Stocks

31 December 2013

Sum paid to access commercial information for further transmission to principal isn’t a ‘royalty’

ITO, TDS V. KENDLE INDIA (P.) LTD (Delhi - Trib.)
Where assessee made remittance for procurement of commercial information for onward transmission to its principal, remittance made was not for availing technical services and did not amount to royalty.
In the instant case the assessee had entered into a master clinical services agreement with its principal 'BHAG' for clinical trials. Assessee had arrangement with CSPL to provide information on clinical trial test undertaken by CTU of University of Kelmia, Sri Lanka. It applied for issue of certificate for non-deduction of tax on remittances made to CSPL which had no PE in India. The AO held that remittance for clinical services was in nature of royalty and was liable to be taxed in India. On appeal, the CIT (A) reversed the order of AO.
The Tribunal held in favour of assessee as under:
  • The services in question were services for supply of information which assessee was not using for any technical know-how but it was working as a conduit for supply of this information further to its principal; 
  • Thus, the assessee was making remittance for procurement of commercial information for onward transmission to its principal; 
  • The remittance made by the assessee was not for availing of technical services and did not amount to royalty. It was not liable for withholding taxes. Thus, the order of CIT (A) was to be upheld. 

30 December 2013

Consideration received by an advocated in form of land to undertake patta and layout of properties is taxable as capital gains and not as professional receipts

CIT V. J. MAHALINGAM (Madras)
Facts of the case:
  • The assessee, an practising advocate, entered into an agreement as per which he had to undertake the job of obtaining patta and design the layout of the properties and for the services rendered the owners agreed to transfer 3 plots of land to him;
  • In pursuance of the agreement, possession of the property was handed over to the assessee and General Power of Attorney was executed in his favour;
  • Sale agreement was executed in respect of three plots of land for a consideration of Rs. 1.5 crores out of which the assessee received a consideration of Rs. 90 lakh as ‘confirming party’.
  • The AO held that such receipt was to be assessed as income from professional services. On appeal, the CIT(A) reversed the order of AO and held that the receipt could only be taxed as capital gains. The Tribunal upheld the order of AO.
The High Court held as under:
  • The agreement entered between the assessee and the owners made no reference at all to the professional status of the assessee for taking his services. There was no mention about his being an Advocate and that his services were being taken only in that capacity;
  • The possession given of the entire 5 plots of land to the assessee was with the specific object of getting patta and layout of the property. The sale agreement made it very clear that the transfer of 3 plots of land to the assessee was intended by way of consideration for securing patta and layout and, as such, the original owners had entrusted the entire land to the assessee;
  • The assessee had rightly placed his reliance on section 2(47)(v) of the Income-tax Act, 1961, read with section 53A of the Transfer of Property Act, 1882, that the receipt would attract capital gains at his hands. There was nothing on record to show that the services to be rendered were taken in the capacity as a lawyer. Therefore, the Consideration received by an advocated in form of land to undertake patta and designing of layout of properties is taxable as capital gains and not as professional receipts.

29 December 2013

Refund of share application money isn’t a loan or advance for section 2(22)(e), unless malafide intention is there

VIKAS OBEROI V. DY. CIT (Mumbai - Trib.)
Where share application money is returned without any allotment of shares, such refund cannot be classified as loan or advance under section 2(22)(e), unless mala fide intentions of assessee are proved
The Tribunal held as under:
  • The share application money or share application advance is distinct from the 'loan or advance'. Although the share application money is one kind of advance given with the intention to obtain the allotment of shares, yet such advance is innately different from the normal loan or advance specified in 2(22)(e); 
  • In the instant case, the refund of the amount was made for commercial reasons and also in the best interests of the prospective share applicants. Further, it was self explanatory that the assessee being a 'beneficial shareholder', derived no benefit whatsoever, when the impugned 'share application money' was finally returned without any allotment of shares for commercial reasons; 
  • Therefore, the share application money might have been an advance but it was not advance which was referred to in section 2(22)(e). Such advances, when returned without any allotment or part allotment of shares to the applicants, would not take a nature of the loan merely because the same was repaid or returned or refunded in the same year or later on after keeping the money for some time with the company; 
  • As the original intention of payment of share application money was towards the allotment of shares of any kind, the same couldn’t be deemed as 'loan or advance', unless the mala fide intentions were proved by the AO with evidence. Accordingly, the grounds raised by the revenue were to be dismissed. 

