Straddles

The purchase or sale of an equal number of puts and calls, with the same strike price and expiration dates. A straddle provides the opportunity to profit from a prediction about the future volatility of the market. Long straddles are used to profit from high volatility. Long straddles can be effective when an investor is confident that a stock price will change dramatically, but cannot predict the direction of the move. Short straddles represent the opposite prediction, that a stock price will not change.

Date of Payment of Final Installment of Advance Tax Extended from 15th March to 18th March 2014

The Final Installment of Advance tax for Financial Year 2013-14 is required to be paid on or before 15th March, 2014 by the tax payers who are liable to pay advance tax. These taxpayers can make payments in the designated branches of the authorized banks, electronically or physically, as per law. The banks are open for half day on 15th March, 2014, being a Saturday. Accordingly, to facilitate payment of this installment of Advance tax for the Financial Year 2013-14, the Central Board of Direct taxes (CBDT) has issued an order to extend the time limit to make such payments of Advance Tax, from 15th March, 2014 to 18th March, 2014. Taxpayers, therefore, can now pay their advance tax installment by Tuesday, 18th March, 2014 without entailing any consequential interest for deferment. 

http://www.pib.nic.in

Extended period of 6 years not available for reassessment unless Assessing Officer gets info to show escaped income above 1 lakh

BBC World News Ltd. v.Assistant Director of Income-tax [2014] 42 taxmann.com 456 (Delhi)

Extended time-limit of 6 years under section 149(1)(b) requires data for prima facie computation of income escaping assessment.

The High Court held as under:

• Extended time-limit of 6 years under section 149(1)(b)to initiate proceedings to bring to tax income escaping assessment cannot be availed by AO without getting hold of data which prima faciesupports computation of  quantum of income escaping assessment above one lakh rupee; 
• The Assessing Officers may be handicapped in such cases but there are sufficient provisions in the Act to get hold of the said data before proceedings are initiated or reasons are recorded;
• The Assessing Officer must obtain such data for relevant assessment year and cannot even use data of subsequent or other assessment years as figures for every year will alter or change.

Tax Benefits of Charity

Charity in simple terms is voluntarily giving any kind of help to those who are in need of it. This assistance that is offered to those who need it can be in monetary or non-monetary forms.

Charity is done for philanthropic or social reasons. It is always a good practice to share the privileges that the Creator has bestowed upon us with the underprivileged. According to the Indian Mythology by doing charitable deeds you make your way easy towards the door of heaven.

However, there is one thing that gets attached to the Charity that you do that is donations. Charitable Donation is referred to as gift or advance made in the form of land, cash, service or clothing and security towards a non-profit organization by an individual or a business firm.

While you donate keeping in heart a good cause there is a good chance for you to get certain deductions on your taxable income depending upon the institution you opt for making your donations. It is noteworthy that donations up to 10 percent of your total income would earn you deduction.

Tax Benefits of Charity in India:

Section 80G – All of you whether you are an individual, an NRI or a member of HUF and you are making donations that are eligible can earn a deduction up to 50% or 100% on your taxable income. However, the percent of deduction you get eligible for would depend upon the charitable institution which you are contributing to.

It is important for you to pay out your donation from exempted or taxable income. You should also remember that whatever donation you pay needs to be in cash or through cheque. Anything given in kind as a donation would not make you eligible for claiming deduction.

If you have made donations to political parties and foreign trusts keeping in mind that you will earn deduction then you are sadly mistaken. However, if you make donations in aid for development of games or sponsorship of sports that falls under u/s 10(23) or to Indian Olympic Association then your company qualifies for gaining a deduction on the taxable income. 

