Penalty levied on co. as its directors tried to evade service tax with help of internal auditors

Where internal auditor of company perpetrated fraud by booking 'service tax due' as 'income'/'commission' in books of account and it was found that directors of company were aware thereof, company was liable to evasion penalty for consequent non-payment of service tax

FACTS

1) Assessee was engaged in the activity of issuing Air Tickets for Domestic as well as International routes to its customers. It discharged Service Tax liability based on the basic fare charged by the Airlines.

Exclusive tie-up of super specialty hospital with a stem-cell bank isn't ant-competitive

Private super specialty hospital's exclusive tie-up with a stem-cell bank for collection of stem-cells from patients availing maternity services in the hospital and not allowing other stem cell banks to collect the same, has no adverse effect on competition

Issue

Whether exclusive tie-up of a super specialty hospital with a stem cell bank for collection of stem-cells from patients availing maternity services in the hospital could be said to be an anti-competitive Act?

Taking over management of business doesn't amount to 'Business Support Services'

Facts

1. Assessee entered into a contract with M/s. Kolhapur Sugar Mills Ltd. (' KSM') for manufacturing and sale of liquor in the name of KSM. It undertook the manufacturing activity as well as sale of products. KSM was allowed to use the entire infrastructure.

2. Since plant and machinery etc. were owned by KSM, it was decided that KSM would be paid Rs. 30 lakhs per annum; and balance profit (after deducting Rs. 30 lakhs) would be retained by assessee.

3. KSM was paying service tax on said amount under franchise services. Assessee booked said profit in its books as conducting charges. Department argued that 'conducting charges' received by assessee were consideration for Business Support Services and liable to service tax. Assessee filed appeal before Tribunal.

No denial of sec. 54F relief just because part of investment was made out of housing loan

If assessee had fulfilled condition of making investment of entire capital gain in purchase of residential house, she would be entitled to exemption under section 54F even if part of investment was made out of borrowed money.

Facts:

a)   The assessee had invested entire capital gains to purchase residential house. She had utilised housing loan to make part of the investment in house property. She claimed exemption under section 54F in respect of total investment.

b)   The Assessing Officer completed assessment accepting assessee's claim.

TDS Scheme is faulty as it doesn't allow more than 4 changes in character of PAN in revised return

System of processing TDS statements gives an option to deductor to correct invalid/no PAN entries in TDS statement through a correction statement without any restriction of correcting particular PAN with regard to number of characters

Facts

a)     The assessee was regularly filing TDS returns mentioning therein details of hundreds of deductee’s.

b)    Due to some clerical unintentional mistake it mentioned invalid PAN of a deductee in the quarterly TDS return.

No abuse of dominance by 'Uber' in providing taxies at low fares; CCI rejects complaint of Meru Cabs

Where there was existence of yellow taxis which posed a significant competitive constraint on other taxi operators in the city of Kolkata. In such a scenario, it was difficult to accept the contention of the Meru cabs regarding UBER Group’s dominance in providing the radio taxi services in Kolkata

Now AOs to issue scrutiny notice along with questionnaire to convey compliance requirement

It was noticed that while issuing the initial/first notice for cases selected under scrutiny, Assessing Officers (‘AO’) do not convey the specific compliance requirements like production of accounts, furnishing of documents, information, evidences, etc.

Taxpayers or their authorised representatives needs to appear before the AO as they are required to comply with the statutory notice issued by the AO. Thus, their appearance before the AO does not serve any fruitful purpose except recording of their presence. This causes undue hardship to the taxpayers and unnecessary wastage of their time.

How Govt. intends to reduce fraud reporting burden of auditors

The Companies Act, 2013 requires reporting of frauds by an auditor that are found in the course of the performance of an audit to the central government. Sub-section 12 of Section 143, read with Rule 13 of the Companies (Audit and Auditors) Rules, 2014 of the Companies Act, 2013 contains such provisions. Section 143(12) is applicable with effect from 14th December, 2015.

The extant norms provide that if an auditor of a company in the course of the performance of his duties as auditor, has reason to believe that an offence of fraud involving such amount or amounts as may be prescribed, is being or has been committed in the company by its officers or employees, the auditor shall report the matter to the Central Government within such time and in such manner as may be prescribed. Rule 13 of the Companies (Audit and Auditors) Rules, 2014 prescribes time and manner of reporting of fraud to the government.