28 December 2013

Transaction amongst Indian PE of foreign company and another resident entity isn’t an ‘international transaction’

IJM (INDIA) INFRASTRUCTURE LTD. V. ACIT (Hyderabad - Trib.)
Substance over form rule under section 92B(2) applies only when third party is interposed in international transaction (‘IT’) between two associated enterprises (‘AEs’).
Transactions between resident assessee and resident AE of foreign parent company can't be deemed as IT by invoking the substance over form rule under section 92B(2).
The Tribunal held as under:
  • The primary condition for attracting transfer pricing provisions is that there should be a transaction between two or more AEs. Section 92A defines the term "AEs". Section 92A(1) provides the broad parameters on satisfaction of which two or more enterprises constitute AEs;
  • Sub-section (2) of section 92A enlists specific situations which make two or more enterprises associates of each other for the purposes of sub-section (1). One of the essential limbs or constituents of an IT is "AEs".
  • The deeming fiction under section 92A(2) are limited to the parameters of management, control or capital. Section 92B(2)travels beyond these parameters. Though section 92B(2) is a part of section 92B with the heading "Definition of IT", yet it is to be read as an extension of section 92A(2) and not as an extension of section 92B(1);
  • Section 92B(2) only deems certain transactions to be 'transactions between AEs' and not as 'IT between two enterprises'. Section 92B(2) was enacted to hit at those cases where two AEs intend to have an IT but want to avoid transfer pricing provisions by interposing a third party as an intermediary. In such cases, the third party intermediary will generally not be the ultimate consumer of the services or goods;
  • The intermediary would facilitate the transfer of services or goods from one enterprise to its AE with no value addition or insignificant value addition. The intermediary is used to break a transaction into two different parts, which when viewed in isolation would not satisfy the requirements of section 92A;
  • The legal form of the transaction in such circumstances is ignored. The substance of the transaction is given effect to, not by disregarding the existence of the intermediary but by deeming the transaction with the intermediary itself to be one with an AE;
  • The legal fiction created in respect of the specified transaction can be used only for the purpose of examining whether such transaction constitutes an 'IT' under section 92B(1)? In case section 92B(1) is not attracted, the fiction under section 92B(2) ceases to operate.

27 December 2013

Transfer Pricing adjustment for controlling premium upheld; transfer of shares as per SEBI Regulation can’t be deemed to be at Arms Length Price

LANXESS INDIA (P.) LTD. V. ACIT (Mumbai - Trib.)
TP adjustment for control premium upheld as it is only the seller who can demand control premium in case he is selling the controlling stake. Even price charged for transfer of shares is as per SEBI Regulations, it can't be deemed to be at ALP
In the instant case the assessee belonged to Lanxess (‘L’) Group which was engaged in the chemical business globally. It held 50.97% shares of L in which RA Group also held 18.33%. The assessee sold its entire shareholding in L group to the INEOS ABS at a negotiated price of Rs. 196.36 per share, whereas the RA group had been paid at Rs. 201 per share. The INEOS ABS was a joint venture of L group and INEOS group in which the holding company of the assessee had 49% share shareholding. Since assessee had not been paid anything towards control premium though it had sold the controlling stake in the company, the TPO proposed adjustment on account of control premium at 25% of share value. The AO made adjustment consequent to order passed by TPO.
The Tribunal held as under:
  • The TPO referred to the report of Phillip Sounders Jr. PHD ('Phillip') (who gave a finding that control premium varied from 30% to 50% of the public unquoted price) to estimate the control premium;
  • The TPO/AO had compared price paid to the assessee with the price paid to RA Group who held only 18.83% share which was not a controlling stake. The RA Group was a good internal CUP as both the assessee and RA Group had sold the shares of the same company and buyer was also the same. Therefore, the transaction was identical except the fact that the assessee had sold the controlling stake;
  • Thus, only what was required to be considered was adjustment on account of controlling stake transferred by the assessee by estimating the price for the controlling stake. The report by Phillip which was based on research undertaken in respect of several public quoted companies could be used as reliable material. Considering this the adjustment of 25% of the share value made by AO/TPO on account of controlling premium was justified;
  • The argument of the learned AR that the assessee was selling the business and, therefore, could not expect control premium, had no merit. In fact, it was only the seller who could demand control premium in case he or she was selling the control stake;
  • The ld. AR for the assessee had also argued that the general public shareholders had also been paid at the rate of Rs. 201 per share as per SEBI Regulation no. 20(4). But the SEBI regulations does not in any way state that price negotiated by the assessee with the buyer is at arm's length price. Thus, order of AO was to be upheld. 

26 December 2013

Payment for delay in completion of buy back process under open offer to be deemed as cap gains and not interest

Genesis Indian Investment Co. Ltd. v. CIT(A) (Mumbai - Trib.)
Interest received by assessee for delay in completion of the process of buy-back of shares under open offer to be deemed as capital gain and not interest income
In the instant case the assessee, a company incorporated in Mauritius, had obtained registration with the SEBI as a registered FII. It was holding the shares of Castrol India Ltd. which was a subsidiary of Castrol Ltd. UK ('Castrol UK'). The Castrol UK announced open offer for acquisition of issue capital of Castrol India Ltd. The assessee tendered certain equity shares under open offer. It received compensation from Castrol UK for delay in payment of shares tendered under the open offer. The AO treated the said compensation as interest income and taxed the same. The CIT(A) upheld the action of the AO. Aggrieved assessee filed the instant appeal.
The Tribunal held in favour of assessee as under:
  • It was clear that the payment of interest was directed by the SEBI and, therefore, it was not a penalty but the payment of interest on account of failure to make the payment by the acquirer as per the time schedule prescribed under the SEBI regulations;
  • However, in the instant case the interest received by the assessee was for the period prior to the tendering of shares and acceptance of the same, therefore, the interest related to the delay in completing the process of buy-back of shares under an open offer;
  • If the interest would have been paid for delay in making the payment then it couldn't be treated as part of consideration. In the instant case, the delay for which the interest had been received by the assessee was in the process of buy-back of shares in the open offer after announcement of the intention of acquiring of shares;
  • It was not a case of delay in making the payment of the determined consideration after the transaction of purchase of sale was over. Thus, this additional amount received by the assessee being interest was part of sale consideration and, accordingly, would be treated as part of capital gain and not the income from interest. 

