Sec. 54F: Mother can’t be deemed as owner of house purchased by minor-daughter out of her own income

Facts:

a)   Assessee had sold a capital asset and invested a part of sales consideration in a new residential house so as to claim exemption under section 54F.

b)  She owned more than one residential house on date of transfer of original asset. However, one residential house was owned by her minor daughter.

c)   Commissioner denied Section 54F exemption on the ground that assessee would be deemed as owner of house owned by her minor daughters. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)  By virtue of fiction created by Section 64(1A), the incomes of properties owned by the two minor daughters were clubbed in the hands of the assessee since the date of purchase of the said properties.

2)  The investment for purchase of said properties has come from the independent sources of these daughters, which has been accepted by the department.

3)  Simply by virtue of inclusion of rental income of minor daughters under Section 64(1A) in the income of assessee, it could not be presumed that the assessee was owner of property purchased by minor daughters. Thus, the findings of the learned CIT were factually incorrect and legally unsustainable. Hence, assessee would be eligible for exemption under Section 54F. - SMT. S. UMA DEVI v. COMMISSIONER OF INCOME-TAX [2015] 62 taxmann.com 64(Hyderabad - Trib.)

LOB clause of Indo-Singapore DTAA won't apply if income of Singaporean Shipping Co. is remitted in UK

Facts

a)  Assessee (a Singaporean Shipping Company) claimed benefit of India-Singapore DTAA in respect of freight charges remitted to it by its Indian agent.

b)  AO denied to grant benefit of DTAA by invoking Limitation of benefit (LOB) clause of India-Singapore DTAA (Article 24) on ground that remittance was made by the Indian agent in UK and not in Singapore.

c)  Aggrieved by the order of AO, assessee filed an unsuccessful appeal before CIT(A). The contention of the assessee was that benefit of DTAA should be granted as it was a tax resident of Singapore and income from shipping activities is also taxable in Singapore as per Article 8 of India-Singapore DTAA.

d)  Aggrieved by the order of CIT(A) the assessee filed the instant appeal before the Tribunal

The Tribunal held in favour of assessee as under-

1)  Article 24 of India-Singapore DTAA lays down twin conditions - Firstly income should be exempt from tax in source state or is subject to low tax and, secondly said income is taxable in Singapore on receipt basis though remitted outside Singapore. But in the instant case, income of assessee was taxable on accrual basis and not on receipt basis in Singapore and his global income (including freight remitted by Indian Agent) was taxable only in Singapore as it was a tax resident of that country.

2)  Hence, benefit of India- Singapore DTAA can’t be denied and income from shipping activities shall be taxable only in Singapore even if such income is remitted outside Singapore. - Alabra Shipping Pte Ltd. v.  ITO [2015] 62 taxmann.com 185 (Rajkot - Trib.)

Foreign tax credit would be allowed even if income is exempt in India; Credit of states taxes is also allowed

The Karnataka High Court allowed credit of taxes paid outside India (which includes states taxes) in respect of an income which is exempt in India by virtue of Section 10A

Facts

a)  The assessee (‘Wipro Limited’) paid tax in foreign countries in respect of profit attributable to its permanent establishment (PE) situated outside India.

b)  Being an Indian company, assessee was liable to pay tax in India on its worldwide income including the profits attributable to its Permanent Establishments and, accordingly, it claimed relief under Section 90 in respect of taxes paid outside India.

c)  The assessee also made a claim for tax relief against the State Taxes paid in USA and Canada.

d)  AO disallowed assessee’s claim of foreign tax credit on the ground that the income in respect of which claim was made do not form part of total income as per Section 10A.

e)  AO also rejected assessee’s claim for tax relief against the State Taxes paid in USA and Canada. The contention of the AO was that DTAA with USA and Canada allows credit of the taxes paid under the Income Tax Act in India and Federal tax in USA and Canada. Therefore, the claim for relief for the State Taxes paid was not admissible under respective DTAA.

f)  On appeal, CIT(A) set aside the order of AO. However, on further appeal by revenue before the tribunal, the tribunal confirmed the order of AO.

g)  Aggrieved by the order of tribunal, assessee filed the instant appeal before the High Court.