Recently, the Ministry of Corporate Affairs (MCA) amended the Rule 13 of the Companies (Audit and Auditors) Rules, 2014 vide notification no. G.S.R. 972(E). Now, the revised Rule 13 prescribes amount of fraud that should be reported, time-limit and the manner of reporting of fraud.

Major changes are as follows:-

1.  Now a statutory auditor requires to report only those frauds which involve an amount of Rs. 1 Crore or more.

2.  The auditor should report the fraud, first of all, to the Board or the Audit Committee, as the case may be, within 2 days of his knowledge of the fraud, seeking their reply or observations within 45 days. Earlier, the auditor had to report to the Board or Audit Committee

POEM - An insight into draft guidelines

Prior to amendment to Section 6(3) by the Finance Act, 2015, a company was said to be resident in India in any previous year only if it was an Indian Company or if during that year, the control and management of its affairs was situated wholly in India. A company can easily avoid becoming a resident by simply holding a board meeting outside India. This encourages creation of shell companies which are incorporated outside but are controlled from India. To address these concerns, section 6(3) was amended vide the Finance Act, 2015 to provide that a company is said to be resident in India, if it is an Indian company or its place of effective management ('POEM') in that year is in India.

POEM has been defined as a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are in substance made.

Now the CBDT has issued draft guidelines for determination of POEM.

The process of determination of POEM would primarily depend on whether or not the company is “engaged in active business outside India”. If company is engaged in “active business outside India” then its POEM shall be presumed to be outside India if majority of board meetings are held outside India.

A company shall be deemed to be engaged in "active business outside India" if following conditions are satisfied:

(i) Passive income is not more than 50% of its total income and,

(ii)  less than 50% of its total assets are situated in India; and

(iii)  less than 50% of total number of employees are situated in India or are resident in India; and

(iv)  The payroll expenses incurred on such employees is less than 50% of its total payroll expenditure.

For the purpose of determining whether the company is engaged in active business outside India the average of the data of the previous year and two years prior to that year shall be taken into account. In case the company has been in existence for a shorter period, data of such period shall be considered.

Allotment of shares in lieu of interest liability as per BIFR scheme held as actual payment under sec. 43B

Facts:

a)  The assessee had borrowed loan from IDBI and there was outstanding interest on such loan. A rehabilitation scheme was sanctioned by the BIFR, wherein it was decided that the IDBI would be allotted equity shares by the assessee and the interest to the extent of shares would be taken as having been paid.

b)  The assessee allotted certain shares to the IDBI and claimed that the said allotment of shares should be taken to be against the interest amount 'actually paid' within the meaning of section 43B.

c)  The assessment was completed accordingly. Thereafter, the Assessing Officer reopened the case of assessee on the ground that mere allotment of equity shares in lieu of interest liability could not be construed as 'actually paid' as required under section 43B.

d)  On appeal, the Commissioner (Appeals) held that the reopening of the case was valid. However on merit, he deleted the addition. On second appeal, the Tribunal held that in the original assessment proceeding itself the Assessing Officer had raised a query on this issue which had been explained satisfactorily by the assessee and accepted by the Assessing Officer and, therefore, the instant case was a case of change of opinion. The Tribunal however upheld the decision of the Commissioner (Appeals) on merits.

The High Court held as under:

1)  This was indeed a case of mere change of opinion by the Assessing Officer. A specific query was raised by the Assessing Officer in the original assessment proceedings itself as regards the conversion of a portion of the interest into shares. 

2)  When pursuant to a settlement the creditor agrees to convert a portion of interest into shares, it must be treated as an extinguishment of liability to pay interest to that extent. In essence, there will be no further outstanding interest to that extent. Consequently, the situation where an interest payable on a loan is converted into shares in the name of the lender/creditor is different from the situation envisaged in Explanation 3C to section 43B, viz., conversion of interest into 'a loan or borrowing'. In the latter instance, the liability continues, although in a different form. However, where the interest or a part thereof is converted into equity shares, the said interest amount for which the conversion is taking place is no longer a liability. 

3)  The plea of the assessee, which was accepted by the Commissioner (Appeals) and the Tribunal that the said conversion of a portion of interest into shares should be taken to be 'actual payment' within the meaning of section 43B, merits acceptance. In that view of the matter, there is no legal infirmity in the impugned order of the Tribunal. - CIT v. Rathi Graphics Technologies Ltd [2015] 64 taxmann.com 65 (Delhi)