25 December 2013

Gift received by assessee on the occasion of his daughter’s marriage isn’t exempt from tax

RAJINDER MOHAN LAL V. DY.CIT  (Punjab & Haryana)
Gift received by assessee on occasion of his daughter's marriage won't be exempt as the word individual appearing in proviso to sub-clause (vi) of sec. 56(2) relates to marriage of assessee and not of his daughter
The High Court held as under:
  • Proviso to sec. 56(2)(vi) provides that gift received on the occasion of the marriage of an individual would be exempt from tax. There is no ambiguity in such proviso;
  • The expression "individual" appearing in proviso (b) to section 56(2)(vi) of the Act, is preceded by the word "marriage" and, therefore, relates to the marriage of the individual concerned, i.e., the assessee and not to the marriage of any other person related to him in whatsoever degree, whether as his daughter or son;
  • The expression "marriage of the individual" is unambiguous in its intent and does not admit of an interpretation, that it would include an amount received on the marriage of a daughter;
  • If the Legislature had intended that gifts received on the occasion of marriage of the assessee's children would be exempted, nothing would prevent the Legislature from adding the words "or his children", after the words "marriage of the individual";
  • Thus, in view of unambiguous legislative intent appearing in the proviso, the addition made to the appellant's income on account of gifts received on the occasion of his daughter's marriage was to be affirmed. 

Benefit of confusion in Circular and amendment to sec. 54EC goes to assessee; section 234B interest reduced

P.S. SESHADRI V. CHIEF CIT (Karnataka High Court)

Where due to confusion created by CBDT’s circular and amendment made to section 54EC, assessee was under a bona fide belief of availing exemption, and did not pay capital gains tax, levy of interest for default in payment of advance tax was to be restricted

Facts
  • The assessee earned long-term capital gain of Rs. 1.82 crores on sale of property on 16-3-2006. For purpose of availing sec. 54EC relief he made application to NHAI for investing entire gains in NHAI's bonds in the absence of a limit on the quantum of investment under Section 54EC. Such application was rejected by NHAI;
  • In meantime, CBDT’s circular extended the time-limit for such an investment up to 31-12-2006 without any ceiling limit and, thereafter, up to 31-3-2007, however, imposing a maximum ceiling limit of Rs.50 lakhs, with retrospective effect from 01.03.2006;
  • In January, 2007, assessee applied for next issue of bond for investing Rs. 50 lakhs which was again rejected. The assessee now voluntarily paid capital gains tax;
  • The revenue sought to levy interest under sections 234A, 234B and 234C. The assessee prayed for waiver of interest levied under section 234B
The High Court held in favour of assessee as under:
  • Section 54EC, as it stood prior to its substitution by Finance Act, 2007 was without any ceiling limit for 'capital gain' investment in bonds. Its substitution by Finance Act, 2007 with retrospective effect from 1-4-2006 was to the detriment to the assessee, de hors which assessee would have had the benefit of exemption from capital gain tax;
  • There could be no dispute that the entire tax liability was discharged during the period from 1-4-2006 to 31-3-2007 and up to the Finance Act, 2007, the assessee was under a bona fide belief that he would be entitled to exemption from payment of capital gains tax under section 54EC;
  • The very fact that the words 'retrospective amendment of law' used in Paragraph 2(c) (of CBDT’s order dated 26-6-2006) established that it was one of the unavoidable circumstances by which an assessee would stand to benefit by the waiver of interest under section 234B;
  • Where a return of income could not be filed by the assessee due to unavoidable circumstances, and assessee proved to have a bona fide belief , coupled with the voluntary payment of tax liability, the Chief Commissioner was not justified in declining the benefit of a waiver of interest to assessee under section 234B. Thus, ends of justice would be met by waiving interest up to 80 per cent under section 234B.

24 December 2013

‘Tax avoidance’ arrangement is legitimate if it’s within four corners of law, says High Court

