CBDT issues guidelines for waiver of interest of assesseein- default

CBDT via Circular No. 11/2017 dated 24-03-2017 has issued guidelines to reduce or waived off the interest charged under section 201(1A)(i) in case of assessee’s failure to deduct tax at source in some specified cases.

The cases in which the reduction or waiver of interest under section 201(1A)(i) can be considered are as follows:

1) In case where books of account and other documents necessary for making TDS were seized by the department due to which assessee was not able to deduct tax within due time.

2) Where no tax was deducted on any sum paid or payable on the basis of any order passed by the jurisdictional High Court and subsequently such order was reversed by any retrospective amendment or by a decision of Supreme Court or by a larger bench of jurisdictional High Court.

3) In respect of payment made to non-resident, where: 

a) dispute regarding the tax payable in India in respect of the said payment had been referred to the Competent Authority in India as mentioned in Rule 44H.

b) such reference had been received within a period of two years of the date on which the notice of demand determining the tax payable was received by the assessee;

c) the dispute has been settled by way of a resolution arrived at under the Mutual Agreement Procedure (MAP) provided in the said agreement; and 

d) the assessee has given his acceptance to the resolution and has withdrawn his appeal(s) pending on the issue within one month of the date on which the resolution is communicated to him.

In cases where assessee has already paid interest under section 201(1A)(i), assessee is entitled to get refund of such interest amount if the waiver order has been passed by the authority.

Payment for usage of ICC marks to promote Reebok brand can’t be held as royalty: ITAT

The issue before the Tribunal was as under:

Whether payment made by Reebok to ICC as 'Rights fee' for use of Marks of ICC for purposes of promotion and advertisement was in nature of 'Royalty' or 'Fees for technical services'?

Tribunal held in favour of Reebok as under:-

Reebok India Company (assessee) had entered into an agreement with ICC. As per terms of agreement ICC allowed Reebok to associate with it as 'Official Partner of ICC' to advertise its products during the ICC events.

ICC had agreed to grant to the assessee certain 'promotional, advertising, marketing and other commercial rights' on a worldwide basis in connection with the ICC events. In all, there were two types of payments, which the assessee was supposed to make under the Agreement, namely, 'Rights fee' and 'Royalty' Payment made by assessee as “Right fee’ exclusively for use of Marks of ICC for purposes of promotion and advertisement couldn’t be said as ‘Royalty’ asICC did not provide any technical, industrial, commercial or scientific knowledge to assessee for use of ICC marks on his product for promotion in ICC events.

There was a separate clause provided in the agreement for payment of royalty on the manufacture and sale of licensed products using the Marks of ICC which was in nature of 'Royalty' duly covered under clause(iii) of Explanation 2 to section 9(1)(iii). Thus, payment madeexclusively for use of Marks of ICC for purposes of promotion and advertisement and not for manufacture and sale of licensed products couldn’t be treated

as 'Royalty' - [2017] 79 taxmann.com 271 (Delhi - Trib.)

Excise dept. can’t blame advocate for its own failure to remove office objections in appeal: HC

Excise department (Revenue) filed the appeal before the High Court with the plea to quash order passed by Registry dismissing its appeal seeking time to remove office objections.

High Court held as under: -

1) All the appeals filed by the revenue were entertained by condoning delay and there was enough time to remove office objections, but those were not removed.

2) Revenue officials were playing a blame-game. To cover up their lapses and deficiencies, they turned around and blamed their Advocates. They were of the opinion that their Advocates ought to have informed them and at every stage of the matter, particularly as to which office objections had to be complied with or were to be removed.

3) If the officers were unaware of legal procedures, then they had to be in touch with their Advocates. They could not expect that the Advocate himself would come to their office and apprise them as to what further had to be done after the filing of an appeal.

4) While allowing the appeal, we are expecting that this blame game will not be played further and Revenue officials must communicate with their Advocates periodically or rather regularly apprise themselves on the stages their Appeals have to go through. - [2017] 79 taxmann.com 268 (Bombay)

SRK wins tax case; ITAT allows Rs 10 cr. deduction for securing IPL team sponsorship for Star India

Facts:

a) Shah Rukh Khan (SRK) had entered into a service agreement with Star India Pvt. Ltd. (‘Star India’) for hosting of ‘KBC’.SRK had received advance of Rs.72 crores for two seasons of KBC and the same had also been offered to tax on receipt basis.

b) After the production of the episodes for first season of KBC, the Star India decided not to produce the second season for commercial reasons. So, it wanted to recover the value of the unutilized amount from the SRK for non-shooting of the second season of KBC.

c) SRK agreed to secure for Star India a sponsorship association with KKR IPL Team. For securing such sponsorship, he paid Rs.10 crores to Knight Riders Sports Pvt. Ltd. and in return sponsorship rights were awarded to Star India

d) SRK claimed deduction of such expenditure while computing his business income while Assessing Officer (AO) disallowed such expenditure as he was of the view that SRK was under no obligation to refund any amount to Star India.

e) CIT (Appeals) affirmed order of AO, aggrieved by the order of CIT, SRK filed the instant appeal before the Tribunal.