The High Court held in favour of assessee as under-

1)  Section 90(1)(a)(ii) provides relief from double taxation where the income of the assessee is chargeable under the income-tax Act as well as in the corresponding law in force in the foreign country. Hence, as per section 90(1)(a)(ii), what is important is that income should be chargeable to tax in either country and not subjected to tax.

2)  Income under Section 10A is chargeable to tax under Section 4 and is includible in the total income under Section 5, but no tax is charged on such income because of the exemption given under Section 10A. Merely because the exemption has been granted in respect of the taxability of the said source of income, it cannot be postulated that the assessee is not liable to tax.

3)  Therefore, assessee would be entitled to take credit of income tax paid in a country outside India in relation to income eligible for deduction under section 10A.

4)  As far as issue related to credit of states taxes is concerned, section 91 provides relief from double taxation where no agreement relating to avoidance of double taxation exist with a foreign country.

5)  Explanation (iv) to Section 91 defines the expression income tax in relation to any country to include any excess profit tax or business profits tax charged on the profits by the Government of any part of that country or a local authority in that country.

6)  The intention of the Parliament is very clear. The Income tax in relation to any country includes income tax paid not only to the Federal Government of that Country, but also any income tax charged by any part of that country meaning a State or a local authority, and the assessee would be entitled to the relief of double taxation benefit with respect to the latter payment also.

7)  Therefore, even though, India has not entered into any agreement with the State of a Country, the income tax paid in relation to that State is also eligible for tax credit.

8)  Hence, the argument that in the absence of an agreement between India and the State, the benefit of Section 90 is not available to the assessee is ex-facie illegal and requires to be set aside- Wipro Ltd. v. DCIT [2015] 62 taxmann.com 26 (Karnataka)

Roaming facility doesn’t require human intervention; roaming charges paid by Telecos aren’t ‘FTS’

The provision of roaming services do not require any human intervention and accordingly, cannot be construed as technical services. Thus, payment of roaming charges by telephone operator does not fall under the ambit of TDS provisions under section 194J.

The disputed issue was:

Whether sum paid by telecom operator towards roaming facility provided by other telecom operators would be liable to TDS either under section 194J or section 194C or section 194-I?

The Tribunal held as under:

a)    Human intervention is required only for installation, setting up, repairing, servicing, maintenance, capacity augmentation of the network. When one of the subscribers in the assessee's circle travels to the jurisdiction of another circle, the call gets connected automatically without any human intervention and it is for this, the roaming charges is paid by the assessee to the Visiting Operator for providing this service. Hence payment of roaming charges cannot be construed as technical services, thus, it does not fall under the ambit of TDS provisions u/s 194J.

b)    The word 'work' in section 194C referred to and comprehends only the activities of workman. It is the physical force which has comprehended in the word 'work'. Since the payment of roaming charges does not require any human intervention. Hence, the provisions of section 194C are not applicable to the impugned issue.

c)  The assessee cannot be said to have used the equipment which is involved in providing the roaming facility. The assessee collects the roaming charges from its subscriber and passes it on to the other service provider. Therefore, the payment of roaming charges by the assessee to other service provider cannot be considered as rent within the meaning of section 194I of the Act. - Vodafone East Ltd. v. Ad. CIT [2015] 61 taxmann.com 263 (Kolkata - Trib.)

Now private companies can take loan from relatives of its directors

The Companies (Acceptance of Deposits) Rules, 1975 allowed private companies to borrow any loan or to accept deposits from directors, shareholders and relatives of directors. However, the Companies Act, 2013 restricted private companies from accepting deposits from relative of directors. Now, MCA has made an amendment to the Companies (Acceptance of Deposits) Rules, 2014 (‘Deposit Rules’). Amendments have been made to allow private companies to accept deposits from relative of its directors subject to condition that:

The relative of the director of the private company from whom money is received, furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others and the company shall disclose the details of money so accepted in the Board's report

Editor’s comment:

Loans forms major source of financial support for most of the Companies apart from the Share Capital. Generally, private companies borrow from banks and financial institutions as they are prohibited from accepting public deposits. For funding, the Private Companies rely heavily on their internal sources such as, shareholders, directors, relatives of directors. Such a move by MCA allowing Private companies to accept deposits from relatives of its Directors is a welcome measure.

