Compliance window under Black Money Act – An insight into

The Hon’ble Finance Minister in his budget speech for 2015-16 had proposed introduction of Black Money Bill in the Parliament. The Bill was passed by the Parliament in its budget session. The Bill received the assent of the President on May 26, 2015 and it became the law. It is to be called as “The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015” (“the Black Money Act”). It has been clarified by the Government that such Black Money Act would be applicable from July 1, 2015.

The Black Money Act provides for 30% tax on the value of undisclosed foreign income or assets with a penalty equivalent to three times of tax so computed. It further provides for prosecution of up to 10 years in case of willful attempt to evade tax on foreign income or assets held outside India.

The Black Money Act provides for compliance window, i.e., one-time opportunity for taxpayers to voluntarily disclose the undisclosed foreign income or assets. Declaration under compliance window can be made during the period from July 1, 2015 to September 30, 2015.Any person who opts for this compliance window shall be liable to pay reduced penalty of 100% of tax and would also get immunity from prosecution. Such taxes and penalty are required to be paid by declarant on or before December 31, 2015.

However, a person will not be eligible to obtain benefit of compliance window if any information regarding undisclosed foreign asset or income has been received by Government on or before June 30, 2015. Thus, taxpayers on HSBC list might be denied benefit of compliance window.

Declaration shall be void and shall be deemed to have never been made if the declarant –

a) Fails to pay the entire amount of tax and penalty on or before December 31, 2015, or

b) Where the declaration has been made by misrepresentation or suppression of facts or information.

Where the declaration is held to be void for any of aforesaid reasons, then declarant would be liable to pay penalty three times of tax and will also be liable for prosecution.

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Cost of additions or improvements on habitable house is also eligible for sec. 54F relief

Where asset acquired by assessee is habitable, cost of any addition or improvements made on that asset would also be eligible for exemption under section 54F

Facts

a)  Assessee earned capital gain on sale of a residential house property. She invested the sale proceed to purchase a habitable house property and also spent some amount to make addition or improvement to said property. Accordingly, she claimed exemption under section 54F.

b)  The exemption so claimed by assessee was disallowed to the extent amount was spent towards making addition or improvement to habitable house property. The contention of the revenue was that no exemption under section 54F could be available in respect of the amount invested by way of improvement to a habitable house property.

c)  Aggrieved by the order of appellate authorities, assessee filed the instant appeal before the High Court

The High Court held in favour of assessee as under-

1)  As per section 54F, it is the ‘cost of the new asset’ which is to be taken into consideration while determining the capital gain exemption and not the "consideration for acquisition of the new asset".

2)  In law, it is permissible for an assessee to acquire a vacant site and carry out construction thereon; the cost of the new asset would be cost of land plus (+) cost of construction.

3)  On the same analogy, even though assessee purchased a new asset, which was habitable but required additions, alternations, modifications and improvements and if money was spent on those aspects, it would be included in the cost of the new asset.

4)  The approach of the authorities that once a habitable asset is acquired, any additions or improvements made on that habitable asset are not eligible for deduction, is contrary to the statutory provisions.

5)  Hence, amount spent towards making addition or improvement in habitable house property would also be eligible for Section 54F exemption- Mrs. Rahana Siraj v. CIT [2015] 58 taxmann.com 333 (Karnataka)

Illegally encroached land is not a capital asset; profit arising on its sale is taxable as income from other source

Property illegally encroached by assessee would not be considered as 'Capital asset' under section 2(14) and, consequently, gain arising from transfer of such property could not be assessed as capital gain but as income from other sources.

Facts:

a)      The assessee had shown long-term capital gain from sale of unauthorisedly encroached school land for which he had no title/right.

b)      The Assessing Officer held there was no capital assest owned by assessee as he did not have legal right or title over the asset and, therefore, the income declared was not chargeable under section 45 but under section 56 as income from other sources.

c)      On appeal, CIT (A) reversed the findings of AO. Aggrieved with the CIT(A) order, revenue filed the instant appeal before Tribunal.

The Tribunal held in favour of revenue as under:

1)   The assessee pleaded that the definition of capital asset under Section 2(14) has used words property of 'any kind' and it is not necessary that it should be lawfully acquired property. This proposition could not be accepted because the legislature in its wisdom has used this word for lawful property only.

2)      If the plea of the assessee was allowed, then any person will encroach upon a Government land by showing the same in his balance sheet and shall claim capital gains, which is not permissible.

