Will penalty be levied under section 271(1)(c) for disallowance made under section 14A and addition made on account of section 50C?

Section 14A mandates that no deduction shall be allowed in respect of expenditure incurred in relation to income which does not form part of the total income under the Act. Method for allocating expenditure has been prescribed. First duty is of the assessee to compute his income and in the light of section 14A. On failure without reasonable explanation, penalty would be attracted as it would amount to furnishing of in accurate particulars of income u/s. 271(1)(c) Explanation 1. 

In Mak Data P Ltd. v. CIT (2013) 358 ITR 593 (Supreme Court), it is stated “Explanation 1 to Section 271(1)(c) of the IT Act, 1961, raises a presumption of concealment, when a difference is noticed by the Assessing Officer, between the reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence’. It applied Union of India v. Dharmendra Textile Processors (2008) 306 ITR 277 (Supreme Court) and CIT v. Atul Mohan Bindal (2009) 317 ITR 1 (Supreme Court).

Section 50C is special provision for full value of consideration in specified cases. It is a deeming provision whereby the stamp duty valuation is deemed as full consideration against real consideration received by the owner. Hence, no penalty would be exigible u/s. 271(1)(c), CIT v. Madan Theatres Ltd. (2013) 260 CTR 75 (Kolkata).

Investment and Portfolio Diversification

The famous phrase “Never put all your eggs in one basket” holds very true in case of your investments too. Portfolio diversification is a tool or a technique that helps you minimize your risk by investing in different schemes and plans.

It’s just like if you put all your eggs in one basket and if it drops, you may lose all of them. Similarly, if you invest all your savings in a particular plan or scheme and in case the market goes down you are bound to loose your precious money.

What works behind diversification of funds is the rational that those who diversify their investments earn, on an average, higher returns thereby reducing investment risks. Thus, it is always advisable to scatter your investments so as to avoid being hit adversely. 

Diversification helps you remain shock-proof - if one plan fails at least you have the other to save you from the blow.

Undiversifiable and Diversifiable Risks

Undiversifiable Risk – These are risks that cannot be eliminated through diversification as they are caused by factors like inflation, political instability, war etc. These are risks that an investor cannot overcome or reduce.

Diversifiable Risk – These risks can be reduced or eliminated by using the technique of diversification of funds. In order to avoid these risks it is important to choose different funds so that market lows and highs do not affect all of them in the same manner.

How to Diversify Your Portfolio 

1. Investment Plan – Before you go around for any kind of investment it is important for you to have an investment plan that includes the tenure for investment, the minimum amount, returns expected and the mode of payment and return i.e monthly, quarterly, half-yearly or yearly. 

2. Choose different Investments of low correlation - Correlation means the relationship between two schemes or plans. In simple words it means the interdependence of schemes in your portfolio. This means that you need to choose your investments that go up and come down at different times. This helps you to sail comfortably through the bulls and bears of the market. 

3. Monitoring – It is mandatory for you to keep a close watch over your assets and keep rebalancing and monitoring your portfolio. The work of portfolio diversification does not end by simply selecting different options. It extends to rebalancing your portfolio by selling and buying. 

4. Stay invested and watch out for new opportunities – It is important for you to keep yourself invested for a longer duration in order to reap good returns and also keep a close watch on the new opportunities coming your way. Search for new investments and get rid of the non-profitable chunk. 

5. Investment Principles Work – Invest by following the investment principles. Merely going by predictions may land you in deep waters as no one can accurately predict the future. Create a quality portfolio and avoid being solely carried away by predictions. 

Where To Invest 
As stated earlier, it is very important to ensure that your investments are spread across different schemes and plans. Correlation can particularly prove beneficial while you diversify your portfolio.

There are many such examples that can guide you through while you invest in different plans. One such example is that of equity and debt. It is worth noticing that equity and debt have a correlation. It is seen that whenever there is a rise in interest rates the earning from debt plans grow significantly whereas returns from equity investments drop. So while you see that the interest is on a hike it goes without saying that those who have more of debt in their portfolio will benefit more in comparison to those who have less debt and vice versa happens when interest rates go down. Here, if you have a diversified portfolio it will work well for you. Moreover, the high rated debt instruments come handy with almost zero risk.

It is always advisable to create a combination of defensive stocks and high beta stocks in your portfolio. High beta stocks are ones that will fetch you a good growth when the market is at a rise but may become a pain for you during market slumps. They reap good but come with a considerable high risk. Stocks like that of FMCG and Pharmaceuticals are defensive stocks and trends show that they have been consistent with their performance in the market even when stock market has not been at its best. So using a combination of defensive stocks with high beta stocks may work well for those who like playing in equity.