It was much awaited relief for Private Companies who were starving of funds due to the restrictive provision.

Ponds specially designed for breeding of prawns to be treated as plant for depreciation purposes

Ponds which were specially designed for rearing/breeding of the prawns have to be treated as tools of the business of the assessee and the depreciation was admissible on these at the rates applicable to plant and machinery

The assessee-company was doing business of ‘Aqua Culture’. It grows prawns in specially designed ponds. Thus, the disputed issue was:

Whether such ponds constitutes plant under Section 32?

The Supreme Court held that since the ponds were specially designed for rearing/breeding of the prawns, thus, they have to be treated as tools of the business of the assessee. Therefore, such ponds would be treated as plant for the purpose of allowing depreciation thereon. - ACIT V. VICTORY AQUA FARM LTD.[2015] 61 taxmann.com 166 (SC)

No Sec. 14A disallowance if taxpayer has not earned any exempt income in that year, rules Delhi HC

IT: Section 14A will not apply if no exempt income is received or receivable during the relevant previous year.

Facts:

1)  The disputed issue in the instant case was:

Whether disallowance under Section 14A can be made in a year in which no exempt income has been earned or received by assessee?

2)  The Special bench in [2009] 121 ITD 318 (DELHI)(SB) held that Section 14A disallowance can be made in year in which no exempt income has been earned or received by assessee. It referred to the decision of Apex Court in case of CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 to settle this controversy. 

The High Court held in favour of assessee as under:

1)  The Special Bench has relied upon the decision of the Supreme Court in Rajendra (Supra). In such case the Supreme Court held that Section 57(iii) does not say that expenditure shall be deductible only if any income is made or earned. The decision of Supreme Court was rendered in context of allowability of deduction under Section 57(iii). Thus, such decision could not be used in reverse to content that even if no income has been received, the expenditure incurred can be disallowed under Section 14A.

2)  The expression ‘does not form part of total income in Section 14A envisages that there should be an actual receipt of income, which is not includible in the total income, for the purpose of disallowing any expenditure in relation to said income.

In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year- Cheminvest Ltd. v. CIT [2015] 61 taxmann.com 118 (Delhi)

Editor’s Note:

Section 14A provides for disallowance of expenditure in relation to income not "includible" in total income. The legislative intent is to allow deduction of only that expenditure which is relatable to earning of income and it therefore follows that the expenses which are relatable to earning of exempt income have to be considered for disallowance, irrespective of the fact whether any such income has been earned during the financial year or not.

The above position is further clarified by the usage of term 'includible' in the Heading to section 14A which indicates that it is not necessary that exempt income should necessarily be included in a particular year's income, for disallowance to be triggered.

Thus, in light of above, CBDT, vide Circular No. 5/2014 dated 11-2-2014 had clarified that Rule 8D read with section 14A provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income.

The Delhi High Court had not referred to this Circular in its verdict.

Clearing members and brokers of 'commodity derivative exchange' are included in SEBI norms

On Sept 3, 2015 the Government had notified the merger of Forward Markets Commission (FMC) with SEBI with effective from September 28, 2015 and, accordingly, the “Forward Contracts Regulation Act (FCRA) 1952 will get repealed and Regulation of Commodity Derivatives Market will shift to SEBI under Securities Contracts Regulation Act (SCRA) 1956 with effect from Sept 28, 2015.

