both in the case of "registered post" as well as "speed post", the articles when delivered to the post offices, receipts thereof are required to be issued, and consequently, both "speed post" and "registered post" satisfy the requirement of said Section 28.The only difference between registered post and speed post if at all is the charges payable are normally higher for "speed post" as the name suggests the delivery of such articles at an early date.

2)In the Full Bench of the Hon'ble Supreme Court in the case of Shyam Sunder v. Ram Kumar (2001) 8 SCC 24, affirmed the judgment of Apex Court earlier in the case of R. Rajagopal Reddy v. Padmini Chandrasekharan (1995) 2 SCC 630 to the following effect:

"Declaratory enactment declares and clarifies the real intention of the legislature in connection with an earlier existing transaction or enactment, it does not create new rights or obligations. If a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. . . . A clarificatory amendment of this nature will have retrospective effect and therefore, if the principal Act was existing law when the Constitution came into force the amending Act also will be part of the existing law. If a new Act is to explain an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act."

3)Following the above judgment of the Hon'ble Supreme Court, High Court further held that addition of term "speed post" in section 37C vide amendment by the Finance Act, 2013 is : (a) merely clarificatory, (b) procedural for purpose of communication of decisions, etc.; (c) curative, as various High Courts had already held that service through 'speed post' was a valid mode; hence, same was retrospective in its operation - Jay Balaji Jyoti Steels Ltd. v. Customs, Excise & Service Tax Appellate Tribunal, Kolkata (2015) 54 taxmann.com 176 (Orissa).

MCA notifies Ind AS

MCA has notified Companies (Indian Accounting Standards) Rules, 2015 which shall come into effect from 1 April 2015. The said rules require adoption for Indian Accounting Standards (Ind AS) :-

1.From FY 15-16: Any company can voluntary adopt Indian Accounting Standards from Financial year 15-16 with comparatives to be given for the period ending on 31 March 2015 or thereafter.

2.From FY 16-17:Following companies to mandatorily adopt Ind AS from FY 16-17 onwards with comparatives for period ending 31 March 2016 or thereafter:-

•Companies with net worth of Rs 500 crores or more and whose equity or debt securities are either listed or in the process of listing in any Indian stock exchange.

•Companies other than above and whose net worth is Rs 500 crores or more.

•Holding, subsidiary, joint venture and associate of above companies.

3.From FY 17-18: Following companies to mandatorily adopt Ind AS from FY 17-18 onwards with comparatives for period ending 31 March 2017 or thereafter:-

•Companies with net worth less than Rs 500 crores and whose equity or debt securities are either listed or in the process of listing in any Indian stock exchange.

•Companies other than above and whose net worth is Rs 250 crores or more but less than Rs 500 crores.

•Holding, subsidiary, joint venture and associate of above companies.

Provided that nothing stated above, except companies adopting Ind AS voluntarily, shall apply to companies whose securities are listed or are in the process of being listed on SME exchange as referred to in Chapter XB or on the Institutional Trading Platform without initial public offering in accordance with the provisions of Chapter XC of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009.

Note 1:- ‘Net worth’ shall have the meaning assigned to it in clause (57) of section 2 of the Companies Act, 2013. The net worth shall be calculated in accordance with the stand-alone financial statements of the company as on 31st March, 2014 or the first audited financial statements for accounting period which ends after that date.

For companies which are not in existence on 31st March, 2014 or an existing company falling under any of thresholds specified above for the first time after 31st March, 2014, the net worth shall be calculated on the basis of the first audited financial statements ending after that date in respect of which it meets the thresholds specified above. Such companies should adopt Ind AS for immediately next year. For e.g. The companies meeting threshold for the first time as on 31st March, 2018 shall apply Ind AS for the financial year 2018-19 onwards and so on.

Note 2:- MCA has notified 39 Ind AS. The Ind AS should be adopted for standalone financial statements as well as consolidated financial statements.

Note 3:- Overseas subsidiary, associate, joint venture and other similar entities of an Indian company may prepare its standalone financial statements in accordance with the requirements of the specific jurisdiction. Provided that such Indian company shall prepare its consolidated financial statements in accordance with the Indian Accounting Standards (Ind AS) either voluntarily or mandatorily if it meets the criteria as specified above.

Note 4:- Indian company which is a subsidiary, associate, joint venture and other similar entities of a foreign company shall prepare its financial statements in accordance with the Indian Accounting Standards (Ind AS) either voluntarily or mandatorily if it meets the criteria as specified above.

Note 5:- Once the option for applying Ind AS is applied then company should keep on applying Ind AS consistently.

Note 6:- The insurance companies, banking companies and non-banking finance companies shall not be required to apply Indian Accounting Standards (Ind AS) for preparation of their financial statements either voluntarily or mandatorily.