Those of you who have bought two mutual fund plans and feel you have diversified your portfolio; it is time for a reality check. This assumption does not hold well if you feel that selecting and investing in different schemes of mutual fund would lead to diversification of portfolio. What will you do if you opt for two different mutual fund plans that have number of common factors between them? Always look out for schemes which are well diversified in the same category.

Assets like gold work in the interest of diversification of portfolio. It goes without saying that gold yields good returns even in hours of crisis. It is advisable to hold gold in your portfolio. Moreover, it shares a negative relation with debt and equity thus acting as asset for you when debt and equity both suffer a hit.

It is important for you to understand that having a big portfolio will not help. It is important to balance it out with right choices. If you want to draw best from your portfolio make sure you follow the rule of correlation while creating your portfolio.

Save yourself from Over-DiversificationIt is very important to strike equilibrium in case of diversifying your portfolio. In order to create a diversified portfolio do not get so much carried away that you end up investing in too many assets, schemes and plans. You should not spread your money so thin that all the effort goes in vain. Over diversification may shield you from great losses but it would surely lead you to losing good gains. So while you create your diversified portfolio do keep in mind that you need to strike the right balance without over indulgence as too many cooks spoil the broth.

Agricultural land won't lose its privileges even if sold in violation of State laws; not taxable as capital asset

CIT v. Rajshibhai Meramanbhai Odedra [2014] 42 taxmann.com 497 (Gujarat High Court)

Merely because agricultural land was sold in favour of non-agriculturist in breach of law prevailing in State, said land would not lose its character as agricultural land and, hence, could not be treated as capital asset.

Facts:

• The assessee had filed return of income and disclosed income from sale of agricultural land in response to notice issued under section 153C. 
• The Assessing Officer made addition on account of capital gain by holding that the land, which was sold by assessee, was a capital asset as it was sold in violation of laws prevailing in the State. 
• On appeal, the CIT(A) deleted the addition. Further, the Tribunal confirmed order of the CIT(A). The aggrieved-revenue filed the instant appeal.

The High Court held in favour of assessee as under:

• It was not in dispute that what was sold by the assessee was an agricultural land which was situated beyond 8 Kms. of local limits of the Municipality and at the relevant time, the land was held by the assessee as agricultural land; 
• The character of land would not change merely because it was sold to a non-agriculturist in breach of law prevailing in the State and the land still would continue as an agricultural land; 
• Even though the sale in favour of non-agriculturist could be declared as illegal, yet the land would not lose its character as agricultural land; 
• When the land was an agricultural land, which was situated beyond 8 Kms. from the municipal limits, no error had been committed by the Tribunal in not considering the land as 'capital asset'; 
• Thus, the land was to be treated as agricultural land and it was outside the purview of capital asset.

Things to Know Before Investing in Mutual Funds

Mutual Funds are a pool of funds from a number of investors who wish to purchase securities. It is a professionally managed investment tool by way of which investors collectively invest mostly in open-ended funds. The professionals who manage these funds aim at turning the small deposits of earnings of investors into capital gains and incomes for the investors.

The year 1963 marked the onset of Mutual Funds in India with the joint effort of Reserve Bank of India and Government of India. With the penetration of Non-UTI players in this stream, the concept of mutual funds gained popularity.

By way of mutual funds, thousands of investors create a portfolio of real estates, bonds, equity etc and share the profits so reaped. Mutual funds growth has accelerated because they are affordable, provide tax-benefits, come with easy liquidity, are managed by professionals and prove to be an easy way to enter the financial market for even common man. Systematic Investment Plan (SIP) is one of the tools that prompt investors to enter the financial market by investing in debt and equity markets. It helps investors to invest in small proportions and simultaneously provide growth on their amount.

So if you plan to turn towards Mutual Fund investment schemes it is important for you to know a few important things before you head towards mutual funds which are – 

• Types of Mutual Funds Options – Before you opt for any mutual fund you should be well versed with the types of mutual fund schemes that are available in the market and choose the type of fund you would like to invest in. Mutual funds can be classified as Open-Ended, Close-Ended and Interval Schemes in terms of their structure. Equity, debt and balanced fund in terms of their nature and if we go by investment objective then you also have growth and dividend options. Let’s take an overview of all these types. 
• Open-Ended Mutual Funds – These are funds that raise money from shareholders and invest money in group of assets. They are open ended as you can enter and exit from these schemes at any point of time when you wish. 
• Closed-Ended Funds – These funds are those in which an investor can enter only during a specified period. This period is referred to as New Fund Offer (NFO) period. These funds can be purchased and sold only during a certain period as specified. 
• Interval Schemes – These are a blend of open-ended and close-ended schemes. 
• Equity Fund Schemes – These mutual fund schemes invest the major part of your money in equities. They offer higher returns but also come along with a comparatively higher risk. 
• Debt Fund Schemes – These mutual fund schemes invest the major part of your money in debt instruments and provide you with stable returns with low risk. 
• Balanced Fund Schemes – These funds are a combination of equity and debt funds. They combine stocks and bonds, thus, giving you balanced returns and come with moderate risk. 