3)    Under the charging section of capital gains, the crucial requirements are that there must be a transfer and such transfer must be of a capital asset. The primary school land was encroached upon/illegally occupied by the assessee and there was no transfer of any capital asset.

4)      Capital gains under section 45 accrue only if there is a sale or any transfer of the capital asset. But in the instant case, there was no transfer as such the assessee encroached upon the school land. Accordingly, the said land could not be called as capital asset owned by assessee.

5)     Since it was nota case of sale or transfer of capital asset, there was no question of capital gains. Hence, profit arising on sale of encroached land would be taxable as income from other source.- ITO v Bhagwan T. Fatnani[2015] 58 taxmann.com 227 (Mumbai - Trib.)

Uniform allowance paid to employees isn’t exempt if no dress code has been specified for employees

No exemption under section 10(14) shall be granted in respect of uniform allowance paid to employees if there was no dress code and the employees were free to wear any dress.

Facts

a)  Assessee paid uniform allowance to its employees. The allowance so paid was claimed as deduction under Section 10(14) and not included in the salary of the employees for the purpose of deduction of tax at source under Section 192;

b)  The Assessing Officer disallowed the claim and included the allowance for purpose of deduction of tax at source;

c)  CIT(A) affirmed the disallowance.

The Tribunal held in favour of revenue as under:

1)  The following two conditions must be satisfied to avail exemption under Section 10(14):

a)  the allowance should be given to meet expenses incurred for performance of official duties;

b)  the expenditure must be actually incurred.

2)  In the instant case, the assessee was unable to satisfy any of the conditions as there was no dress code for the employees and they were free to wear any dress;

3)  Therefore, allowance could not be said to be granted to meet the expenses incurred for official purposes. Further, assessee was unable to establish that the expenditure was actually incurred;

4)  Hence, uniform allowance paid to employees must be included in their salary for the purpose of deduction of tax at source under Section 192 - Facets Polishing Works (P.) Ltd. v. ITO [2015] 58 taxmann.com 373 (Ahmedabad - Trib.)

Auditor's certificate can't be a substitute for TP study to benchmark international transaction

Facts:

a)    Assessee reimbursed certain costs and expenses to its associated enterprises (‘AEs’) for coordination and liaison works.

b)   Transfer Pricing Officers (TPO) determined the ALP of transactions relating to “reimbursement of Head office overheads” as NIL.

c)    The assessee argued that he had claimed expenditure as per the certificate issued by auditors which spelled out Head office overheads as a percentage of revenues.

d)  TPO rejected the claim of assessee and made additions, which was further confirmed by CIT(A). Aggrieved-assessee filed the instant appeal before Tribunal. 

Tribunal held in favour of Revenue as under:

1)      Assessee had not conducted any transfer pricing study forbenchmarkingof head officer expenditure. He had benchmarked this transaction on basis of certificate issued by the auditors.

2)    Under transfer pricing study, what is required to be seen is whether any other independent entity would have charged or the independent entity receiving the services would have paid to the extent that were charged by the AEs.

3)      This kind of study had not been carried out by the assessee as he was under the impression that the certificate issued by the auditors would satisfy the tests of Transfer Pricing study.

4)   In transfer pricing study, what is required to be done is to validate the claimwith an external comparable. Certificate issued by the auditors only spelled out the percentage of overheads over the revenue and, hence, it was only a factual aspect of internal figures.

5)     Accordingly,certificate issued by auditorscould not be used as a substitute for Transfer Pricing study to benchmark international transaction. - Metro Tunneling Group v. JCIT- [2015] 58 taxmann.com 372 (Mumbai - Trib.)

Mumbai ITAT interprets Article 5 of India-Singapore DTAA to decide constitution of installation PE in India

Facts:

a)  The assessee was tax resident of Singapore. It had undertaken installation and construction activity in respect of certain projects. The DRP held that the presence of assessee in India in excess of90 days constitutes PE in India under Article 5(6) of India-Singapore DTAA (‘treaty’).

b) The Ld. Counsel of assessee submitted that assessee was purely into installation and construction activity, which would clearly fall within Article 5(3) of treaty. Thus, activities of assessee would not constitute PE due to its presence in India for less than 183 days under Article 5(3) of DTAA.

The Tribunal held in favour of assessee as under:

1)  Article 5(3) of DTAA provides that -

“A building site or construction, installation or assembly project constitutes a permanent establishment only if it continues for a period of more than 183 days in any financial year.”

