Stocks

15 June 2016

Amendment to NI Act regarding place of filing cheque bounce compliant has retro-effect

Bridgestone India (P.) Ltd. v. Inderpal Singh [2015] 64 taxmann.com 50 (Supreme Court) 

The amendments made to the Negotiable Instruments Act, 1882 by the Second Ordinance of 2015, as regards territorial jurisdiction for filing cheque bounce complaints, retrospectively apply to pending cases filed before the Ordinance came into force. The words "….as if that sub-section has been in force at all material times…."used wrt new section 142(2) in new section 142A(1) gives retrospective effect to new section 142(2)

Facts:
  • A cheuqe was drawn on the Union Bank of India, Chandigarh by the respondent to the appellant - M/s Bridgestone India Pvt.Ltd. The appellant presented the said cheque at IDBI Bank in Indore for realization, the same was dishonoured on account of insufficient funds.
  • On failing to discharge obligation by respondent, the appellant initiated proceeding in the Court of the Judicial Magistrate, First Class, Indore (‘Magistrate’) under Section 138 of the Negotiable Instruments Act, 1881.
  • The Magistrate by an order held that he had the territorial jurisdiction to adjudicate upon the controversy raised by the appellant under Section 138 of the Negotiable Instruments Act, 1881. The decision rendered by the Judicial Magistrate, First Class, Indore, was assailed by the accused-respondent in another petition under Section 482 of the Criminal Procedure Code, in the High Court of Madhya Pradesh before its Indore Bench.
  • The High Court accepted the prayer made by the accused-respondent - Inderpal Singh by holding, that the jurisdiction lay only before the Court wherein the original drawee bank was located, namely, at Chandigarh, where-from the accused-respondent had issued the concerned cheque, drawn on the Union Bank of India, Chandigarh.
  • Dissatisfied with the order passed by the High Court, the appellant has approached Supreme Court. The appellant cited the decision rendered by a three-Judge Bench of this Court in Dashrath Rupsingh Rathod v. State of Maharashtra and another, (2014) 9 SCC 129

The Supreme Court held as under:
  • In view of the decision rendered by this Court in Dashrath Rupsingh Rathod's case, it was apparent, that the impugned order passed by the High Court of Madhya Pradesh, Bench at Indore, was wholly justified. Howeve, Section 142(2)(a), amended through the Negotiable Instruments (Amendment) Second Ordinance, 2015, vests jurisdiction for initiating proceedings for the offence under Section 138 of the Negotiable Instruments Act, inter alia in the territorial jurisdiction of the Court, where the cheque is delivered for collection (through an account of the branch of the bank where the payee or holder in due course maintains an account).
  • Based on Section 142A(1) to the effect, that the judgment rendered by this Court in Dashrath Rupsingh Rathod's case, would not stand in the way of the appellant, insofar as the territorial jurisdiction for initiating proceedings emerging from the dishonor of the cheque in the present case arises.
  • Since cheque was drawn on the Union Bank of India, Chandigarh, was presented for encashment at the IDBI Bank, Indore, which intimated its dishonor to the appellant we are of the view that the Judicial Magistrate, First Class, Indore, would have the territorial jurisdiction to take cognizance of the proceedings initiated by the appellant under Section 138 of the Negotiable Instruments Act, 1881, after the promulgation of the Negotiable Instruments (Amendment) Second Ordinance, 2015. The words "...as if that sub-section had been in force at all material times..." used with reference to Section 142(2), in Section 142A(1) gives retrospectivity to the provision.
  • In the above view of the matter, the instant appeal was allowed, and the impugned order passed by the High Court of Madhya Pradesh, was set aside.

13 June 2016

Transaction charges paid to Stock Exchange don't attract section 194J TDS

[2016] 70 taxmann.com 23 (Mumbai - Tribunal)


Facts: 
  • The assessee debited certain amount on account of transaction charges paid to the Stock Exchange. The Assessing Officer disallowed such charges on the ground that the assessee had not deducted tax at source while making the payment of transaction charges.
  • The Commissioner (Appeals) held that the transaction charges were paid to the Stock Exchange for rendering the managerial services which constituted fees for technical services under section 194J and, hence, the assessee was liable to deduct tax at source before crediting the transaction charges to the Stock Exchange. In that view of the matter, the disallowance was upheld.
  • The aggrieved-assessee filed the instant appeal. 