• Analyze the Performance of Fund - It is advisable for you to have a detailed analysis of the performance of the scheme by your side. It is important to know the performance of the fund over a period of time. However, it is also important to note that past performance of the fund does not serve as a guarantee for the future performance but it can not be ignored completely.
• Experience of Fund Manager - The experience of the Fund Manager and analysis of the fund house is also an important parameter to be considered before opting for a fund. The performance of the fund might have been considerably good for past ten years but if the manager’s time at the fund which is referred to as “Manager’s Tenure” is only two years then you cannot commit the mistake of giving credit of the performance of the fund to the new manager.
• Study of Expense Ratio – It is important for you to have a clear view about the expense ratio of the fund. Expense ratio is the cost of the fund owned. It is made up of various costs that are incurred but there are times when few costs go unaccounted, thus not showing the true picture of expense ratio. Sales charges, trading commission and taxes are few expenses that are not taken into account while computing expense ratio and thus the true cost may vary drastically. It is important to have a clear idea about these underlying expenses.
• Calculate the Risk That You Can Afford- It is advisable to keep in view your risk taking capability and then choose the fund option. You should always know the amount of risk that you can take before you opt for any mutual fund scheme. There are funds that provide attractive returns but you can not ignore the risk attached with them.
• Monitoring – Any investment that you make needs monitoring. You can not just create a portfolio for yourself and then forget about it. Monitoring the performance of your funds is important so that you are able to chuck-off the non-performing funds and add on the performing funds in your kitty in order to make the most of your money.
• Create a Diversified Portfolio – Creating a diversified portfolio always works in favor of the investor. You are a human being and you are bound to make mistakes. You can not always end up buying funds that will churn out capital gains for you. Thus, go in for a combination of equities, bonds and stock funds so that if you go through a fall in one sector, the effect is minimized by the other performing fund. 

Have a clear Understanding of Entry and Exit Loads –

• Entry Loads – It is a one time charge applied while purchasing the fund and can reach up to 5 percent or more of the amount of the fund purchased. For example – If you purchase a fund of Rs 5000 and Entry Load is 2 percent then the amount that gets invested is Rs 4900. These charges are also referred to as Front Load charges. 
• Exit Loads – Exit Loads are charged when you sell off or opt out of the fund. These may range up to 5 percent but may also get reduced to zero percent over a period of time. These are also referred to as Back Load or Deferred Sales charges. 
• Waived Load – As the name goes, there are certain funds that bear waived load meaning that there is no entry or exit load attached to them. 
• Taxes – Do not get surprised if you find that certain tax liability is entrusted upon you. Investors have to bear the tax liability for dividends and for capital gains even if the fund is not performing well. If the fund involves dividend-paying stocks, each time the fund manager sells, it adds to your tax-liability as well. Those of you who do not want to get hit by the tax that gets triggered should opt for tax-sensitive or non-tax sensitive mutual funds in a tax-deferred account. Avoiding rapid trading of funds may also bring down the tax element.
• Do not get trapped by misleading advertisements. You may get stuck with a non performing fund labeled as growth fund while it is being advertised in the most attractive and fancy manner.
• While you begin your chase for the funds, make sure you add only funds with consistent performance in your kitty instead of falling for funds that have shown a sudden rise in recent years as these generally are not able to make there place in the top funds.
• Add index funds to your kitty. Index funds offer lower expenses and come along with less of tax burdens.
• Do not be in a haste to get rid of a fund that has had a bad year. All funds can not perform round the year and each fund goes through the bulls and bears of the market. Analyze carefully before you get rid of a fund and make sure that you do not cling to a non-performing fund for long. 

The above mentioned points will come handy while to begin your search for an apt mutual fund for yourself. Always invest when you yourself get completely sure and satisfied with what the fund offers. Do not get carried away by opinions or follow the rat race, its good to discuss but finally let the call be yours.