Now Ahead of FMC merger with SEBI itself, SEBI has notified crucial amendments relating to stock exchanges and clearing corporations. Amendments have been made in SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 and Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012. These new norms will also come into force on September 28, 2015, the date from which SEBI shall start regulating the commodity derivatives market as a unified regulator

Key highlights of the amendments are:

1)    Clearing member, Brokers and Clearing Corporations of Commodity derivative exchange and SEBI brought together:

Now definition of ‘clearing member’ and ‘self-clearing member’ has been amended to include any person having clearing and settlement rights on a commodity derivatives exchange

Earlier the ‘clearing member’ meant a person having clearing and settlement rights in any recognised clearing corporation

2)     Annual regulatory fees For members Dealing In Commodity Derivatives:  Under amended norms, a regional commodity derivatives exchange shall have to pay to SEBI an annual regulatory fee of Rs 50,000 within 30 days of conclusion of the relevant financial year, according to the amended norms.

3)    Net worth and Deposits requirements for Members dealing in Commodity Derivatives –Under amended norms, in the case of national commodity derivatives exchanges, the net worth for a self clearing member should be Rs 1 crore and for a clearing member, the same should be Rs 3 crore.

The deposit amount in the case of national commodity derivative exchange would be Rs 50 lakh for both self-clearing and clearing members. 

4)    3-years transitional period for settlements under new SEBI norms: Under amended norms, the Commodity derivative Exchanges have been allowed to continue with the existing arrangement for clearing and settlement of trades for a period not exceeding three years from the date of commencement of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2015.

ITAT withdraws adverse remark against ICAI and its members; it conveyed unintended message to public

IT: The Tribunal had made certain observations about CA profession, the conduct of students pursuing the CA courses and also about the ICAI in its order. ICAI was of the view that such observations of ITAT had been viewed by public at large that ITAT had found fault with conduct of ICAI. Thus, ICAI filed miscellaneous application for removal of such observations. ITAT was of the view that such observations had not conveyed the intended message, thus, it replaced that paragraph (containing such observation) of its order.- Vijay V. Meghani v. ACIT [2015]

61 taxmann.com 114 (Mumbai - Trib.)

Facts:

a)    The Institute of Chartered Accountants of India (ICAI) had filed this miscellaneous application with the submissions that some of the observations made by the Tribunal in case of Vijay V. Meghani v. Dy. CIT [2014] 49 taxmann.com 88 (Mumbai - Trib.) had resulted in a mistake apparent from record and, hence, the same needs rectification under Section 254(2) of the Income-Tax Act.

b)    The Ld. Counsel appearing for ICAI had submitted that Tribunal had made certain observations about CA profession, the conduct of students pursuing the CA courses and also about the ICAI in the impugned order. Such observations made by the Tribunal in paragraph 9.6 of the order had been interpreted or understood by the public at large in a manner that the Tribunal had found fault with the conduct of the ICAI. Accordingly, he submitted that such observations made by the Tribunal had led to unintended results affecting reputation of ICAI.

c)  Paragraph 9.6 is reproduced below:“However, if it is considered for a moment that the above said C.A firm has really given such advice to the assessee herein and accordingly it has furnished the letter and affidavit, then, in our view, it may be showing signs of deteriorating standards with some of the Chartered Accountants in profession, which needs to be stopped on war footing by the ICAI…

If it is presumed for a moment that all the C .A.s have concurred with the said view, then it only shows that the C .A profession is losing its grip over the Income tax matters, which is another cause of concern for ICAI…

We notice that the ICAI does not appear to have taken steps to contain mushrooming growth of such coaching institutes, which indulge in manufacturing of Chartered Accountants through class room model, which may ultimately have undesirable effect on the quality of Chartered Accountants, since the habit of thinking, introspection, application of mind is replaced by spoon-feeding, which kind of teaching discourages independent thinking…

Any compromise on the quality of Chartered Accountants would not only affect our Country very badly, but is also expected to endanger the pioneer position enjoyed by the Indian C.A fraternity vis-à-vis their counter parts in other parts of the world. In our view, the ICAI should seriously take note of these alarming practices slowly emerging in our Country and should take appropriate corrective steps, lest the confidence reposed in C .A.s by the public should get diluted”.