• 100 percent Deduction on Donations – If you give your donations to any of the following funds you will earn 100 percent deduction without any qualifying limit on the donations you make. These funds are: 
• Approved university or educational institution of national eminence
• Donations made to Zila Saksharta Samitis. 
• National Defence Fund 
• The Chief Minister’s Earthquake Relief Fund, Maharashtra 
• Prime Minister’s National Relief Fund 
• Prime Minister’s Armenia Earthquake Relief Fund 
• The Army Central Welfare Fund or the Indian Naval Benevolent Fund or The Air Force Central Welfare Fund 
• The National Foundation for Communal Harmony 
• The National Blood Transfusion Council or a State Blood Transfusion Council. 
• The Africa (Public Contribution - India) Fund 

• 50 percent Deduction on Donations- The following funds are those that will provide you with 50 percent of deductions on the donations you make without any qualifying limit. These are:                            
• Indira Gandhi Memorial Trust
• Prime Minister’s Drought Relief Fund
• The Rajiv Gandhi Foundation
• Jawaharlal Nehru Memorial Fund
• National Child’s Fund 

• If you make donations for promoting family planning to a local authority or government or you donate towards the Indian Olympic Association then you would qualify for 100 percent deduction subject to 10 percent of adjusted gross total income. 

• If the amount you donate to local authority or government is for any other purpose than family planning then you qualify for 50 percent deduction subject to 10 percent adjusted gross total income. 

• While you make donations to NGOs you earn tax deductions. It happens so because these NGOs are government approved and they run for a social cause. The NGOs registered under section 12A or section 10(23) c) and meeting certain other conditions are also exempted from paying tax. 

• Section 35AC – If you make contributions towards certain pre-approved projects that fall under this section; you can claim 100 percent deduction on the donations you make. 

• Section 35CCB – This section caters to NGOs who are involved in working towards aforestration and conservation of natural resources. If you make any donation for this purpose you qualify for claming 100 percent deduction. 

• While you donate for a social cause it is important for you to get the receipt of your donation in order to claim a tax deduction. The receipt should bear you name, the name of the trust, the amount donated and also the registration number of the trust as per Section 80G. 

• If you are a salaried person and have contributed your bit towards the charitable fund from your salary and if the donation receipt bears the name of the company, even then you are subject to a deduction under Section 80G and are entitled to claim the same. 

Prior making your donations make sure that the charitable institution you are contributing to is a registered one. As they say whatever goes around comes back, thus a small contribution made by you for a good cause not only shows your sharing spirit but can end you earning tax deduction thus lowering your taxable income.

You may also take a step forward to contribute your bit towards the society by giving away the surplus food, clothes, toys, books etc that are no more useful for you. Who knows you may become the reason for lighting up someone’s face. After all there is nothing more satisfying than spreading smiles.

Circular No. 04

As per Circular No. 04/2014 F. No. 225/198/2013-ITA. II, dated 10th February 2014, the Central Board of Direct Taxes (CBDT) has extended the due date for filing ITR-V Form for assessment years 2009-10, 2010-11 and 2011-12 till 31.03.2014 for returns e-filed with refund claims. In such cases, CBDT has also relaxed the time frame of issuing the intimation u/s 143(1) of the Act and has directed that such returns shall be processed within a period of six months from end of the month in which ITR-V is received

Futures

A standardized, transferable, exchange-traded contract that requires delivery of a commodity, bond, currency, or stock index, at a specified price, on a specified future date. Unlike options, futures convey an obligation to buy. The risk to the holder is unlimited, and because the payoff pattern is symmetrical, the risk to the seller is unlimited as well. Dollars lost and gained by each party on a futures contract are equal and opposite. In other words, futures trading is a zero-sum game. Futures contracts are forward contracts, meaning they represent a pledge to make a certain transaction at a future date. The exchange of assets occurs on the date specified in the contract. Futures are distinguished from generic forward contracts in that they contain standardized terms, trade on a formal exchange, are regulated by overseeing agencies, and are guaranteed by clearinghouses. Also, in order to insure that payment will occur, futures have a margin requirement that must be settled daily. Finally, by making an offsetting trade, taking delivery of goods, or arranging for an exchange of goods, futures contracts can be closed. Hedgers often trade futures for the purpose of keeping price risk in check, also called futures contract.

Consideration

Something of value, such as money or personal services, given by one party to another in exchange for an act or promise.

Earnings Before Interest and Taxes (EBIT)

Earnings Before Interest and Taxes. A measure of a company's earning power from ongoing operations, equal to earnings before deduction of interest payments and income taxes. EBIT excludes income and expenditure from unusual, non-recurring or discontinued activities. In the case of a company with minimal depreciation and amortization activities, EBIT is watched closely by creditors, since it represents the amount of cash that such a company will be able to use to pay off creditors, also called operating profit.