2)  Article 5(6) of DTAA provides that -

“An enterprise shall be deemed to have a permanent establishment in a contracting State if it furnishes services , other than services referred to in paragraphs 4 and 5 of this Article and technical services as define in Article 12, within a contracting State through employees or other personnel, but only if…..

…..”

3)  Article 5(3) is a specific provision dealing with ‘Service PE’, on account of construction, installation or assembly project. Service PE would constitute if project continues for a period of more than 183 days in any fiscal year. WhereasArticle 5(6) envisages that, if an enterprise is “furnishing services” in the contracting State through its employees for a period of 90 days or more, then it is deemed to have Service PE, except for the services referred to in paras 4 and 5.

4)  The threshold period under Article 5(6) is 90 days and more; if such activities are carried out for a related enterprise, then threshold period is more than 30 days. The Article 5(6) explicitly provides that it applies to “services” other than those covered by Articles 5(4) and 5(5), however, the said article is silent as regards its relationship with Article 5(3). Thus, Article 5(6) covers various services which are not covered by paras 4 and 5 of article 5 and technical services as defined in Article 12.

5)  In contradistinction, para 3 of article 5 is very specific and, therefore, such specific activities cannot be read into para 6 of article 5. There cannot be overlapping of activities carried out within the ambit of Article 5(3) and furnishing of services as stated in Article 5(6). Both should be read independent of each other, or else there would be no requirement of enshrining separate provisions.

6)  If the activities related to construction or installation are specifically covered under Article 5(3), then one need not to go in for Article 5(6). Thus, the activity of the assessee which is purely installation services has to be scrutinized under Article 5(3) only and not under Article 5(6). - Kreuz Subsea Pte. Ltd vs DDIT - 58 taxmann.com 371

SEBI proposes to reduce listing time by half and relax listing norms for startups

The SEBI has taken a number of key policy decisions in its Board meeting held on June 23, 2015. This includes streamlining the process of public issues,simplifyingthe framework of raising capital bystart-ups and other companies, etc.Key decisions taken in board meeting are enumerated here under:

1)Reduction ofIPO timeline: SEBI has proposed to reduce the time as required between listing and closing of an initial public offering (IPO) by half, i.e., from T+12 days toT+6 days.

2)SEBI does away with requirement of issuing cheques for IPO: SEBI mandatesfiling of Application Supported by Blocked Amount (ASBA) applications. It does away with requirement of issuing cheques for IPO. All investors, including retail ones, will now have to come in through the ASBA route.

ASBA route enables the investors to give an authorization of payment of application money in the form itself.Application made through ASBA route also ensures hassle-free of refund, if any,payable by the issuer.

3)Simplified framework for raising of capital by start-ups: Now start-up companies would be able to raise capital through Institutional Trading Platform (ITP), the platform will be accessible to:

i.Companies which are intensive in their use of technology, information technology, intellectual property, data analytics, bio-technology andnano-technology. [If these companies provides products, services or business platforms with substantial value addition and with at least 25% of the pre-issue capital being held by QIBs] or;

ii.Any other company in which at least 50% of the pre-issue capital is held by QIBs.

4)Fast Track Issuances - Follow on Public Offerings and Rights Issues: In order to enable more number of listed companies to raise further capital using fast-rack route, SEBI approved the proposal to reduce the minimum public holding requirement from Rs 3,000 to Rs 1,000 crore in case of Follow on Public Offerings (FPOs) and Rs.250 crore in case of rights issue.

5)Re-classification of Promoters as Public: SEBI has decided to provide proper framework for addressing the issue relating to reclassification of promoters in listed companies under various circumstances. Now an existing promoter of a listed entity may cease to be a promoter and/or re-classify itself as public in the following circumstances, on compliance with conditions stated there under:

i.Pursuant to change in promoter:

a)When a new promoter replaces the previous promoter subsequent to an open offer or in any other manner, re-classification shall be permitted subject to approval of shareholders in the general meeting.

b)Shareholders need to specifically approve whether the outgoing promoter can hold any Key Management Personnel (“KMP”) position in the company. In any case, the outgoing promoter may not act as KMP for a period of more than 3 years from the date of shareholders’ approval.

c) The outgoing promoter cannot hold more than 10% shares of the company.

ii.In case of transmission/succession/inheritance, the inheritor shall be classified as promoter.

iii.Existing promoters may be re-classified as public in case the company becomes professionally managed and does not have any identifiable promoter