BHORUKA ENGINEERING INDS. LTD. V. DY.CIT (Karnataka)
Where arrangement of assessee to avoid payment of tax did not contravene any statutory provision and was achieved within four corners of law, it couldn’t be found fault with
In the instant case the assessee was holding shares in BFSL, which had purchased 15 acres of land from assessee. The assessee sold its shareholding in BFSL for a certain consideration to DLF through Stock Exchange after paying STT and claimed exemption from gain on sale of shares under section 10(38). The AO held that sale of shares by assessee was a colourable device and that virtually the immovable property had been transferred to DLF and assessee was liable to tax on short-term capital gain on sale of immovable property. Further, the CIT (A) and the Tribunal upheld the order of the AO.
The High Court held in favour of assessee as under:
  • Every taxpayer is entitled to arrange his affairs so that his taxes would be as low as possible and that he is not bound to choose that pattern which will replenish the treasury. If the taxpayer is in a position to carry through a transaction in two alternative ways, one of which will result in liability to tax and the other will not, he would at liberty to choose the latter one and would do so effectively in the absence of any specific tax avoidance provision; 
  • If BFSL had sold the property by executing a registered sale deed and received the sale consideration, then it ought to have paid capital gains on the said consideration. All the authorities were carried away by this aspect of the matter and because the Department was deprived of the tax, they had come to the conclusion that it was a colourable device and tax planning to avoid payment of taxes; 
  • The assessee by resorting to such tax planning had taken advantage of the benefit of the loopholes in the law, which had endured to his benefit. After seeing how this loophole had been exploited within four corners of the law, it was open to the Parliament to amend the law plugging the loopholes; 
  • However, by any judicial interpretation one couldn’t read into the section, which was not intended to by the Parliament at the time of enacting this provision. If the shareholder chose to transfer the land to the purchaser of the shares, it would be a legal transaction, in law, and merely because it was able to avoid payment of tax, it couldn’t be said to be a colourable device or a share transaction; 
  • The finding of the assessing authority that it was a transfer of immovable property was contrary to law and material on record. Unfortunately, three authorities committed the very same mistake which was illegal, contrary to settled legal position and, therefore, required to be set aside. 

23 December 2013

No deduction of tax from medical allowances paid to employees along with salary before incurring of such expenses

ACIT V. SAP LABS INDIA (P.) LTD. (2013) (Bangalore - Trib.)
Employer was not at fault for not deducting tax at source from medical allowances paid to its employees before incurring of actual medical expenditure. It couldn’t be deemed to be in default for non-deduction of tax on medical reimbursements if it has made bona fide estimate of taxable salary of its employees.
In the instant case the payments made by assessee to its employees every month included a component towards medical expenditure. The AO treated assessee as an ‘assessee-in-default’ for not deducting tax at source from medical reimbursements upto Rs. 15,000 paid to the employees. In this regard, AO held that the payment of medical expenditure had not to precede the actual incurring of the expenses and it should be only by way of reimbursement. On assessee’s appeal, the CIT(A) quashed the order of the AO Aggrieved revenue filed the instant appeal.
The Tribunal held in favour of assessee as under:
  • The exemption in respect of medical expenditure was to be restricted to expenditure actually incurred by the employees, or Rs. 15,000 whichever was lower. The exemption was to be granted even if the payment preceded the incurrence of expenditure;
  • Though the allowance paid by the assessee to the employees would not form part of taxable salary of an employee, yet if the employer was required to deduct tax at source treating it as part of salary, then that would be contrary to the provisions of Sec.192(3) of the Act;
  • The liability of the person deducting tax at source couldn’t be greater than the liability of the person on whose behalf tax at source was deducted. No tax could be recovered from the employer on account of short deduction of tax at source under section 192 if a bona fide estimate of salary taxable in the hands of the employee was made by the employer. Thus, the order passed by the AO was rightly quashed by the CIT(A).

Service tax defaulters to face arrest from January 1


Come January 1 and thousands of service tax defaulters who have not bothered to avail of the one time Voluntary Compliance Encouragement Scheme (VCES) are likely to be arrested. VCES is an amnesty scheme for those who have never filed their service tax returns as well as those who have stopped doing so. Launched by finance minister P Chidambaram, the scheme gives benefits like waiver of interest and fine on tax dues to the defaulters who come forward to pay up.


Highly-placed sources told TOI that the Hyderabad zone of the service tax department has got a 'green signal' from the finance ministry to launch the strictest action against defaulters, including arrest and immediate recovery of the money by attaching property or bank accounts.


Meanwhile, the department is leaving no stone unturned to give wide publicity to the scheme slated to end on December 31. Apart from putting up kiosks, mobile teams have been formed to reach various corners of the city in the next two weeks to persuade people to pay the tax. Officials are reportedly working even on weekends. However, sources revealed that the response is still lukewarm despite the closure date being barely 10 days away. "At present, the department is getting one or two odd cases of VCES per day," said an official, adding that recently a leading regional language TV channel paid Rs 80 lakh dues after being issued summons.


Ahead of the massive crackdown, the service tax wing of the Central Board of Excise and Customs has constituted teams to persuade defaulters to file returns. "In the recent past, we were forced to arrest some defaulters in construction, multimedia companies and security agencies. We found that they were not depositing the service tax collected from customers with the department. These are the cases of deliberate and criminal evasion. Apart from such evaders, there are thousands who are yet to get registered with the department while scores have stopped filing their service tax returns," a senior official said.