Income from House Property

If you are earning any income from the property that you own will be taxable under Section 22 and Section 27 of Income Tax Act. The income earned from housing property falls under the purview of the Income Tax Act when the following conditions come into being

• The property is owned by the assessee.
• The property is let out and the income generated through it is only in the form of rent. The property is not be used for business or profession purpose by the assessee.
• The property comprises of building or land adjacent thereto.

Note: It is important to note that if you are not the owner of the property and are still generating income from the same, that would not be taxable in the head of 'income from house property' but will fall under the purview of other income and other provisions of the Income Tax Act.

Deemed Owner

There may be cases wherein though you are not the owner of the property yet you will be considered to be the owner of the property and the income generated by you will fall under the purview of tax under the head of 'income from house property'. Following cases are the ones where you will be deemed to be the owner of the property -

• If you are the owner of an estate that is impartable then you would be considered to be the owner of the estate. For example - When an HUF jointly holds a property in its name on behalf of its memebers then joint HUF will be considered to be the owner, however, the property may be in name of an individual member of the family.
• If you have acquired the long term lease of property then you will be the deemed owner of the property and the income generated through the property will be taxable under the head of income from house property. A period of more than 12 years would be considered to be a long term period.
• If you, as an individual, transfer your property for inadequate considerations or give that property as gift to your minor child, other than a married daughter or your spouse then though legally the person to whom you have gifted the property is the owner yet the income generated would be considered to be taxable in your hands under the head from income from house property.
• If you are a member of a co-operative society, association of person or company where you have been allotted a building under the house building scheme of society then you will be considered the deemed owner of the building.
• If you have satisfactorily complied with the provisions of Section 53A of Transfer of Property Act then you will be considered as the deemed owner of the property. This section caters to a scenario wherein though the agreement of buying the property has not been registered yet the one who has purchased the property is considered to be the owner of the property.

Calculation of Income from House Property
The highest of the following three would be considered as the annual income from the property that has been let-out by you -

• Municipal Value of the property.
• Fair Rent - This is the rent of properties in your locality that are similar to the property that you own. The value of these properties is determined by the Income Tax Department.
• Actual Rent received by you.

Situations Where Property Becomes Taxable

Following situations are the ones wherein the property becomes subject to tax. These are as follows:-

• A long term lease of property held by you.
  If you have been holding the lease of a property for more than 12 years, then the income from that property will automatically fall in your taxable kitty.

• Your spouse has received a property from you as gift under Section 56(2) of the Income Tax Act 1962
  The property will not be taxable in the hands of your spouse. It is important to remember that if there is any income from this property then that would be taxable in your name.

• You have a number of properties in your name out of which few have been given on rent by you and few are still not let out.In such situations, you will have to choose a property that is being used by you for residential purpose throughout the year and thus the income generated through that would be zero. Your total income would surely reflect the income generated from all the other properties.

Permissible Deductions

• If you have borrowed money in order to renovate, build or buy a property that is not self-occupied then the interest paid or accrued on the amount borrowed in the relevant year would serve as deduction when you compute the net annual value for yourself.
• An amount up to 30 % of the annual value towards maintenance and repair will serve as deduction when you compute the net annual value.

Hidden Costs While Buying Property

All eyes dream of owning a home. The decision of buying a house is one of the most important ones as it not only involves a lot of money but has many emotions attached to it as well. For majority of the people, all their dreams and savings get invested when they plan to own a house.

At the first go the house that you plan to buy may look manageable but after buying it you realize there are many other costs also involved. It happens that the payment varies with what you might have calculated. Actually, your calculations are done by multiplying the cost per square feet with the total area. But this is not what you actually have to pay.

There are some other costs such as registration cost, stamp duty, service tax, property tax etc that go unaccounted for in your calculations but they exist and finally get added in the cost that is reflected in your final payment schedule. The additional costs also vary from builder to builder and facilities that your house is equipped with.

Obviously, if the cost of home turns out to be more than what you have calculated it becomes difficult to go for it. There are number of add-ons that the developers and real estate agents disclose later and that shoots up the actual cost of the place by approximately 20% to 25%. It goes without saying that it is important for you to be well prepared and have a clear view about all the additional costs and add-ons that might come in the way when you are buying a house.

What are the Hidden Costs?

Following are the additional costs that you might have to incur when you plan to purchase your dream home. Take a look.

Parking Space – When it comes to large residential buildings, an additional amount is charged under the head of Parking Space allotment. This is quite a new trend in the Indian realty market and a good amount is charged to you for providing you with an exclusive parking space for your vehicle. The type of property decides this amount. This amount may vary from Rs 2 Lacs – Rs 5 Lacs. Primarily, factors like locality, type of property and parking space are taken into consideration prior to fixing the amount under this head. Going by the ruling of Supreme Court after March 2012, additional amount for parking rights at residential areas cannot be charged by the developers but this ruling is being by-passed and the amount is being still included in the property cost.

