Commercial expediency of loan to AE not relevant for computing ALP of interest: ITAT Special Bench

The issue before the special bench of ITAT was as under:

Whether ALP adjustment was required to be made in respect of interest free loan granted by the assessee, a non-resident company, to its wholly owned subsidiary in India?

The Special Bench of Kolkata ITAT held as under:

1) The commercial expediency of a loan to subsidiary is wholly irrelevant in ascertaining arm’s length interest on such a loan. There is indeed no bar on anyone advancing an interest free loans to anyone but when such transactions are covered by the international transactions between the associated enterprises, Section 92 of the Act mandates that the income from such transactions is to be computed on the basis of arm’s length price.

2) The assessee is not really correct in contending that when the assessee has not reported any income from a particular international transaction, the ALP adjustment cannot compute the same. The computation of income on the basis of arm’s length price does not require that the assessee must report some income first, and only then it can be adjusted for the ALP. Section 92(1) is not an adjustment mechanism; it is a computation mechanism. The arm’s length price principle requires that an arm’s length price is assigned to the transactions between the associated enterprise, and if the income in computed, if any, on the basis of the

arm’s length price so assigned.

Now Cos. must obtain written consent from Cost Auditor prior to his appointment

MCA has amended the Companies (cost records and audit) Rules, 2014. The major changes brought in the rule are as under:

1) Written Consent by Cost auditor: Now it’s mandatory for the companies to take prior written approval/Consent from proposed cost auditor before his appointment.

2) Declaration/Certificate: Cost auditor appointed as per the Companies Act, 2013 has to submit a declaration that:

a) He is eligible for appointment and is not disqualified form appointment under the act, rules and regulations

b) He satisfies the criteria provided in the section 141 of the companies act, 2013

c) The proposed appointment is within the limits laid down by authority

Effective rate of tax isn’t reduced to 31% under Income Declaration Scheme; CBDT clarifies

The Income Declaration Scheme, 2016 provides an opportunity to persons who have not paid full taxes in the past to come forward and declare their undisclosed income and assets.

CBDT has received queries from various stakeholders whether the payment under the Scheme can be made out of undisclosed income without including the same in the income declared, thereby bringing down the effective rate of tax, surcharge and penalty payable under the Scheme to around 31%.

Now the CBDT has clarified that the intent of the clarification issued vide Question No.5 of Circular No.25 of 2016 was limited to conduct of enquiry by the Department. It in no way intends to modify or alter the rate of tax, surcharge and penalty payable under the Scheme which have been clearly specified in the Scheme itself. Sections 184 & 185 of the Finance Act, 2016 unambiguously provide for payment of tax, surcharge and penalty at the rate of 45 per cent of undisclosed income.

Compliance barriers on the road to GST- An Analysis of Model GST Law

1. Introduction

"Will you walk into my parlour?" said the Spider to the Fly, '

Tis the prettiest little parlour that ever you did spy;

The way into my parlour is up a winding stair,

And I've a many curious things to show when you are there."

Oh no, no," said the little Fly," to ask me is in vain,

For who goes up your winding stair can ne'er come down again."

(an extract of the poem 'The spider & the fly', by Mary Botham Howitt)

With the advent of Goods and Services Tax (GST) in India, the above extract appears to be a fitting & interesting one. While there have been several discussions of how the GST regime would be beneficial to the Indian Economy, the aspect of compliances was never on the agenda. Recently released Model GST Law, throws light on this aspect. While the assessees should revamp their IT systems to be compliant with the new regime, it is also of utmost importance to understand how complying with the statutory timelines could have an impact on their cash flows and credit mechanism. Is tax becoming one of the key factors to drive a business or are we still in an era where business drives the tax. This article attempts to examine whether the compliance aspects under the model GST law are flight's of winding stairs to the spider's parlour or otherwise.

SEBI facilitates transition for listed entities covered under IND-AS

Background

MCA vide notification no. G.S.R. 111(E) dated 16th February, 2015 had issued the Companies (Indian Accounting Standards) Rules, 2015 ('IND-AS Rules'). According to IND-AS Rules, the Companies and their auditors shall comply with the IND-AS Rules in preparation of their financial statements and auditor's reports respectively. IND-AS Rules are aligned with the International Financial Reporting Standards (IFRS) and are mandatorily applicable on certain class of companies from April 1, 2016.

List A

(a)		companies whose equity or debt securities are listed or are in the process of being listed on any stock exchange in India or outside India and having net worth of rupees five hundred crore or more;
(b)		companies other than those above and having net worth of rupees five hundred crore or more;
(c)		holding, subsidiary, joint venture or associate companies of companies covered by sub-clause (a) and (b) above;

List B

(a)		companies whose equity or debt securities are listed or are in the process of being listed on any stock exchange in India or outside India and having net worth of less than rupees five hundred crore;
(b)		companies other than those covered under List A and (a) above, that is, unlisted companies having net worth of rupees two hundred and fifty crore or more but less than rupees five hundred crore.
(c)		holding, subsidiary, joint venture or associate companies of companies covered by sub-clause (a) and (b) above under List B:

Narendra Modi’s non-adversarial tax regime

Introduction

1.1 On 19 March 1955, Shri Jawaharlal Nehru, while addressing the members of the High Court of Punjab at the inauguration of its new building in Chandigarh, had said: "Justice in India should be simple, speedy and cheap". He remarked that litigation was a disease and it could not be a good thing to allow any disease to spread and then go out in search of doctors. What he meant to embark upon was the fact that the judiciary of India is looked up with great respect and with a feeling of trust, faith and confidence by its various stakeholders. Thus, it would not be a good sign if the litigation syndrome would be allowed to broaden without having the adequate number of doctors, i.e. the courts, available to cure such diseases.