22 December 2013

Section 80G recognition to trust engaged in spreading spirituality and vegetarianism valid

KUKA MARTYRS MEMORIAL TRUST V. CIT (Chandigarh - Trib.)
To propagate philosophy of all religious and spiritual reformers with special emphasis on vegetarianism is nothing but a public charitable object
In the instant case the assessee-trust was registered under section 12AA. It was also granted exemption under section 80G. Subsequently, its object clause was enlarged including the object of propagating the messages, teachings, ideals and philosophy of all the religious and spiritual reformers with special emphasis on vegetarians. Its application seeking renewal of exemption under section 80G(5) was rejected by the CIT holding that it was pursuing religious objects and was not eligible for exemption.
The Tribunal held in favour of assessee:
  • The added object of the trust, did not seem to be wholly or substantially a religious one. The teachings of gurus with a view to spread vegetarian way of life would definitely save the wild life and would help in preserving environment;
  • Thus, without viewing the meaning of the above object from a limited aperture whose simple use of the word 'religion' was taken as otherwise was unfortunate;
  • It is the religion which teaches one and all the way of life. How, one could live physically, mentally and socially happy and prosperous, is taught by one and all religions. So, it was religion in that wider sense of its meaning and not in the way of limited meaning of segmentalization of society and creating a divide in the society;
  • The meaning of public-charity goes on changing but the main idea of charity remains static. The above object was for public charity and was not limited to a particular class or believer in a particular section. Therefore, the CIT was to be directed to grant approval to the assessee-trust under section 80G(5).

21 December 2013

A registered society is a ‘person’ defined under section 2(31); capable to exercise all rights of a natural person

MANGALAM SERVICE CO-OPERATIVE BANK LTD. V. ITO (Kerala)
Primary co-operative credit society which is registered under Co-operative Societies Act, must be treated as juristic person capable of exercising all rights of a natural person
In the instant case the appellants were Primary Co-operative Credit Societies registered under the Kerala Co-operative Societies Act. Notices were issued to the appellants under section 142 for submitting returns. The appellants challenged said notices contending that they were not persons as contemplated under section 142(1). The Single Judge took the view that a combined reading of section 142(1) and section 2(31) would show that co-operative societies like the appellants were also 'persons' as defined in the Act and it could not be held that the notices issued were without jurisdiction.
The High Court held as under:
A perusal of the definition of the word 'person' showed that it included within its sweep all juridical persons. Appellants were cooperative societies. Indisputably they were registered under the Co-operative Societies Act. On a reading of section 9 of the Kerala Co-operative Societies Act it showed that the appellants were co-operative societies which had been registered and which were to be treated as body Corporates vide section 9 of the Kerala Co-operative Societies Act. Under section 2(31) a person comprehends juristic entity. Having regard to the fact that appellants were registered under the Co-operative Societies Act, the appellants had to be treated as body corporate and, therefore, juristic persons capable of exercising all the rights of natural persons as provided in the Act. 

20 December 2013

‘Bigg Boss’ not to withhold tax from sum paid to Non Resident assisting in production of programme; AAR refers to Sec. 194C

Endemol India (P.) Ltd., In re (2013) (AAR - New Delhi)
Services rendered by Non Resident for production of programmes for purpose of broadcasting and telecasting shall be specifically characterized as ‘work’ for the purpose of section 194C. Consequently, income therefrom would be treated as ‘business income’ and not as ‘Fees for Technical Service’.
Facts:
  • The applicant, Endemol India (P) Ltd. (EIPL) starting its operation with production of reality shows Bigg Boss and Fear Factor, was engaged in the business of providing and distributing television programmes. It produced a reality show (‘the show’) for which the shooting took place in Argentina. 
  • For the purpose of that show it engaged Endemol Argentina SA (Endemol) for providing line production services in Argentina. 
  • It approached the AAR to determine whether the amount paid to Endemol would constitute Fees for Technical Services or Royalty?
The Authority held in favour of the Applicant as under:
  • The Delhi High Court in the case of CIT v. Prasar Bharati (Broadcasting Corporation of India), (2007) 158 Taxman 470 (Delhi) held that broadcasting and telecasting including production of programmes for such broadcasting and telecasting do not fall under the provision of section 194J as they are specifically covered by definition of work in section 194C of the Act; 
  • CBDT’s Circular No. 715, dated 08-08-1995 stated that payments made to advertising agencies for production of programmes, which are to be broadcasted/telecasted, would be subject to withholding tax under section 194C of the Act; 
  • Since the payments made by the applicant to Endemol were for production of programmes for the purpose of broadcasting and telecasting, the services rendered by such non-resident would be specifically characterized as ‘work’ for the purpose of section 194C; 
  • If the services were characterized as ‘contact work’ under section 194C of the Act, then the income received would be necessarily treated as business income. In absence of PE of non-resident in India, the income of the non-resident company was not taxable in India; 
  • In that case it would not be appropriate to treat the item, i.e., services for production of programmes for telecasting as ‘Fees for Technical Services’ under the provision of section 9(1)(vii) of the Act.