Conglomerate

A corporation consisting of several companies in different businesses. Such a structure allows for diversification of business risks, but the lack of focus can make managing the diverse businesses more difficult.

Basic Investment Principles for Beginners

Investment is like planting a tree today so that in future you and your family may be able to enjoy its fruits and also be able to rest in its shade comfortably. You all know how important it is for you to provide financial security to your family and yourself.

It is needless to say that all the hard work and effort that you put in from morning to evening in earning those dollars and rupees is aimed at providing your family and yourself a good standard of living and also securing future. The best way to manage your hard earned money is to invest it sensibly so that in future it not only helps you when in need but also multiplies itself in the due course of time.

There cannot be a rule book that can guide you through with your investment planning and procedure but there are a few basic principles or guidelines that can help you to become a successful investor. These are: 

1. Investing Early – It is always advisable to start investing as soon as you start earning. It is quite obvious that you may be able to invest say as little as Rs 500 every month but you should not forget that compounding earns you good margins even with small savings. This also cultivates a habit of investing regularly in a disciplined manner. It is also advisable to re-invest the interest that you earn and just wait and watch how magically it grows through compounding formula. 

2. Analyze Yourself – This means it is important for you to identify the kind of investor you are. It is important for you to realize if you are the one who will get deeply involved in the art of investing and put in your time and energy in exploring every possible lucrative investing option thus earning higher returns, or are you an individual who will put in less effort and time and will be satisfied with a lower profit margin. 

3. Know the Market in which you will Invest – It is important for you to gather as much information as possible about the scheme, plan or options in which you plan to invest. It is also important for you to take a glance at all the market players who are offering the same or similar schemes and plans and the returns or commitments that each one of them is giving. This will help you in cracking the most profitable deal for your investment. It is very important for you to understand completely the plan you are investing in, the player you are investing with and the returns you are aiming at. 

4. Investment Goals – It is advisable for you to comprehend your goals pertaining to your investment. This would include the assessment of your current financial condition, the amount you can spare from your expenditure, time frame i.e monthly, quarterly, half-yearly etc, the kind of investment and also the kind of returns that you wish to have which again maybe based on your personal requirements like for a retired individual monthly credit of interest seems to be quite apt. 

5. Diversification of Funds – As the famous phrase goes “You should never put all your eggs in one basket” it is very important for you to diversify your funds i.e do not put all your money in one particular scheme or plan. Always invest in a bouquet of funds in order to balance the risk. 

6. Time Factor – When it comes to time, you need to keep in mind two factors related to time. First is the time when you enter the market and the second is the duration for which you play in the market. It is very difficult to anticipate the movements in the market. You need to be clear and specific about when you enter the market and for how long you have to stay there. 

7. Long Duration Investment – It is always advisable to stay tuned in market for a longer duration. The duration of investment determines the risks and returns on your investment. It depends on you as to how much return you aim at and the risk you are ready to take. Generally if you stay invested for long duration, your risk gets balanced due to an average market condition thereby bringing better returns. Put it this way - it is important for you to analyze the risk that you can take. 

8. Adopt a conservative approach when it comes to valuation of profits – you need to understand that you can not be overly optimistic about the investments you are making. You need to adopt a conservative approach while weighing your returns from a particular investment. It is very important to be cautious and careful while computing your future growth rates. 

9. Hallo and Horn Effect – Do not get affected by the Hallo and Horn Effect. This means that you should not judge an investment plan or scheme merely on the basis of its past performance or solely because it benefited your friend so it will benefit you as well. You cannot totally neglect the past performance of the stock but you cannot predict the future of the same solely on past performance. 

10. Don’t let one slump affect future prospects – It is very important to be cautious. So goes the famous phrase “once bitten twice shy” but it emphasizes on being cautious, learning from past experiences but it doesn’t say that you will let one market slump hinder your long-term investment planning. Do not get discouraged by the bulls and bears of the market. 