The Tribunal held in favour of assessee as under: 
  • The question as to whether TDS is deductible under section 194J on payments of transaction charges made by members to Stock Exchange has been considered by the Apex Court in the case of CIT v. Kotak Securities Ltd. [2016] 67 taxmann.com 356 wherein it was held that no TDS is required to be deducted on transaction charges paid by members to Stock Exchange as they are not for 'technical services' rendered but are in the nature of payments for facilities provided by the Stock Exchange.
  • Following the decision of the Apex Court in the case of Kotak Securities Ltd. (supra), it was held that no TDS would be deductible on payment of transaction charges by members to Stock Exchange under section 194J. Accordingly, the Assessing Officer was directed to delete the disallowance made on account of transaction charges paid to Stock Exchange. 

12 June 2016

10 million USD penalty levied on Satyam for violating US Securities Exchange Act won't attract TDS

Satyam Computer Services Ltd., In re [2015] 64 taxmann.com 162 (AAR - New Delhi)

The applicant (‘Satyam Computer services ltd.’) approached Authority for Advance Ruling (‘AAR’) to consider whether payment of penalty levied by US Court (due to violation of provisions of US Securities Exchange Act, 1934) would attract provisions of section 195.


The AAR held as under:
  • It is a trite law that unless the payment made attracts the tax under the Income-tax Act, there would be no liability to deduct tax under section 195.
  • Penalty ordered by the US Court does not attract any tax liability, thus, applicant would not be required to withhold tax on such penalty under section 195. 

11 June 2016

Custom duty borne by purchaser would be deductible even if liability disputed by importer seller

CIT v. Monica India [2016] 70 taxmann.com 47 (Bombay High Court)
 

Facts: 
  • Assessee-firm purchased certain imported products under two agreements. The price as agreed in both the cases was the gross costs to the sellers with certain amount of net profit. The gross cost included all expenditure incurred by the sellers for supplying the goods to the assessee. 
  • However, as there was uncertainty about the incidence of customs duties, the parties inserted a clause in the agreements, to make it clear that any liability with respect to duty of customs payable by the seller, would be a part of the costs and the buyer (assessee) would pay for the same. In terms of the contract the assessee was required to pay custom duty of Rs 1.78 crores to its seller as a part of the cost of the goods. 
  • While completing assessment, the Assessing Officer accepted expenditure incurred on account of customs duty. Thereafter, the CIT, in exercise of powers under section 263, reversed assessment order holding that the amount of custom duty was a contingent liability as the sellers of goods had challenged the same in the Supreme Court.
  • On appeal, the Tribunal held that liability on account of customs duty was to be allowed as the deduction on accrual basis. Aggrieved-revenue filed the instant appeal. 

The High Court held in favour of assessee as under: 
  • It couldn’t be disputed that the Customs Department had raised a demand upon the seller of the goods. This amount was a part of the consideration payable by the assessee to the seller of goods. The mere fact that the seller of the goods had obtained a stay, would not, by itself, result in the same being considered as an unascertained and unqualified liability.
  • The entire consideration of customs duty demanded by the Customs Department from the seller was a part of the price so far as the seller and the assessee was concerned. Moreover, as the assessee was following the mercantile systems of accounting, mere challenge to the demand by the seller would not, by itself, lead to the liability ceasing, although, the seller of the goods could not be able to claim/obtain a deduction on the above account as the same had not been paid in terms of section 43B. However, this does not in any way deprive the assessee of the deduction of the amounts paid for purchase of goods.
  • Thus, the assessee would be entitled to deduct the aforesaid amount as consideration paid for the goods. In any case, if the Apex Court holds that no custom duty is payable and quashes the demand of the Customs Department, then the consideration payable for the goods would stand reduced by virtue of section 41. Therefore, assessee would be liable to pay tax under section 41 on remission as its liability to pay for the goods purchased from the seller would stand reduced.