Registration Costs – The registration charge is based on the actual worth of your property. There are a number of states wherein approximately 6% to 10% amount of the property cost falls under the head of legal charges in form of registration fees and stamp duty etc. About 5% to 7% of the cost of property forms the stamp duty. For example – If your property is worth Rs 10 Lac then you will be required to purchase a stamp of Rs 50K in order to get the sale deed typed. The registration fees of approximately 1% - 2% of the cost of property is also charged that is payable to the court. This does not end here. Apart from these costs you will also bear the cost of number of miscellaneous expenses like fees of lawyers and notary who represent you and get your job done in the court.

Loss of Tax Rebate, Interest and Rental – A number of reasons call for delay in the projects and this is very common - almost everywhere around us. These delays in project add to your worries. They not only add to your additional expenses in form of extra interest that you pay towards your home loan but they also lead to price escalations. Projects are generally expected to get delayed by six months to one year. It is always advisable to include the extra interest that you might have to pay due to delay in project while you plan your finances for buying property. The rental earnings for the delayed period are also to be kept into account. Till the time the property is not completed and handed over to you, you also lose on to the tax rebates that are applicable on home loans. These costs cannot be ignored while you plan your budget for purchasing a property.

Deposit for Maintenance – Many of the builders take an upfront maintenance deposit that may range from a period of 10 years or more and for lifetime, at places. The buyer suffers a loss due to charges under this head. You are required to pay a good lump-sum amount on the initial level and bear interest on such borrowings. Going by the trend of inflation the amount that is charged for the above mentioned period is likely to run out earlier than predicted. You will then be required to pay another lump-sum amount under the head of deposit for maintenance. Developers keep insisting on the deposit for maintenance to be paid initially as it provides them with more capital.

Cost of Interiors – You simply cannot ignore the fact that your choices and preferences are ought to be different from the developer. Once you acquire the property of your choice you will, for sure, spend on the interiors of your newly acquired home as per your requirements and choice. Generally, when we plan for purchasing a property, expenses under this head somehow escape our mind. However, we cannot ignore the fact that this head may also require substantial amount to be invested depending on the type and nature of interior work that is opted by you. To be on the safer side, approximately 1%-1.5% of the cost of property may be dedicated to this head of expense.

Preferential Location Charges (PLC) – These charges are clamped by the builder for your choice about the floor on which your want to purchase your home or you want your home to be east facing or corner one and so on. Developers generally charge you for providing you with preferential locations. The amount, however, varies with how many preferential options you have opted for.

Apart from the above mentioned costs, there are charges like unpaid civic authority dues; unapproved plans etc may also add to your pain. Therefore, it is always advisable to keep a surplus of approximately 20%-25% over and above the initial cost of property before you plan to buy your dream home. Clear knowledge about the add-on costs help you in planning your finances accordingly. It saves you from facing the ugly situation of “buy or not to buy” once you have set your heart on your favorite property after the add-ons get revealed.

Tips for NRIs Filing Income Tax Returns in India

Non Resident Indians (NRIs)  are Indian citizens who have left the country and settled down in a foreign land for employment purposes or for carrying on business or are on a vacation or any other circumstance that indicates that the stay would be for an uncertain period in abroad.

This definition also covers individuals who are posted in U.N. Organizations and Officials who have been sent to the foreign land by Central/State Governments and Public Sector undertakings on temporary. Now, if we talk of filing income tax returns then if an NRI’s taxable income in India exceeds the prescribed exemption limit than they are liable to file return of income.

Taxable Incomes of NRIs– Following are the taxable incomes of NRIs –

• Income accrued or to be accrued 
• Income sourced from India 
• Income received or to be received

Note – Double Taxation Avoidance Agreement works well in favor of NRIs. It is a contract made between India and a number of foreign countries by way of which you as an NRI can be saved from being taxed in the country of your residence.

As an NRI, you are liable to pay taxes if your earnings in India have been more than the exemption limit. You are exempt from filing income tax returns if your income is churned out by long term investments. Permanent Account Number (PAN) is the most essential ID that you need to hold for file income tax returns. You may file your returns either online or in physical form.

Forms for NRIs

• ITR 1 – For Those of you who have received or accrued income from farming
• ITR 2 – For Thos of you who do not have any other profession or business apart from partnerships in companies.
• ITR 3 – For Those of you who do not have any other profession or business apart from partnerships in partnership firms.
• ITR 4 – For those of you who have received or accrued incomes from proprietary business.