1.2 As per the data released by the Ministry of Law and Justice recently in relation to pending cases, as on 19 February 2016, 48,418 civil cases were pending in the Supreme Court (out of this, 1,132 cases have been pending for more than 10 years). Further, as on 31 December 2014, 31,16,492 civil cases were pending in the High Courts (out of this, 5,89,631 cases have been pending for more than 10 years).Often it has been observed that once a matter goes into the judiciary pipeline, it can take around 10-15 years until the final verdict can be delivered by the Supreme Court of India; off course, it is true that not all matters would travel till the Supreme Court, but the long drawn litigation battle in India still does not get over in 3-4 years to say the least.

Directors can attend board meeting via videoconferencing without intimation at beginning of calendar year

Companies Act: Directors can attend board meeting via video-conferencing without intimating at beginning of calendar year as prior intimation required for conducting e- board meeting under Rule 3 (3)(e) is directory, not mandatory Rule 3(3)(e) of the Companies (Meeting of the Board and its Power) Rules, 2014 provides that if intimation is given at the beginning of the calendar year such declaration shall be valid for one calendar year. It is not said anywhere that if intimation is not given at the beginning of the year, video-conferencing is not to be provided in that calendar year. Therefore, it does not mean that the directors are not entitled to video- conferencing if intimation is not given at the beginning of the calendar year

Facts:

a) Applicant and his mother were the directors of the company. They wanted to attend the board meeting through video-conferencing as they were going outside India. Further, they requested to participate in Board Meeting through electronic mode.

b) As per the Rule 3 of the Companies (Meetings of Board and its power) Rules, 2014, any director who desires, to participate may express his intention of participation through the electronic mode at the beginning of the calendar year.

Golden chance to declare domestic black money at effective tax rate of 31%

The Govt. has given an opportunity to persons who have not paid full taxes on their income of earlier years to come forward and declare the undisclosed income under the 'Income Declaration Scheme' (IDS). They are required to pay tax of forty-five per cent of such undisclosed income. The IDS is effective from June 1, 2016 and will remain open up to September 30, 2016. The declarant is required to pay tax up to November 30, 2016. However, various queries have been received by CBDT on IDS. Thus, the CBDT had issued three sets of FAQs till date. In the recent tranche of FAQs issued on June 30, 2016 the CBDT has clarified that once the person had declared undisclosed income, no question will be asked from where such income or tax is coming from. This assurance in the lasts FAQs (Question 5) issued by dept. will bring down the effective tax rate from 45% to 31% on the undisclosed income. Let us understand this scenario with the help of illustration. Suppose Mr. A offers his undisclosed income of Rs. 290 crores under IDS. Now out of Rs. 290 crores he will declare his undisclosed income of Rs. 200 crores by paying tax of Rs. 90 crores (Rs. 200 crores × 45%). As per the clarification no questions will be asked from where such income of Rs. 200 crores has come. Similarly, the remaining income of 90 crores (290-200) from which he has paid taxes will also be treated as his legitimate income. Thus, ultimately Mr. A has paid tax of around 31% on undisclosed income of Rs. 290 crores. The dept. had also clarified that such information will not be shared with other law enforcement agencies. Thus, it is the golden opportunity for taxpayers to come clean by paying effective tax rate of 31%.

Transfer of shares of retail investors via fake demat accounts amounted to unfair trade practice: SC

SEBI’s investigations revealed that shares meant for Retail Individual Investor’s were cornered by the respondent through hundreds of benami/fictitious demat account holders in violation of the provisions of Section 12A (a), (b), (c) of the SEBI Act, 1992, However, SAT set aside order passed by SEBI without mentioning any strong and justifiable reason. Thus, impugned order of SAT was liable to be quashed

Facts:

a) In matter of IPO of two companies, it was brought to the notice of the SEBI that several serious irregularities/illegalities had been committed by respondents so as to corner shares of the said companies by adopting certain unscrupulous, immoral and improper

b) As a result, the respondents got undue benefit. They got the shares transferred from the so called demat holders by way of off market trading at a price which was less than the market price of the shares.

c) SEBI’s investigations revealed that shares meant for Retail Individual Investor’s were cornered by the respondent through hundreds of benami/fictitious demat account holders in violation of the provisions of Section 12A (a), (b), (c) of the SEBI Act, 1992 and Regulations 3 and 4(1) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003

d) However, on appeal, the SAT set aside order passed by SEBI without mentioning any strong and justifiable reason.

SEBI to enable Portfolio Managers to act as Eligible Fund Managers

Introduction

1.0 Following the insertion of Section 9A in the Income-tax Act, 1961 ('Act, 1961') (popularly known as "Safe Harbour Norms"), SEBI has hailed to foreign fund management activity in the country and has come up with a consultation paper seeking comments from public for the amendments to the SEBI (Portfolio Managers) Regulations, 1993 wherein it is proposed that an existing or new SEBI registered Portfolio Manager maybe permitted to act as Eligible Fund Manager ("EFM") to manage Eligible Investment Funds ("EIFs").

Amendment to clause (b) of section 9A

2.0 The said amendment came in the backdrop of the amendment to clause (b) of Section 9A of the Finance Act, 2016 where the scope of the tax relief of funds is widened by including the words"is established or incorporated or registered in a country or a specified territory notified by Central Government in this behalf" which until now was limited to the countries with which India had entered into Double Tax Avoidance Agreement (DTAA) under Section 90 or the agreement between specified associations for double taxation relief under Section 90A (1). After the amendment, the funds established or incorporated or registered in a country or a specified territory notified by the Central Government shall also be treated as EIFs.