11. Once sold, it is gone – It is always advisable to let bygones be bygones. Once you have taken a decision of selling your stock, do not check the price of your stock once you have sold it. You have just started investing. It’s a big life and a long game. “Ohhh I sold it…should have waited more.” This can always tickle your mind after you have sold your stock. But what if you had waited and the returns have been less than what you gained today? Seize the day and go ahead with no regrets. 

12. Keep Patience – There are moments when we all run out of patience and when its money that you are playing with it is obvious to be anxious and be impatient. But keeping your cool will always help you to sail smoothly through the lows and highs of the market. 

13. Monitoring your Portfolio – It is very important for you to keep yourself updated with the market scenario and keep a constant check on your portfolio. You cannot hold on to a stock forever. So keep updating your portfolio with the ever changing scenario of the volatile market. 

14. Accept, you can not be right always – You need to accept this before you get started that you are a human being and you are bound to make mistakes. You can not always make a right decision for every investment that you make. The key is to make the best out of the right choice and to learn from the wrong ones. 

Financial Investment Options

There are a number of financial investment options available in the market and you can pick and choose as per your requirement from the bouquet of options which are as follows:

• Equities
• Precious Stones
• Gold/Silver
• Bonds
• Mutual Funds
• Fixed Deposits
• Recurring Deposits
• Real Estate
• Insurance Plans

Waterfront royalty recovered by State Government was not an 'intellectual property service'

State Charge Gog Port of Magdalla v. Commissioner of Central Excise & Service Tax [2014] 41 taxmann.com 376 (Ahmedabad - CESTAT)

 

Facts:

• The assessee, i.e., State Government had collected Waterfront Royalty charges, which were charged by Government of Gujarat from Fort users/private parties for use of such Waterfront; 
• The Department sought levy of service tax on such charges under Intellectual Property Services.

The Tribunal held in favour of assessee as under:

• The definition of Intellectual Property Rights is about right available with an individual or person; 
• The charges collected by the assessee-Government for usage of Waterfront as Waterfront Royalty Charges could not, prima facie, be covered under definition of Intellectual Property Rights.

Action to recover tax before expiry of statutory period for filing appeal is high-handed & in defiance of law

Tata Teleservices (Maharashtra) Ltd vs. Ministry of Finance (Bombay High Court)

Though the assessee had a statutory period of three months to file an appeal along with stay application before the CESTAT, the Asst CST directed the assessee to pay the demand within two days and threatened to take coercive action to recover the dues. The assessee filed a Writ Petition contending that the AO’s action was in breach of Circular dated 01.01.2013 issued by CBEC, and the demand was premature because the assessee had the right to file an appeal within 3 months. HELD by the High Court allowing the Petition:

• The AO’s insistence that the assessee should pay the amount is contrary to the provisions of the Finance Act which provides for a period of 3 months to file an appeal to the Tribunal. It is also contrary to the circular dated 01.01.2013 issued by the CBEC. The impugned communications, to say the least, is high handed. The statute has advisedly provided a period of three months to an assessee to file an appeal before the appellate authority and also obtain a stay. This is with a view to enable the assessee to seek proper advice and considered opinion on the adjudication order before taking a decision and then challenging the adjudication order in appeal proceedings; 
• In case, the Revenue is allowed to adopt coercive measures and/or if the assessee is required to pay tax determined immediately, it would lead to injustice to an assessee, as his opportunity to obtain a stay from the appellate authority would stand foreclosed. Moreover, the inherent right of an appellate authority to stay the order being appealed against would be rendered futile. In fact, this Court in Mahindra & Mahindra Limited (1959-ELT-505) had directed the Revenue to return the amounts recovered by encashing the bank guarantee of the assessee as it was done before the expiry of three months to file an appeal; 
• The officers of the Revenue would do well to realize that their job is much more than merely collecting the tax. They are officers of the State, administering the Finance Act, 1994 and fairness in approach to the tax payers and acting in accordance with the Rule of Law is a sine-qua-non in discharge of all its functions; 
• The impugned communications are not only in defiance of the CBEC circular dated 01.01.2013 but also in breach of the statutory provisions which gives a period of 3 months to enable the aggrieved party to file an appeal before the appellate authority.