Tips for NRIs filing income tax returns in India

• You will have to follow the online procedure of filing returns if your taxable income stands more than Rs 10 lakh. This was made mandatory by the Central Board of Direct Taxes (CBDT) from financial year 2011-2012.
• Make sure that you apprise yourself clearly about the interest liabilities on non-payment of advance tax. As an NRI, you should be clear about the amount of tax that had to be paid by you and see whether it has been paid on time or not. Incase of default you need to recalculate the due amount and payoff the same prior to filing your income tax returns in India.
• Make sure that you do file a return in order to get your refund. You must remember that in case if you have a refund due, you must claim the refund of any excess taxes that have been paid by you.
• It is very much important for you to provide your accurate bank account number along with the MICR code of the branch. This needs to be done with more precision if your mode of filing income returns in India is online. 

Exemptions –

• You need to know that dividends that you earn from mutual funds and equity shares are exempt form tax in India
• Long term capital gains on equity mutual funds and equity shares do not qualify for taxable slab which means that any gain that gets accrued to you from selling the units after one year of purchase is not taxable in India. However, you are required to pay securities transaction tax at the time of sale of these funds.
• All interest that is received by you in your FCNR and NRE account does not fall under the taxable slab.
• You are entitled to claim a deduction on mortgage interest along with ad hoc deduction of 30% of net annual value as repairs and maintenance expenses in case you have given your property on rent. 

Deductions –

• Section 80G makes you entitled to claim a deduction if you have extended your contribution towards any approved charity.
• Section 80C entitles you to claim deduction for making investments in any of equity linked saving schemes, PPFs, life insurance premiums etc but that is to the extent of Rs 1.50 lakhs every financial year.
• Section 80D entitles you to claim a deduction if you have a running health insurance policy in name of your dependents or in your name. You get a deduction of Rs 15000 if you have a health insurance policy in name of your spouse and your dependent children. You are entitled to claim an additional deduction of Rs 15000 too if you have same in name of your parents. The latter deduction of Rs 15000 can be raised to Rs 20000 if any of your parents has crossed 65 years of age.

Scope of retro-amendments couldn’t be curtailed by treaty - High Court’s passing remarks; denies stay on recovery of demand

Vodafone South Ltd. v. Dy. DIT (International Taxation)[2014] 43 taxmann.com 444 (Karnataka)

The scope and effect of the legislation cannot be curtailed by the DTAA, if after it comes into force an Act of Parliament is passed which contains contrary provision. This issue could have been discussed further had the petitioner questioned the legality of the Finance Act, 2012 inserting Explanations 5 and 6 in section 9(1)(vi) of the Act.

Facts:

• The assessee, engaged in business of providing telecom services to its subscribers in India, entered into agreements with non-resident telecom operators ('NTOs') for providing bandwidth and inter-connects capacity outside India. 
• It also entered into a capacity transfer agreement with 'Belgacom' (a tax resident of Belgium) for acquisition of capacity over the Europe-India gateway (EIG) cable system. 
• The assessee argued that the payments to NTOs and Belgacom couldn't be termed as 'royalty' under the provisions of Income-tax Act. Accordingly, it filed the instant writ with the High Court against the impugned order of Tribunal granting limited stay on recovery of tax.

The High Court held in favour of revenue as under:

• Section 9(1)(vi) makes it clear that payments for rendering any services in connection with activities referred to in clauses (iv) and (v) of the Explanation 2 to section 9(1)(vi) would attract the definition of 'Royalty; 
• Explanations 5 and 6 to section 9(1)(vi) inserted by the Finance Act, 2012 provide that royalty includes consideration in respect of any right, property or information. As these Explanations are in the book of statute, unless they are declared ultra vires or their legality is tested, it is indispensable for the Assessing Officer to apply these Explanations while determining tax liability under the Act; 
• The petitioner had not questioned the validity of the said amendments in this writ. Thus, the Assessing Officer was bound to apply such provisions in determining the taxability of the payments made by the petitioner to the NTOs; 
• The scope and effect of the legislation can't be curtailed by the DTAA if after its entry into force an Act of Parliament is passed which contains contrary provision. The DTAA is entered into pursuant to the power conferred upon the Government under section 90; 
• Thus, a detailed discussion was required as to whether section 90(2) was of such nature so as to nullify all Acts of the Parliament which create tax liability under the Act? This issue could be debated further had the petitioner questioned the legality of the Finance Act, 2012, inserting Explanations 5 and 6in section 9(1)(vi) of the Act; 
• Any observation made on the above issues would not be construed as an expression of opinion on merit in view of the fact that all these issues are sub judice in the two appeals filed before the Tribunal. Thus, it needed to be examined whether the petitioner had made out a case for grant of stay in its entirety; 
• There was no material placed before the Court to show that the petitioner would suffer irreparable hardship and injuries to his favour due to order of Tribunal granting limited stay on recovery of tax. The Tribunal had answered the grounds urged by the petitioner seeking grant of interim stay and had reached the logical conclusion by directing the petitioner to deposit 50% of the tax liability. The order of the Tribunal could not be interfered with.