Note 7:- For the companies on which Ind AS is not applicable as per the rules mentioned above, such companies can continue to apply Accounting Standards as notified by Companies (Accounting Standards) Rules, 2006.

Sum paid to NR professional for preparation of scheme for raising finance and tie up for loans was 'FTS'

Facts:

a)The assessee-company intended to set up a gas based power project to generate and sell electricity. Itentered into an agreement with Swiss company to utilize the expert services of qualified and experienced professionals who could prepare a scheme for raising the required finance and tie up the required loan.

b)Pursuant to the aforesaid exercises carried out by the Swiss company, the assessee was successful in availing loan/financial assistance from India and outside India. In this backdrop, "success fee" was paid to the Swiss company.

c)Assessee approached AO for issuance of 'NOC' to remit the said sum with the contention that since Swiss company had rendered no technical services, thus, Section 9(1)(vii) was not attracted.

d)The non-success in revision petition compelled the assessee to approach the High Court. The High Court held that success fee" would come within the scope of technical service under Section 9(1)(vii)(b). The aggrieved assessee filed the instant appeal.

The Supreme Court held in favour of revenue as under:

1)Swiss company was very actively associated not only in arranging loan but also in providing various services which fall within the ambit of both managerial as well as consultancy services. Swiss company acted as a consultant andit had the skill, acumen and knowledge in the specialized field, i.e., preparation of a scheme for required finances and to tie-up required loans.

2)Nature of service rendered by the Swiss company would come within the ambit and sweep of the term 'consultancy service' and, therefore, tax at source should have been deducted as the amount paid as “Success Fess” would be taxable as 'fee for technical service'.

3)Once the tax was payable/paid, the grant of 'NOC' was not legally permissible.The order passed by the High Court was absolutely impregnable. - GVK Industries Ltd. v. ITO - [2015] 54 taxmann.com 347 (SC)

ITAT denies to condone delay on basis of vague affidavit of CA; raises questions on his work ethics

Assessee could not plead for condoning delay in filing appeal on basis of vague affidavit of his CA. Such conduce of CA raises serious questions on his professional competence and work ethics.

Facts:

a)Assessee filed application before ITAT for condonding delay of 347 days in filing of appeal. It contended that appeal was not filed within stipulated time due to negligence of CA and, thus,it should not suffer due to the mistakes committed by his CA.

b)The assessee referred to the affidavit of concerned CA wherein it was mentioned that: “I kept the order with me for filing the appeal before ITAT. In the meanwhile, I went to NAGAUR for bank audit. When I returned back from bank audit, the filing of appeal before ITAT skipped from my mind and papers were filed in my record.”

c)The revenue on the other side opposed the condonationplea of assesseeon following basis:

Assessments resulted in huge additions and imposed heavy demand of tax and interest on assessee. This was a seriousmatter, which in normal circumstances would require frequent meetingsand consultations between assessee and the counsel to analyze the issues. Therefore, the theory of the assesse was vague as such matters could not be left go on forgot attitude of the CA.

It was surprising that neither anyoffice assistant from the office of C.A. nor assessee reminded CAabout non-filing of such important and high demand appeals.

The ITAT dismissed condonationplea on following grounds:

1)It was unbelievable that an assessee, who was assessed at a high income resulting in a huge tax and interest demand, had not visited the CA office almost for a period of about one year to know about the filing of the appeals.

2)There was no deposition in the affidavit that prior to TRO notice, no other notice by way of telephone or writing wasreceived either by assessee or the C.A. Thus, the depositions in affidavitremain vague, unsubstantiated and do not amount to explaining the sufficient cause.

3)The affidavit and cavalier conduct of CA raises serious questions on his professional competence and work ethics in giving such an affidavit which hides more than it explains. - K.G.N.M.M.W. EDUCATIONAL RESEARCH & ANALYSIS SOCIETY V. ITO [2015] 54 taxmann.com 329 (Jaipur - Trib.)

HC denies sec. 54F/54B relief to mother for buying properties in name of her married daughters

In the instant case assessee had made investment in purchase of an agricultural land and residential flat in name of her two married daughters. While computing long-term capital gain she claimed exemption in respect of such properties under sections 54B and 54F.

The AO and as well as Tribunal denied the deduction under Sections 54F and 54B. The learned Counsel submits that his client was entitled to benefit of sections 54B and 54F as the intention of the legislature was to extend the benefit to the members of the family which includes married daughters. The aggrieved assessee filed the instant appeal.

The High Court denies to grant benefit of Sections 54F and 54B to assessee on purchase of properties in name of her married daughters as it did not find any infirmity in the order of Tribunal.