Held:

1) The observations made by the Tribunal about the CA profession and conduct of the students pursuing the CA course were not necessary to adjudicate the issues that were urged before the Tribunal by the appellant, Sri Vijay V Meghani. However, the Tribunal being a part of Government of India, should not shut its eyes when it notices that certain developments occurring in the Country may affect the Country as a whole, more particularly when the reputation of particular profession, from whom the Tribunal is getting assistance in the dispensation of justice, is at stake. There cannot be any controversy that the interest of our Country is supreme and no citizen can or should compromise on the same. The observations were made in the impugned order in that context only and it was not the intention to target any particular person or the ICAI.2)  The observations made by the Tribunal in the later part of paragraph 9.6 were intended to highlight or reiterate the importance of the articled clerk training and the self-study model conceived by the ICAI and the same was intended only to give a wake-up call to the students pursuing C.A profession. However, it appeared that the observations made in paragraph 9.6 had not conveyed the message intended by the Tribunal.

3)  According to Ld. Counsel, the said observations had given room for misinterpretation and resultant controversies. Accordingly, the paragraph 9.6 of the order was modified as under:

“However, if it is considered for a moment that the above said C.A. firm has really given such advice to the assessee herein and accordingly it has furnished the letter and affidavit, then it is

“However, if it is considered for a moment that the above said C.A. firm has really given such advice to the assessee herein and accordingly it has furnished the letter and affidavit, then it is

a cause of concern to one and all. We have already noticed that the self study model coupled with „on-site articled clerk training‟ embedded in the Chartered Accountancy course aims to achieve high quality education and training. The articled clerk training conceptualized in the C.A education inculcate the habit of thinking, self introspection, application of mind, analytical ability etc and they enable the C.A students to have strong grip over the subjects and help achieving expertise in the domain fields. The commendable feature of the C.A Course is that, as stated earlier, the C.A students are given training by practicing Chartered Accountants during their articled clerk training program. Thus the methodology adopted by the ICAI enables the C.A. students to become thorough professionals with versatile knowledge and innovative mind. The practical training given by the practicing Chartered Accountants during the articled clerk period, in our view, is the fulcrum centre of the study module of the C.A course and the students pursuing the C.A course should and must utilize the opportunities provided to them or encountered by them during the articled clerk training period to the maximum possible extent. In the recent past, a number of Coaching institutes have been established to give coaching to the students pursuing C.A course. While the self study model and articled clerk training may be supplemented with the coaching given by such institutes, any compromise on the practical training intended during articled clerk period or mere obtaining a C.A degree without practical training would not make the students full fledged chartered accountants and the same would go against the self study model conceptualized by ICAI and there should not be any doubt that it may have undesired results, which may affect the Country as a whole.”

Matter of smuggling of gold even through baggage can't be entertained by SetCom

In case of matters relating to import/smuggling of 'gold', even as part of a baggage, no settlement application can be filed in view of specific bar contained in third proviso to section 127B(1) read with section 123.

Facts:

a)  Assessee imported approximately 6.5kg gold as part of his baggage.

b)    Since assessee had not shown same in baggage declaration, department alleged smuggling and issued a show cause notice.

c)  Assessee approached Settlement Commission.

d)   Department argued that since it was a case of import of gold, settlement application was barred under third proviso to section 127B(1). Third proviso to section 127B(1) reads as: “Provided also that no application under this sub-section shall be made in relation to goods to which section 123 applies or to goods in relation to which any offence under the Narcotic Drugs and Psychotropic Substances Act, 1985 (61 of 1985) has been committed”

e)  Settlement Commission overruled revenue's objections and settled the matter.

High Court held in favour of revenue:

1) In view of provisions relating to application for settlement, particularly third proviso to section 127B(1), it is evident that no application for settlement can be made if it relates togoods to which section 123 applies and said section specifically provides that it applies to gold.

2)   Third proviso only makes a reference to goods to which section 123 applies and not to section 123 itself. Therefore, there is no question of examining provisions of section 123(1) as also its applicability because that is not context of third proviso to section 127B(1).

3)   Therefore, no application for settlement can be made in relation to gold. Since this case clearly pertains to gold, Settlement Commission did not have jurisdiction to entertain such an application - Additional Commissioner of Customs v. Ram Niwas Verma [2015] 61 taxmann.com 2 (Delhi).