Points for e-filing of Income Tax returns

Technology has played an important role in streamlining the Income-Tax return filing process, which is now almost paperless. A taxpayer is not required to submit any supporting documents, return forms are downloaded from the income-tax web portal with an easy-to-understand procedure for filing returns electronically.

For the tax year 2013-14, electronic filing of returns is mandatory for following category of individuals: 

All persons with total income of Rs. 5 lakhs and above; individual/ Hindu Undivided Family (HUF), being resident, having assets located outside India; person claiming relief under double-taxation avoidance agreement that India has with other countries or claiming foreign tax credit under the Income Tax Act, 1961. The due date of filing tax return for individual taxpayers (who are not required to get their accounts audited) is July 31 following the end of India tax year (tax year in India runs from April 1 to March 31). 

E-filing process:

Create an account on the portal: To initiate the e-filing process, the taxpayer is required to register with the income-tax web portal. It can be done by logging on to www.incometaxindiafiling.gov.in to create an account. The taxpayer needs to enter the PAN and basic details. On creation of the account, a one-time password (OTP) is sent to the mobile number and email address mentioned by the taxpayer while creating the account. An activation link will be sent on the email address through which the account has to be activated.

Form selection: 

Salaried individuals (with no business/professional income including partnership income) can use either ITR-1 or ITR-2 for filing their tax return, depending on the nature of their income. ITR-1 is the tax return form for taxpayers having income from salary, one house property (excluding loss brought forward from previous years) and interest income. ITR-1 cannot be used for exempt income above Rs. 5,000 or by the taxpayer who is claiming relief under the relevant tax treaty or claiming foreign tax credit. ITR-2 is the form for individual taxpayers in all other cases, except where there is income from business or profession. 

Tax return utilities:

The taxpayer who has to file return electronically is required to create an XML file based on the utility downloaded from the portal. Currently, the utilities are available in excel and java versions. The java version has some additional features like pre-filling and quick e-filing options by allowing automatic retrieval of personal data from previous tax return(s) or as per PAN details and the tax details from Form 26AS, which saves a lot of time and ensures accuracy of data.

Filling up of utility and validation: 

After downloading the relevant utility, the taxpayer has to complete the same with personal information, income and tax details. Once the information is filled in, the taxpayer is required to validate the utility and compute the taxes.

Generation of XML: 

After validation of the utility, the taxpayer is required to generate XML, which will get saved on the hard drive of the computer.

Uploading of the XML: 

To upload the XML, the taxpayer has to log into his account on the income-tax portal and select the relevant assessment year. The uploading of the tax return (XML) may, at the option of the taxpayer, be done using the digital signature, in which case there is no need to submit the hard copy of the signed ITR-V with the revenue authorities.

Acknowledgement/ITR-V: 

On successful uploading of the XML file, an acknowledgement or the Form ITR-V is generated, the password for which is the PAN (in small alphabets) and date of birth in the dd/mm/yyyy format. To conclude the return filing process for non-digitally signed tax returns, the taxpayer needs to take a printout of the Form ITRV and send a signed copy by ordinary or speed post to Income-Tax Department-CPC, Post Bag No-1, Electronic City Post Office, Bangalore - 560 100, Karnataka, to be delivered within 120 days of e-filing the return.

Points to note: 

While computing the total income, one must include salary earned from the employers under the head ‘income from salary’. One must include incomes like interest from fixed deposits and, in case of multiple employment during the year, review the deductions and slab rates applied during withholding so that appropriate taxes are deposited in time. While filling up the tax form or utility, one must report exempt incomes like PPF interest, dividend from company or mutual funds, review personal information and bank details to ensure that accurate information has been put in the tax return form.

It is important to note that dates of deposits of tax should be entered in the dd/mm/yyyy format. Always mention the correct contact details, as they would be used by the tax department for any correspondence. Reconcile the particulars of TDS with Form 26A to avoid any demand notice by the tax authorities later. Never default on dispatching ITR-V on time as any delay can even make the legitimate tax return invalid.