Contractual liability to pay custom duty on importer’s behalf won’t be hit by section 43B, it’s not statutory liability

Oswal Agro Mills Ltd. v. CIT [2014] 42 taxmann.com 100 (Delhi)

 

The High Court held as under:

• Section 43B applies only in cases of statutory liability. By virtue of the said section a statutory liability is not deductable in the year in which it accrues, if the same remains unpaid. A deduction with respect to a statutory liability is allowed only on payment of the same; 
• The liability to pay the amount of additional customs duty on behalf of the importers as and when they were called upon to discharge the same was clearly a contractual liability and not a statutory liability;
• Therefore, in the instant case, the question as to whether the said liability would be considered as deductible under Section43B would not arise;
• Even assuming that section 43B would apply to such contractual liability, the furnishing of a bank guarantee to importers would not be considered as actual payment under section 43B so as qualify for deduction under that section.

Five Easy Ways to Save Tax

A year of hard work and part of the salary vanishes in the name of tax. It is quite obvious that working people would want to make use of their payments in a better way. The government has given many avenues to do so and a person who is aware of these easy methods can utilize it to the maximum extent.

For example consider the basic necessities of modern day living, food, shelter, travel, health care, investments and consider the possible ways of saving tax on these.

1. Food: The taxable amount on a salaried employee will reduce if the company offers food to the employee during the working hours. The cost of the meal can be a maximum of Rs 50 and the annual total of this expense is deducted from the taxable amount of employee. 
2. Shelter: If the employee is living in a rented house then certain percentage of the basic pay is allowable as house rent and this amount also gets deducted from the taxable sum of the employee. For this purpose a receipt from the owner of the house for rent paid is required. So if you are living in a rented house start collecting these receipts that help you during the end of the financial year.If the person (irrespective of salaried or self employed) is repaying a home loan then he/she can get a claim up to Rs 1 lakh on the repayment of principal and Rs 1.5 lakh on the amount paid towards interest on housing loan annually.
3. Health care: The next important factor in a person’s life would be the health and there is an allowance towards the expenses made towards medical treatment. An amount of Rs 15,000 is deducted from taxable amount if proper receipts are produced by the employer for the expenses that are incurred in a financial year.  Make sure that the receipts contain the Tax Identification Number (TIN). An additional Rs.15,000 is allowable as exemption from tax if this amount is paid towards the health insurance scheme of parents. So if your parents are not insured with health insurance, it is a good idea to shop for a policy now. 
4. Travel: Conveyance allowance is paid for the expense of the employee’s travel from and to the office. This is a very small amount but yet, can be accounted for, to some extent if you use the mass transport system. The allowance is up to Rs 800 per month. There is also an allowance called  leave travel allowance(LTA). This allowance lets you travel with your family and the expense to certain extent is deducted from the taxable income.
5. Investments: Government also encourages investments in mutual funds, insurance schemes, ELSS, Public Provident Fund etc. There is a tax exemption of Rs 1 lakh that you get on investments made towards these schemes. The Government has increased the limit of investment in PPF from Rs.70000/- to Rs.100000/- to encourage savings in long term investments. There is another simple way to divert your income towards your personal benefits like, purchasing a life insurance policy for self while you also reduce the taxable income on the other hand. These are more a benefit because it helps the tax payer make use of his income in the best possible way by removing off some basic expenses through these deductions in tax.

Going abroad for purpose of ‘employment’ includes self-employment to determine residential status under Income-Tax Act

Facts:

• The assessee had earned consultancy income for rendering technical services for setting-up a hospital in Saudi Arabia. He had not offered the same as his income of the year as he claimed that during the year he was not a resident within the meaning of section 6(1); 
• The A.O. found that assessee was not regularly employed abroad, but worked as a consultant for a foreign company. He opined that the term ‘for the purposes of employment’ used in the section 6 was to be interpreted in the context of employer–employee relationship and should be given a restrictive meaning;
• He, therefore, held that assessee was resident as per section 6(1) and the sum received by him had to be brought to tax as the income of assessee for the year;
• On appeal, the CIT(A) held that assessee had not left India for any period of time in connection with employment abroad as he was continuously resident in India. Therefore, he could not be considered as having left India and being stationed outside India for the purpose of employment. Accordingly, he had to be considered as resident only.