Tribunal held in favour of SRK as under:

1) It is not the legal necessity to spend the expenditure which is determinative of its allowability; rather, it is the existence or otherwise of commercial expediency which guides the allowability of expenditure under Section 37(1).

2) From the point of view of commercial expediency, it is abundantly clearly that assessee had a long-standing professional relationship with Star India Pvt. Ltd. and there is a nexus between the impugned expenditure and the purpose of business.

3) It was not for the Revenue to prescribe what expenditure should an assessee incur and under what circumstances.

4) In the instant case, there was no challenge to the bonafides of the expenditure incurred. Therefore, same could be understood to had been incurred wholly and exclusively for the purposes of business.

5) Accordingly, the order of the CIT(A) was set-aside and the AOwas directed to delete the addition of Rs.10 crores. - [2017] 79 taxmann.com 227 (Mumbai - Trib.) 

Cabinet approves GST Bills to implement GST from July 1

On Monday, the Union Cabinet gave its nod for four crucial GST Bills to usher in the country's biggest-ever tax reform. The meeting was chaired by Prime Minister Narendra Modi. This meeting was conducted to understand and approve the four Bills - Central GST, IGST, UT GST and Compensation Bills.

Now the Government will introduce these Bills in the ongoing Budget session of Parliament itself. It is expected to be tabled in Parliament this week as Money Bills. The Government hopes to get them passed in the ongoing session to ensure the tax is implemented from July 1, 2017.

However, the State GST Bill will be taken up by State Cabinets and introduced in each State Assembly. The GST Council, in its previous two meetings, had given approval to the four legislations as also the State-GST (S-GST) bill.

Once GST is implemented, a composite tax will be levied on sale of goods or rendering of services. After the new indirect tax regime is rolled out, the revenue would be split between Centre and states in almost equal proportion. This because central taxes like excise and service tax and state levies like VAT will be subsumed in the GST. While the CGST will give powers to the Centre to levy GST on goods and services after Union levies like excise and service tax are subsumed, the I-GST is to be levied on interstate supplies. The SGST will allow states to levy the tax after VAT and other state levies are subsumed in the GST. The UT-GST will also go to Parliament for approval.

Reimbursement of salary of seconded employees held as FTS; ITAT relies on HC’s ruling of Centrica

Facts:

a) Assessee, a swiss company was engaged in providing operations and management services to airports. It had entered into an agreement with Bangalore International Airport Ltd. (BIAL) for secondment of its skilled personnel.

b) Assessing Officer (AO) held that the payment received by the assessee from BIAL was in the nature of Fees for Technical Services (FTS) and, accordingly, chargeable to tax in India.

c) Assessee claimed that the seconded personnel work under the direct control and supervision of BIAL as it had the right to issue directions to the seconded employees. Therefore, aforesaid receipts cannot be considered as FTS.

d) CIT(A) upheld the order of AO, aggrieved-assessee filed the instant appeal before the Tribunal.

Tribunal held in favour of revenue as under:

1) Secondees were holding high managerial position and also holding the position in the management as CEO and CCO. This clearly establish the fact that they were not ordinary employees but having the expertise in the field of management. Therefore, the purpose of assignment was to avail the services of highly qualified personnel.

2) The Hon'ble Delhi High Court in the case of Centrica India Offshore Pvt. Ltd. v. DCIT [2014] 44 taxmann.com 300 (Delhi) had held that where employees used their technical knowledge and skills while assisting in conducting business of quality control and management, sum reimbursed to overseas companies towards salaries of seconded employees amounted to FTS.

3) Therefore following the decision of Hon'ble Delhi High Court in the case of Centrica (Supra),amount received in terms of secondment agreement was in nature of FTS, chargeable to tax under section 9 as well as under article 12 of India-Switzerland DTAA. – [2017] 79 taxmann.com 199 (Bangalore - Trib.)

Reshuffling of specified investment by a trust doesn't lead to denial of sec. 11 exemption

Facts:

a) The assessee-trust was running an educational institution, registered under section 12AA. It was collecting moderate fees from the students and expenses of the Institution were always more than educational receipts, which were met out of dividend/interest income of its investment made as per section 11(5).

b) In the course of assessment, the Assessing Officer opined that assessee was carrying on its activities on commercial lines and there was sale of mutual funds in violation of provisions of section 11(5). He, thus, rejected assessee's claim for exemption of income under section 11.

c) The Commissioner (Appeals) allowed the assessee's claim by holding that there was no violation of the provision of section 11(5) for making investment and, moreover, profits derived from sale of mutual fund and dividend income were again re-invested into the specified mode of investment, i.e., mutual funds as per section 11(5).

d) The aggrieved-revenue filed the instant appeal.