GANTAVIJAYA LAKSHMI V. ITO[2015] 54 taxmann.com 301 (Andhra Pradesh)

Editor’s Note:

We have witnessed many judicial precedents in the recent past on the issue that whether Sections 54F and 54B relief would be available to assessee in respect of properties acquired in name of his/her family members. In certain judicial precedents it was held that purchase of properties in blood relation, viz, spouse, minor daughter/son would provide Sections 54F and 54B relief to assessee. Still this issue is unresolved and now we have to wait and see whether Government will touch upon this controversy in the ensuing budget 2015-16.

Transactions between head office and foreign branch aren't international transactions under TP provisions

Transactions between head office and its foreign branch could not be deemed as international transactions under Section 92B since branch office was not a separate entity distinct from assessee-company.

Facts:

a)Assessee, an Indian company,had entered into international transactions with its branch office located in Canada.

b)In computation of the arm’s length price, the assessee inadvertently considered transactions with its branch in Canada as international transactions. The TPO selected some comparable cases and determined their average operating profit rate.

c)Assessee raised objection before Tribunal that transactions with branch office were not in the nature of transactions with AEs and, hence, same should have been excluded.

Tribunal held in favour of assessee as under:

1)Section 92B(1) provides that an "international transaction" means a transaction between two or more associated enterprises….”. A bare perusal of the definition of 'international transaction' brings to light that for treating any transaction as an international transaction, it is essential that there should be two or more separate AEs.

2)By considering the definition of 'International transaction' provided under section 92B along with the meaning of the AE given in section 92A, it would clearly emergethat there have to be two or more separate entities in order to describe a transaction as an 'international transaction'.

3)When the assessee was only one entity dealings with the head office and its branch office, such inter se dealings ceased to be commercial transactions in the primary sense, as the pre-requisite condition for an 'international transaction' isthat transaction has to be between two or more associated enterprises.

4)Since the branch office in Canada was not a separate entity, distinct from the assessee, the transactions between the head office and its branch could not be considered as an international transaction under Section 92B. - AITHENT TECHNOLOGIES (P.) LTD. V. ITO- [2015] 54 taxmann.com 261 (Delhi - Trib.)

Fee charged for late filing of TDS return isn't a tax; HC upholds constitutional validity of sec. 234E

The fee sought to be levied under section 234E is not a tax that is sought to be levied on the deductor. The provisions of section 234E is not onerous on the ground that the section does not empower the AO to condone the delay in late filing of the TDS return, or that no appeal is provided for from an arbitrary order passed under section 234E

Facts:

a)Petitioner, a practicing Chartered Accountant, challenged the constitutional validity of section 234E. Section 234E seeks to levy a fee of Rs.200/- per day (subject to certain other conditions) inter-alia on a person who deducts Tax at Source and then fails to deliver or cause to be delivered the TDS return to the authorities within the prescribed period.

b)He argued that legislature had categorically termed the levy under section 234E of the Act as a "fee", it necessarily could be levied only in the event the Government was providing any service. In the absence thereof, the said section seeks to collect tax in the guise of a fee. This, according to the learned counsel, was impermissible either in common law or under the taxing statute, and encroached on the rights of life and liberty of the citizens.

c)He further submitted that the provisions of section 234E were extremely onerous as the AO was not vested with any power to condone the delay in filing the TDS return and there was also no provision of appeal against order of AO.

The High Court upheld the constitutional validity of Section 234E and made following observations:

1)There is an obligation on the Income Tax Department to process the income tax returns within the specified period. Department cannot accurately process the return until information of TDS is furnished by the deductor within the prescribed time.

2)If the income tax returns having refund claims were not processed in a timely manner, it would result in delay in issuing refunds or raising of infructuous demands. Late payment of refund also affects the government financially as the Government has to pay interest for delay in granting the refunds.

3)The Legislature took note of the fact that a substantial number of deductors were not furnishing their TDS returns within the prescribed time frame which was absolutely essential. This led to an additional work burden upon the Department due to the fault of the deductor by not furnishing the TDS returns in time. It was in this backdrop, and to compensate for the additional work burdened upon the Department, that a fee was sought to be levied under section 234E. Thus, section 234E is not punitive in nature but a fee which is a fixed charge for the extra service which the Department has to provide due to the late filing of the TDS statements.

4)A right of appeal is not a matter of right but is a creature of the statute, and if the Legislature deems it fit not to provide a remedy of appeal, so be it. Even in such a scenario it was not as if the aggrieved party was left remediless. Such aggrieved person could always approach this Court in its extra ordinary equitable jurisdiction under Article 226 / 227 of the Constitution of India, as the case may be. Therefore,we do not agree with the argument of the Petitioners that simply because no remedy of appeal was provided for, the provisions of section 234E were onerous. - RASHMIKANTKUNDALIA V. UNION OF INDIA[2015] 54 taxmann.com 200 (Bombay)

Now Govt. focuses more on prosecuting persons evading taxes on a large scale

Focus of investigation in the Income Tax Department had so far been on civil consequences, i.e., revenue augmentation. With a view to have credible deterrence against generation of black money, the Government has shifted the focus to prosecute the persons involved in tax evasion in shortest possible time.During the current year 628 prosecution complaints have been filed upto December, 2014 56 of such prosecution complaints relate to offences concerning undisclosed foreign income.