Scrutiny of refurbished return forms for Assessment year 2015-16

The ITR Forms 1, 2 and 4S were notified for the assessment year 2015-16 vide Notification No. 41/2015, Dated 15-04-2015. In view of various representations received it was announced that these ITR forms will be reviewed. Having considered the responses received from various stakeholders, new ITR forms have been notified. Key changes made in ITR forms are specified hereunder:

1)Introduction of new Form 2A : At present individuals and HUFs having income from more than one house property or capital gains are required to file Form ITR 2. It was observed that majority of taxpayers who file Form ITR 2 do not have capital gains. With a view to provide a simplified version of this form for these individuals and HUFs, a new Form ITR 2A is notified which can be filed by an individual or HUF who does not have capital gains, income from business/profession or foreign asset/foreign income.

2)Details of foreign trips : It shall not be mandatory to furnish details of foreign trips in new Form ITR 2. Only Passport Number, if available, would be required to be furnished in the Form 2.

3)Details of bank accounts : Now only the IFS Code, account number of all current/savings accounts which are held at any time during the previous year have to be furnished. The balance in accounts will not be required to be furnished. Details of dormant accounts which have not been operational during the last three years are not required to be furnished.

4)ITR 1 for Individuals earning exempt income : It is further provided that individuals having exempt income without any ceiling (other than agricultural income exceeding Rs. 5,000) can also file return in Form ITR 1. If taxpayer has agricultural income the return shall be filed in ITR 2 or ITR 2A, as the case may be.

Editor’s Note : It is to be noted that every individual or HUF whose total income exceeds five lakh rupees or who is required to file return in Form ITR-3 or ITR-4 shall have to file return of income electronically. It is also mandatory for taxpayer (except super senior citizen) to file return of income electronically so as to claim refund of tax from the department.

Depositors can file complaint before CLB until NCLT is constituted; MCA clarifies

This Ministry has received representations seeking clarification regarding processing of the deposits related complaints received from investors in respect of defaults made by companies in repayment of deposits accepted by them before the commencement of the Companies Act, 2013.

The Ministry hasnow clarified that Company Law Board (‘CLB’) would dispose of the complaints received from investors until the National Company Law Tribunal (NCLT) is constituted.Further, Companies can approach CLB for granting extension of time for making repayment of deposits accepted by it before the commencement of the Companies Act, 2013.It is also clarified that there is no bar on the Registrar of Companies for filing of prosecution against a company if such company fails to make repayment of deposits accepted by it under the provisions of the Companies Act, 1956 or Companies Act, 2013.

ITAT makes Sec. 43B disallowance even when assessee opts for presumptive taxation scheme

IT: Non-payment of statutory liability before due date of filing of return would attract disallowance under Section 43B even if assessee had offered his income on presumptive basis.

Issue

Whether disallowance of Section 43B could be made even when assessee opted for presumptive taxation Scheme?

The Tribunal held in favour of revenue as under:

a)Under the presumptive taxation scheme, income of an assessee is computed at a fixed percentage of turnover and it would be deemed that that all deductions allowable under the head business or profession have already been allowed to assessee. In other words deductions allowable under Sections 28 to 43C are deemed to have been granted to assessee.

b)Perusal of provisions of Section 43B shows that said provision is a restriction on allowance of particular expenditure, inter-alia, statutory liability, as it allows deduction of such liability on actual payment basis, i.e., expenditure shall not be allowed to be deducted unless same has been paid before the due date of filing the return.

c)Section 44AF starts with the words “notwithstanding anything to the contrary contained in Sec. 28 to 43C”, whereas section 43B starts with the words “notwithstanding anything contained in any other provisions of this Act”.

d)The non-obstante clause in Sec. 43B has a far wider amplitude because it uses the words “notwithstanding anything contained in any other provisions of this Act”. Therefore, even assuming that the deduction is permissible or the deduction is deemed to have been allowed under any other provisions of this Act, still the control placed by the provisions of Sec. 43B in respect of the statutory liabilities still holds precedence over such allowance.

e)Hence, disallowance could be made by invoking the provisions of Sec. 43B in respect of the statutory liabilities, even though the assessee offered his income to tax on presumptive basis.

Editor’s Note:

In the instant case, assessee has offered his income to tax on presumptive basis under Section 44AF. Provisions of Section 44AF are not applicable from assessment year beginning on or after the April 1, 2011. Thus, it can be inferred that the principal laid down by the ITAT would squarely apply when taxpayer has opted for presumptive taxation scheme under Section 44AD or Section 44AE.