10 June 2016

Production and broadcasting of radio programme is manufacture or production under Sec. 32(1)(iia)

CIT v. Radio Today Broadcasting Ltd. [2015] 64 taxmann.com 164 (Delhi High Court)


Issue:

Whether assessee engaged in business of production or broadcasting of radio programmes could be said to be a manufacturer or producer of any article or thing so as to be entitled to additional depreciation under Section 32(1)(ii).


The Delhi High Court held in favour of assessee as under-
  • The production of radio programmes involves the processes of recording, editing and making copies prior to broadcasting. When the radio programme is made there comes into existence a 'thing' which is intangible, and which can be transmitted and even sold by making copies.
  • Therefore, it can definitely be stated that the radio programme produced by the Assessee is 'thing', if not an 'article’ as Dictionary meaning of the word envisages that "thing" could have intangible characteristic.
  • The word 'manufacture' envisages subjecting any material or thing to certain processes in order to produce something which has a distinct characteristic. Hence, 'manufacture' includes various combinations of processes.
  • In the context of 'broadcast', it includes the processes of producing, recording, editing and making copies of the radio programme followed by its broadcasting.
  • Thus, assessee engaged in business of production or broadcasting of radio programmes could be said to be a manufacturer or producer of any article or thing so as to be entitled to additional depreciation under Section 32(1)(ii)- 

8 June 2016

Income arising to ‘Western Union’ from money transfer services isn’t taxable in India

Deputy DIT v. Western Union Financial Services Inc. [2015] 64 taxmann.com 230 (Delhi - Tribunal)


‘Western Union’ isn’t liable to pay any tax in India for transferring money to India for their American clients even if it appoints agents in India to provide those services and setS-up a liaison office to interact with such agents.


Facts
  • Western Union Financial Services Inc. (‘Western Union’), incorporated in USA, was engaged in the business of rendering money transfer services.
  • In order to provide said services to citizens of the USA desirous of remitting money to India, Western Union had set-up a liaison office (LO) in India. It appointed agents in India and provided them software (Voyager) to access its mainframes in the USA. The agents were paid commission on completion of money transfer transactions.
  • Western Union filed its return declaring ‘nil’ income by contending that it was not liable to pay any tax in India on income arising from money transfer services as it didn’t have any permanent establishment (PE) in India.
  • The Assessing Officer was of the view that income arising to the Western Union from money transfer services was taxable in India both under the Income-tax Act (‘the Act’) and the India-USA DTAA.
  • CIT(A) set aside the order of the AO. Aggrieved by the order of the CIT(A), revenue filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under-

Though Western Union had business connection in India in terms of section 9 of the Income-tax Act, yet it did not have a PE in India under India-USA DTAA. It made following observations on different categories of PEs:
Fixed Place PE
It was held that Western Union could not be said to have fixed place PE in India as it did not have its own outlet in India and it was carrying on its business through agents appointed in India.
Liaison office as PE
It was held that LO could not be considered as Western Union’s PE in India as it carried out activities which were of a preparatory or auxiliary character. It had not carried on any trading activity for the assessee in India. It had only a small number of executives and a support staff. The LO had also filed status reports to the RBI listing out the activities which it actually carried out during the years. None of the activities could be described as anything other than of preparatory or auxiliary character. Therefore, the LO could not be considered to be the PE of the Western Union in India.
Software as PE
It was held that the software was the property of the Western Union and it had not parted with its copyright therein in favour of the agents. The agents had only been allowed the use of the software in order to gain access to the mainframe computers in the USA. Mere use of the software for the said purpose from the premises of the agents could not lead to the decision that the premises-cum-software would be the PE of the assessee in India. As per article 5 of India-USA DTAA, an installation might amount to a PE, provided it is used for the exploration of natural resources. Therefore, even if the software was to be considered as an installation, since it was not used for exploration or exploitation of natural resources, it could not per se be treated as a PE.
Dependent Agent PE
It was held that agents appointed by Western Union were acting in the ordinary course of their business and their activities were not devoted wholly or almost wholly to the Western Union. Further, commissions were paid to them at arm’s length price. Therefore, the agents were independent agents under Article 5.5 of the India-USA DTAA.
Hence, in the absence of any PE in India the profits of the Western Union, if any, attributable to the Indian operations could not be taxed In India.