Assessee can’t claim status of a ‘trust’ if its parental body doesn’t surrender its status of mutual club

Lodge of Universal Charity 273 EC Charitable Trust v. DIT (Exemptions) (Chennai - Trib.)
Where assessee-trust was an extension of mutual club, status of mutuality having transgressed to assessee, it could not be held to be a Charitable Institution and, accordingly, it could not be granted approval under sub-section (5) of section 80G
In the instant case the assessee was registered under section 12AA as a charitable trust. It was also granted recognition under section 80G for a period. The Director of Income-tax (Exemption) refused to give it approval under section 80G for further period on the ground that the assessee had not carried out any charitable activities for previous three financial years.
The Tribunal held as under:
  • The trust was an extension of the Mutual Club of Masons. The status of mutuality reflected on the assessee trust also. Therefore, it couldn’t claim the status of a charitable institution;
  • As the mother body (i.e., Club of Masons) was not surrendering its status of mutuality, it was not possible to treat the assessee-trust as an independent charitable institution. If it was so treated, one would be encouraging violation of law by permitting the mother body to go beyond the perimeter of mutuality through the medium of a trust;
  • Therefore, even though the assessee was registered under the law relating to trust, yet it couldn’t be construed as a charitable institution for the purpose of the Income-tax Act. Consequently, the application put up by the assessee under section 80G couldn’t be entertained. 

19 December 2013

Section 54F exemption to be allowment even if transaction hasn’t been completed within stipulated timeed on invest

NARASIMHA RAJU RUDRA RAJU V. ACIT (Hyderabad - Trib.)
Assessee would be entitled to benefit under section 54F if he had invested amount of capital gain in purchasing or constructing a residential house, even though transaction was not completed within stipulated period
In the instant case the assessee had sold certain property and claimed exemption from capital gains under section 54F by stating that he had invested the amount in purchase of land and construction of house property. During the assessment, the AO noted that the period of 3 years from the date of sale of that property had expired and that the assessee had neither purchased any residential house nor had completed construction of any residential house as stipulated in section 54F, therefore, assessee was not eligible for deduction under section 54F. The CIT (A) confirmed the action of the AO. Aggrieved assessee filed the instant appeal.
The Tribunal held as under:
  1. Provisions contained in section 54F being a beneficial provisions, have to be construed liberally. In various judicial precedents it has been held that the condition precedent for claiming benefit under section 54F is only that the capital gain realized from the sale of capital asset should be invested by assessee either in purchasing or constructing a residential house within the stipulated period ;
  2. If the assessee had invested the money in construction of residential house, merely because the construction was not complete in all respects and the house was not in a fit condition to be occupied within the period stipulated, that would not disentitle the assessee from claiming the benefit under section 54F;
  3. Once the assessee demonstrated that the consideration received on transfer had been invested, even though the transaction was not complete in all respects, he would be entitled to avail of benefit under section 54F;
  4. Even though investment made in purchasing a plot of land for the purpose of construction of a residential house had been held to be an investment satisfying the conditions of section 54F, yet the assessee was required to prove the actual date of investment and the amount invested towards purchase or construction of the residential house with supporting evidence;
  5. The order of CIT (A) was to be set aside and matter was to be restored to the file of the AO. Thus, ground raised by the assessee was to be allowed. 

18 December 2013

ESOPs from foreign employer are taxable in India if these relate to services rendered by employee in India

ACIT V. ROBERT ARTHUR KELTZ (Delhi - Trib.)
In case of an assessee, being an employee of a foreign company, only such proportion of ESOP is taxable which relates to service rendered by such assessee in India
In the instant case the assessee, an employee of foreign company, had exercised ESOPs while on his assignment in India. He, therefore, offered to tax the amount of proportionate ESOP earned in India, i.e., proportionate to the number of days of his assignment in India. However, the AO while framing the assessment brought to tax the entire amount of perquisite on account of stock options. On appeal, the CIT (A) allowed assessee's appeal. Aggrieved revenue filed the instant appeal.
The Tribunal held in favour of assessee as under:
  • The principle laid down by the Delhi 'I' Bench in the case of Asstt. CIT v. Ellin 'D' Rozario [IT Appeal No. 2918 (Delhi) of 2005, dated 5-12-2008] was that only proportionate salary would be taxable in India, if a part of activity done by the assessee had no relation to any India-specific job or activity; 
  • In the instant case, it was not in dispute that the assessee was in India only for a short period and prior to it, he had not done any service connected with any activity in India; 
  • As the assessee had not rendered service in India for the whole grant period, applying the proposition laid down (supra), only such proportion of the ESOP would be taxable in India as related to the service rendered by the assessee in India. 

17 December 2013

Pre-payment charges for closure of housing loan are eligible for section 24 deduction

WINDERMERE PROPERTIES (P.) LTD. V. DY. CIT (Mumbai - Trib.)
Prepayment charges for closure of loan account which was taken for acquisition of property are allowable under section 24(b)
In the instant case during the assessment, the AO disallowed the assessee's claim for deduction of prepayment charges on closure of housing loan. Further, the CIT (A) upheld the disallowance. Aggrieved assessee filed the instant appeal.
The Tribunal held in favour of assessee as under:
  • The definition of interest under section 2(28A) makes it clear that it has basically two components, firstly, the amount of interest for moneys borrowed and secondly, the amount paid by whatever name called in respect of the money borrowed or debt incurred;
  • The second category might also encompass any charges paid for not utilizing the credit facility. By incorporating the definition of 'interest' in section 24(b), the position that emerges is that not only the amount paid as interest but also any other amount paid, by whatever name, called, in relation to such debt incurred also qualifies for deduction;
  • By early repayment, the assessee managed to wipe out its interest liability in respect of the loan, which would have otherwise qualified for deduction under section 24(b) during the continuation of loan;
  • It was obvious that these prepayments had live and direct link with the obtaining of loan which was availed for acquisition of property. It was beyond comprehension as to how the amount paid as interest on the loan taken was allowable as deduction but the amount paid as prepayment charges of the very same loan was not deductible;
  • The payment of such 'prepayment charges' couldn't be considered as de hors the loan obtained for acquisition or construction or repair, etc., of the property on which interest was deductible under section 24(b). Both, the direct interest and prepayment charges, were species of the term 'interest'. Therefore, the impugned order of CIT(A) was to be set aside and deduction claimed by the assessee was to be granted.