Receipts from capacity 'sale' of telecom cable link with transfer of ownership isn't taxable as 'royalty': ITAT

What is envisaged in section 9(1)(vi) read with Explanation thereto, is consideration for use or rights to use of any equipment. If consideration was received by foreign company for sale of capacity involving transfer of ownership of cable system to Indian Companyas distinguished from a mere payment for simply user of capacity,the consideration would not be taxable as royalty.

Facts:

a)The assessee-company was incorporated in Bermuda, from where it was managed and controlled. Since, India does not have any tax treaty with Bermuda, therefore, the Income Tax Act was applicable.

b)It was set up to build fibre optic cable system to increase the telecommunication traffic between and among Western Europe, Middle East, South Asia, South East Asia and Far East.

c)Assessee had entered into Memorandum of understanding (MOU) with 13 parties for the purpose of planning and implementation of the said Fibreoptic Cable System.Videsh Sanchar Nigam Limited (‘VSNL’) was one of the original landing party to the MOU. For the purpose of selling the capacity in the cable system, Cable Sales Agreement (CSA) was entered into amongst the parties.

d)The assessee had sold the capacity to VSNL for USD 28,940,000. The CSA provided for the ownership rights in the Cable System with all the rights and obligations in the capacity cable.

The issue that arose for consideration of Tribunal was:

Whether the amount of US $ 28,940,000 was taxable in the hands of assessee as royaltyincome-tax Act?

The Tribunal held in favour of assessee as under:

1)The entire agreement was for the period of 25 years which coincided with the life of the cable. In the agreement there were clear cut clauses for the ownership.

2)One of the clauses of agreement clearly envisaged that the net proceeds on disposition of the cable system would be shared amongst the signatories in proportion to their ownership rights.

3)Not only that, there was right to assign the capacity, which was borne out from the fact that purchaser of the capacity could sell or grant right to use the capacity in the cable system to some other party.

4)All this clearly indicated that the signatory would become the owner of the capacity in the cable system after the purchase, that is, the VSNL in the instant case.

5)This fact further establishes that there was no payment for simply user of the capacity. In case of a 'royalty', agreement, the complete ownership is never transferred to the other party.What is envisaged in section 9(1)(vi) read with Explanation thereto, is that there should be transfer of rights of any kind of the property as defined therein; or imparting of any information in respect of various kinds of property; or use of rights to use of any equipments,etc

6)If the consideration was received for transferring the ownership with all rights and obligations then such a consideration could not be taxed as 'royalty'. -Flag Telecom Group Ltd. v. DCIT - [2015] 54 taxmann.com 154 (Mumbai - Trib.)

CIT can’t consider violation of provisions of sec. 13 while granting registration to a trust

Provisions of section 13 couldn't be applied to deny registration to a trust or an Institution under section 12A - It shall be applied to decide deduction to be allowable to a trust or an Institution while completing assessment proceedings.

Facts:

a) In the instant case, one of the objects of the trust was limited to the benefit of Jain community;

b) The CIT contended that trust had violated provisions of section 13(1)(b) since benefits of sections 11 and 12 could not be extended to the charitable trust or institution which was established for the benefit of any specific religious community. Hence, he denied registration to trust under section 12A.

Issue:

• The issue that arose for consideration before the Tribunal was:

• "Whether the CIT has erred in denying the trust registration under Section 12A holding that the object clause of the Trust Deed is specifically for the benefit of the Jain Community which is a specific religious community and hence attracts the provisions of sec.13(1)(b)?"

The Tribunal Held in favour of assessee as under:

1)In order to avail of the deduction under sections 11 and 12 of the Act, the trust or institution has to make an application for registration under section 12AA of the Act;

2)The CIT after satisfying himself about the objects of the trust or Institution and about the genuineness of its activities, had to pass an order in writing granting or refusing the registration;

3)The Assessing Officer had to consider non-fulfillment of the conditions laid down in section 13(1)(b) during assessment procedure while allowing deduction under sections 11 and 12 to the trust or Institution;

4)Therefore, the CIT was not authorized to consider violation by the trust or Institution on account of provisions of section 13(1)(b) while granting it registration under section 12A-Kul Foundation v. CIT[2015] 54 taxmann.com 143 (Pune - Trib.)