The ITAT held in favour of assessee as under:

1) Under the provisions of section 11, there is no lock-in period nor there is any stipulation that investments so made cannot be reshuffled during the outer limit of five years' period. In this context, the Assessing Officer's observation that one set of mutual funds were divested of within the period of sixty days would be untenable.

2) During the year, the assessee-trust had reshuffled one set of investments only with the purpose of safeguarding interest of the trust and in the view of the apprehension that value of said mutual fund was fast declining. By doing so, the trustees of the trust had acted, in the best and paramount interests of the trust and not for the purpose of any benefit or a pecuniary gain to any person specified under sub-section (3) of section 11.

3) Again by doing so, the trust had not violated any stipulation or conditions, as a matter of fact there was no stipulation under section 11(5) placing restriction on the reshuffle of specified investment. Thus, assessee-trust was entitled to exemption under Section 11. – [2017] 79 taxmann.com 97 (Mumbai - Trib.)

Date of allotment letter to be considered and not date of sale deed registration to compute holding period of asset

Facts:

a) The assessee sold her office unit and claimed that she had earned long-term capital gain as the office unit was held for more than 36 months.

b) The Assessing Officer noted that though allotment of the said office was done prior to 36 months from the date of sale but the agreement to sale was registered during the period of 36 months only, therefore, he computed the holding period from the date of registration of the agreement. Accordingly, he held that the said asset was 'short-term capital asset'. Consequently, the resultant gain was assessed as short-term capital gain.

c) The Commissioner (Appeals) upheld the order of Assessing Officer. The aggrievedassessee filed the instant appeal before the Tribunal.

The Tribunal held as under:

a) A perusal of definition of section 2(42A) shows that the legislature has used the expression 'held'. It is further noted that in various other allied or similar sections, the Legislature has preferred to use the expression 'acquired' or 'purchased', e.g., in section 54/54F. Thus, it shows that the Legislature was conscious while making use of this expression.

b) The expression like 'owned' has not been used for the purpose of determining the nature of asset as short-term capital asset or long-term capital asset. Thus, the intention of the Legislature is clear that for the purpose of determining the nature of capital gain, the Legislature was concerned with the period during which the asset was held by the assessee for all practical purposes on de facto basis.

c) The Legislature was apparently not concerned with absolute legal ownership of the asset for determining the holding period. Thus, one has to ascertain the period of holding of asset from which it can be said that assessee started holding the asset on de facto basis.

d) Thus, it is clear that for the purpose of holding an asset, it is not necessary that the assessee should be the owner of the asset based upon a registration of conveyance conferring title on him.

e) Therefore, holding period of office unit should be computed from the date of issue of allotment letter and not from the date of registration of sale deed. - [2017] 79 taxmann.com 67 (Mumbai - Trib.)

Existence of undisclosed bank deposits non-mandatory on date of PMGKY payment: CBDT

PMGKY scheme has commenced and it is open for declarations till March 31, 2017. Representations have been received from various stakeholders seeking clarification as to whether the deposits made in bank account or cash in hand which are eligible for declaration should exist on the date of filing of declaration under PMGKY.

The CBDT vide Circular No. 8/2017 has clarified that, it is not necessary that the said undisclosed deposits should exist on the date of making payments under PMGKY. However, undisclosed cash should exist on the date of making payment of tax, surcharge and penalty under PMGKY.

Works contractor not eligible for sec. 80-IB deduction

Facts:

a) The land owner sold undivided co-ownership rights in the property to various individual purchasers. These purchasers further entered into construction agreement with assessee-firm for construction of flats.

b) Assessee filed return of income and claimed deduction under section 80-IB on construction receipts.

c) Assessing Officer (AO) held that the assessee though called developer was only a contractor and was not eligible to claim deduction under section 80-IB. 

d) On appeal, the CIT(Appeals) confirmed the order of AO. Aggrieved-assessee filed the instant appeal before the Tribunal.

Tribunal held in favour of revenue as under:

1) In the instant case, assessee had entered into an agreement with the land owner for development of vacant land into the multi-storied residential complex.

2) The main activity was construction of flats by virtue of the agreement into with the buyers.

3) Assessee's job included only controlling and directing the work of building construction as per plan and design by the landlord and hand over the constructed flats on behalf of the landlord to the eligible flat owners who have got registered undivided right in the property.

4) Assessee had only performed the work as a contractor and its job was not related to designing the project and selling of the project. Further, itwas not entitled to get any share in the constructed area and in the undivided property.

5) Since, it was a case of mere 'works contract', assessee was not eligible for deduction under section 80-IB. - [2017] 79 taxmann.com 10 (Chennai - Trib.)