16 December 2013

Tax Collection

As per the press release issued by the Government of India the gross direct tax collection during April-November of the financial year  2013-14 is at Rs.3,68,655 crores as against Rs.3,25,736 crores in the same period last year, up by 13.18%. While gross collection of Corporate taxes has increased by 9.66%  (Rs.2,25,124 crores as against Rs. 2,05,291 crores last year), gross collection of Personal income tax is up by 19.60% (Rs.1,39,763 crores as against Rs. 1,16,862 crores last year). Net direct tax collection is up by 14.60% and stands at Rs.3,10,317 crores, as compared to Rs. 2, 70,771 crores in the same period in the last fiscal.The collection of Securities Transaction Tax (STT) stands at Rs. 3,053 crores showing the growth of 4.73% . The Wealth Tax collection is up by 13.38% (Rs. 712 crores against Rs. 628 crores last year).

Special audit can be directed without providing an opportunity of personal hearing to assessee

NEESA LEISURE LTD. V. DY. CIT (Gujarat)
Proviso to section 142(2A) does not envisage any personal hearing to assessee before an passing of an order for special audit.
In the instant case the assessee-company was opposed to the proposal of special audit on the ground that there were no complexities in the accounts and contented that proviso to section 142(2A) provides an opportunity of personal hearing to assessee.
The High Court held as under:
  • The requirement of personal hearing is normally not seen as necessary concomitant to a reasonable opportunity of being heard. The same depends on the statutory provisions from which such right flows, the nature of the proceedings and the consequences likely to follow from such proceedings;
  • The proviso to section 142(2A) does not envisage any personal hearing before an order under sub-section (2A) can be passed. The said proviso only requires giving a reasonable opportunity of being heard to the assessee. Such reasonable opportunity ordinarily would not include right of personal hearing;
  • It was strongly argued by assessee that the very fact that the AO believed that the accounts were complex, it meant that the issues were complex and the personal hearing was required. This contention was misconceived. Complexity of accounts and complexity of the question whether accounts were complex or not were two totally different things;
  • Thus, a clear distinction had to be drawn between the two. Whether the accounts were complex so as to call for special audit was one aspect. Another aspect was whether the question to ascertain if the accounts were complex was itself a complex question. This would have a bearing on whether personal hearing was necessary. Thus, assessee’s contention of personal hearing was rejected;
  • Coming to the question of validity of the order on the premise of complexity and the requirement of interest of revenue, it was noticed that the assessee had been given previous notice under section 142(1) with respect to its accounts. For a long time the assessee did not comply with such notices;
  • The authorities had highlighted several aspects of the matter to indicate that the accounts were complex and that interest of revenue would be served if the special audit report was obtained. The various points on which the AO desired that the auditor should make a report itself would demonstrate that the accounts were complex;
  • The AO had sufficient material at his command to form an opinion that the accounts were complex and that it was in the interest of the revenue to get them audited by the special auditor. Thus, there was no merit in instant petition and the same was to be dismissed.

15 December 2013

Authority for Advance Rulings can only determine tax liability of an applicant and not any of its affiliates or AOP

CTCI Overseas Corporation Ltd., In re (AAR - New Delhi)
It would be impermissible for the authority ‘Authority for Advance Rulings’ (AAR) to determine tax liability of person other than the applicant
Facts
The applicant, a foreign company, formed a consortium with an Indian company to execute a project (i.e., ‘contract’) in India. The contract was awarded to the consortium. Under the contract, the applicant was responsible for offshore supplies, offshore services and the Indian company was responsible for onshore supplies, construction and erection. The applicant approached the AAR to determine the taxability of income receivable from offshore supplies made to Indian company. The AAR ruled that the applicant’s income from offshore supplies would not be taxable in India in view of the Supreme Court’s decision in Ishikawajima. Revenue filed an application for rectification of apparent mistake as the contract was awarded to consortium (AOP) and not to applicant, thus, ruling of AAR that applicant was not liable to be taxed was inconsistent with the finding that AOP was the assessing unit. The AAR allowed the rectification application of revenue and posted the application for main hearing as to whether AOP could be liable to be taxed in respect of offshore supplies?
Held
Section 245N of the Act doesn't permit AAR to rule on tax liability of a person other than the applicant. The AAR couldn’t give a ruling that the applicant was not liable to be taxed and somebody else would be liable to be taxed. The proposed question framed by AAR for determination could only relate to applicant's tax liability. It would be impermissible for AAR to determine tax liability of person other than the applicant (i.e., AOP).