The e-filing facility is available 24/7 and can be done from anywhere across the globe. It helps in quick processing, which, in turn, ensures refunds in a timely manner. Most returns are processed by CPC without any physical interface with the taxpayer, eliminating the need to send supporting documents.

Common Mistakes to Avoid in Personal Finance Planning

Financial planning involves a complete understanding of one’s financial needs and future goals. Once these are established it is easy to finalise on a comprehensive solution. In the journey towards securing ourselves financially there are some common mistakes that we commit. Some of the mistakes to avoid and the solution are discussed in detail.

No Concrete Budget Plan in place

This is the most unhealthy personal finance habit that we must be wary of. This has two disadvantages: firstly we end up spending excessively in areas that are not necessary and secondly we end up not spending money where it is needed. This could leave you high and dry, in spite of all your hard work and years of service. A sound budget is one that includes all the expenses (don’t forget to allocate funds towards entertainment, house repair and renovation and retirement savings) and factors in affordability and consistency. This must be backed by proper execution of the plan. Ensure financial discipline by all family members.

Trying to Make a Quick Buck When Investing

Many of us plan and budget well, but we skid and slip in the execution phase. Temptation gets the better of us and we try to put hard earned money in schemes that lure the investors with false promises. Most of these investments turn sour and we end up losing our investments. It is better to keep safe distance from such companies that promise say, to double your money in one month or give returns as high as 40-50% etc.

Making Investments That You Can’t Really Afford

Do not make investments that you cannot afford. Example, do not invest in life insurance that requires you to pay a huge sum as premium at the beginning of your career. Plan the amount of investment in each instrument with care and ensure you have enough to spend for rest of your needs.

Buying a Product Because it Looks Attractive

You must have your future in mind before buying an investment product. For e.g. taking a health insurance plan when you are already covered in a previous policy becomes redundant, however attractive the product may seem. Similarly, there could be newer and better sounding products that surface from time to time. It is imperative to check if these are suited to your needs and fit into the general scheme of things before you invest in them.

Investing – as a Quick Fix Solution

Investment cannot be done as a quick fix option to existing situation. For instance, in order to save tax you should not buy a product which cannot be serviced or continued in the future. Instead the extra tax liability can be paid for one year and a proper tax saving cum investment option should be planned for the years ahead.

Listen to Advice, Implementation Can Wait

Procrastination can defeat the purpose of listening to advice. If you postpone the actual investment to a later date, the features of the plan or even its availability could vary. Deciding on what to buy and implementing the decision at the earliest are both equally important.

Portfolio Without Diversity

Putting all the eggs in the same basket may spell danger as far as investments go. Remember, diversifying portfolio reduces the risk associated with a single industry. Not only should you invest in various schemes like pension, life insurance, medical insurance etc…, but also varied options like insurance, bonds, stocks of blue chip companies, gold, real estate etc.

Only One Person in the Family Knows Where the Money Goes

This situation should be avoided due to the uncertainties associated with human life. In case of an emergency it is always preferable that more than one person in the family knows where the funds have been invested. Details regarding medical claim, insurance claim should be shared with the spouse. Physically held investments like bond certificates, gold, etc. should be secured in lockers and the key should be kept safe. 

There is No Emergency Fund

We are living in an era of ATMs and therefore may be tempted to leave the money in the bank as long as we can, so that it can earn interest till we find the need for the cash. While this lends so seamlessly to logical thinking, care must be taken before you empty the house of the minimum cash which may be required during times of emergency. There are times when the ATMs near the house do not work or are out of cash. Some vendors do not believe in credit cards and hence do not accept them.

Children are Kept Away From Money Concepts

In the fast paced world it is very important to teach children about money matters. Children should be allowed not only to buy what they need from nearby shops, they should also be told about the finances of the house to the extent understandable by them. This will help them draw up their budget and plan their expenses when they start earning. While this will make them avoid unwanted expenses, it will also encourage them to spend where required.

Employee Benefits aren’t Well Understood or Utilized

There are certain benefits given by employers for the benefits of employees. It is imperative to understand these correctly and utilize them as they are intended to be utilised. For instance your company could make a part of the payment in the form of food coupons. Make sure you collect them and use them in the relevant outlets.

Renting Your Living Accommodation Rather Than Buying It

If you do this you will end up paying a lower rent, nevertheless at the end of the many years of paying increasing rent you will retire without a roof over your head. Investing in a house is important as it saves the tax that you need to pay, while creating an asset for you.

The points discussed above are broad guidelines which will help you in planning your finances. As a final word of caution I would like to add that there are no quick ways of making money. Better be safe than sorry!