On appeal, the ITAT held in favour of assessee as under:

• As far as the argument of the learned CIT(A) that assessee did not leave India and was stationed outside the country was not material, as nowhere the section specified that assessee should leave India permanently so as to reside outside the country. Thus, the argument of the CIT(A) had no meaning. Therefore, that contention had to be rejected; 
• The Hon’ble Supreme Court in the case of CBDT v. Aditya Birla [1988] 36 TAXMANN 009 (SC) considered that employment does not mean salaried employment but also includes self-employment/professional work. Therefore, the assessee’s earning from foreign enterprise and visit abroad for rendering consultation could be considered for the purpose of examining whether assessee was resident or not?;
• Thus, going abroad for the purpose of employment only meant that the visit and stay abroad had not be for other purposes such as a tourist or for medical treatment or for studies or the like;
• Going abroad for the purpose of employment, therefore, meant going abroad to take-up employment or any avocation. Unless assessee travelled on business visa or for the purpose of business/consultation, the entire period of travel abroad could not be considered as ‘going abroad for the purpose of employment’;
• The AO was to verify whether the visits were for the purpose of employment or for the purpose of tour or for any other reason. Only to the visits for the purpose of employment could be considered, while determining status of assessee as per the provisions of law; 
• The assessee was requested to furnish necessary details of visas obtained and also place onrecord the English version of the stampings done on the passport, so as to support his contention that the travel was for the purpose of employment. For these reasons, the issue was to be restored to the file of the AO for fresh examination.

Income can’t be attributed to liaison office in India if its operations are confined to assisting manufacturers for export orders

CIT (International taxation) V. NIKE INC. [2013] 34 taxmann.com 170 (Karnataka)

Where assessee-foreign company’s presence in India was limited to its liaison office (‘LO’) which assisted Indian manufacturers to manufacture goods according to specification for export to buyers in other countries (which were subsidiaries of assessee), it could be said that activities of NR assessee were confined in India to purchase of goods for export and hence income derived therefrom would not be deemed to accrue or arise in India and entitled to exemption under Explanation 1(b) to section 9(1)(ii)

Facts:

• Assessee, a world known brand in sports apparels (i.e. Nike), had a main office in USA, which arranged for all its subsidiaries, spread all over the world, various sports apparels for sale to various customers; 
• Arrangement was through procurement by manufacturer who directly dispatched the apparels to the subsidiaries; 
• The assessee engaged various manufacturers all over the world on a job basis and made arrangements with its subsidiaries for purchasing the manufactured goods directly and pay for the same to the respective manufacturers; 
• With a view to ensure quality of its products in India through its liaison office, it employed professionals like merchandiser, product analyst, quality engineer, etc.; 
• Assessing Authority brought to tax 5% of the export value of goods as income deemed to accrue or arise in India. On appeal, the ITAT allowed assessee’s appeal. Thus, the instant appeal was filed by revenue against ITAT’s decision.

The High Court held in favour of assessee as under:

• The assessee was not carrying out any business in India and it had established a LO in India, whose object was to identify the manufacturers, gave them the technical know-how and see that they manufactured goods according to the specification which would be sold to their affiliates; 
• The person who purchases the goods would pay the money to the manufacturer, in the said income, the assessee has no right. The said income couldn’t be deemed to be a income arising or accruing in the Tax Territories vis-à-vis the assessee; 
• As per Explanation 1(b) to Sec. 9(1) in the case of a NR, no income would be deemed to accrue or arise in India whether directly or indirectly through or from any ‘business connection, which are confined for the purpose of export; 
• The assessee was not purchasing any goods and it was enabling the manufacturers to manufacture goods of a particular specification which was required by a foreign buyer to whom the goods were sold; 
• The whole object of the instant transaction was to purchase goods for the purpose of export. Once the entire operations are confined to the purchase of goods in India for the purpose of export, the income derived therefrom shall not be deemed to accrue or arise in India and it shall not be deemed to be an income under section 9. In this process, the assessee was not earning any income in India; 
• If assessee was earning income outside India under a contract which was entered outside India, no part of its income could be taxed in India either under Section 5 or Section 9 of the Act.