14 December 2013

Tribunal had no power to modify stay order which was merged with the order of High Court

CHOICE PRECITECH INDIA (P.) LTD. V. COMMISSIONER OF CENTRAL EXCISE (Bangalore - CESTAT)
Where stay order passed by Tribunal had been challenged before High Court, such order stood merged with order of High Court; thereafter, Tribunal had no power to modify such merged stay order
In the instant case, the Tribunal vide its stay order directed the assessee to make pre-deposit of certain amount and report compliance. Against the said order, the assessee filed writ petition before the High court. The High Court only allowed credit of earlier payments to be taken by the party towards pre-deposit ordered by the Tribunal. Further, the High Court granted four weeks time to deposit any balance amount and submit proof thereof to the Registry of the Tribunal. In these circumstances the assessee again filed a miscellaneous application to the Tribunal seeking modification of the stay order.
The Tribunal rejected the application with following observations:
  • The plea made by assessee in miscellaneous application amounted to a plea for modification of original stay order which had already merged with the order of High Court;
  • The Tribunal was incompetent to modify the stay order. The assessee had not complied with the time-bound direction of the High Court either. There was neither clear statement of any payments made by the assessee, nor there was any claim of further payments within the prescribed time towards pre-deposit ordered by the Tribunal;
  • In the above scenario, the miscellaneous application was rejected.

13 December 2013

Extension of due date of advance tax -December instalment

The government today extended the last date for payment of the December instalment of advance tax from December 15 to December 17.

"The banks are closed on December 15, 2013, being a Sunday. Accordingly, to facilitate payment of this instalment of Advance tax, the Central Board of Direct taxes ( CBDT) has issued an order to extend the time limit to make such payments from December 15, 2013 to December 17, 2013," the Finance Ministry said.

Taxpayers, therefore, can now pay their advance tax instalment by December 17, 2013 without entailing any consequential interest for deferment, it added.
The government today extended the last date for payment of the December instalment of advance tax from December 15 to December 17.

"The banks are closed on December 15, 2013, being a Sunday. Accordingly, to facilitate payment of this instalment of Advance tax, the Central Board of Direct taxes ( CBDT) has issued an order to extend the time limit to make such payments from December 15, 2013 to December 17, 2013," the Finance Ministry said.

Taxpayers, therefore, can now pay their advance tax instalment by December 17, 2013 without entailing any consequential interest for deferment, it added.
Taxpayers, therefore, can now pay their advance tax instalment by December 17, 2013 without entailing any consequential interest for deferment, it added.

The government today extended the last date for payment of the December instalment of advance tax from December 15 to December 17.

"The banks are closed on December 15, 2013, being a Sunday. Accordingly, to facilitate payment of this instalment of Advance tax, the Central Board of Direct taxes ( CBDT) has issued an order to extend the time limit to make such payments from December 15, 2013 to December 17, 2013," the Finance Ministry said.

Taxpayers, therefore, can now pay the ..

Read more at:
http://economictimes.indiatimes.com/articleshow/27308288.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
The government today extended the last date for payment of the December instalment of advance tax from December 15 to December 17.

"The banks are closed on December 15, 2013, being a Sunday. Accordingly, to facilitate payment of this instalment of Advance tax, the Central Board of Direct taxes ( CBDT) has issued an order to extend the time limit to make such payments from December 15, 2013 to December 17, 2013," the Finance Ministry said.

Taxpayers, therefore, can now pay the ..

Books of account pre-requisites to tax unexplained cash credit; no additions for deposit in bank account in absence of books

ITO V. KAMAL KUMAR MISHRA (Lucknow - Trib.)
Where assessee has not maintained any books of account, Assessing Officer can’t invoke provisions of section 68 on the basis of deposits made in bank account of assessee.
In the instant case, the assessee had not maintained any books of account. During assessment, the AO invoked the provisions of section 68 and made additions of all the deposits made by assessee in his bank account. The assessee, however, contended that the provisions of section 68 could only be invoked where any sum was found credited in his books of account. On appeal, the CIT (A) deleted the additions. Aggrieved-revenue filed the instant appeal.
The Tribunal held in favour of assessee as under:
  1. The provisions of section 68 can only be invoked if any sum is found credited in the books of account maintained by assessee and the assessee offers no explanation about the nature and source thereof or the explanation offered by him isn’t, in the opinion of the Income-tax Officer, satisfactory. In this eventuality, the said sum so credited may be charged to income-tax as the income of the assessee of that previous year;
  2. The passbook issued by the bank can’t be termed to be the books of account of the assessee as per the judgment of the Bombay High Court in CIT v. Bhaichand N. Gandhi [1982] 11 Taxman 59. Therefore, the provisions of section 68 can’t be invoked on various deposits or credits found in the bank account of the assessee in the absence of any books of accounts maintained by assessee for the previous year;
  3. Though provisions of section 68 couldn’t be invoked on the deposits made in the bank account of the assessee, yet the veracity of the additions made by the AO on certain deposits by invoking the provisions of section 68 examined and the assessee had furnished reasonable and plausible explanations along with confirmation with regard to different deposits. Thus, there was no infirmity in the order of CIT(A).