Stocks

28 March 2017

Proxy

A written authorization given by a shareholder for someone else, usually the company's management, to cast his/her vote at a shareholder meeting or at another time.

25 March 2017

Benami Transactions (Prohibition) Amended Act, 2016

Though the Benami Transactions (Prohibition) Act, 1988 has been on the statute book since more than 28 years, the same could not be made operational because of certain inherent defects. With a view to providing effective regime for prohibition of benami transactions, the said Act was amended through the Benami Transactions (Prohibition) Amended Act, 2016. The amended law empowers the specified authorities to provisionally attach benami properties which can eventually be confiscated. Besides, if a person is found guilty of offence of benami transaction by the competent court, he shall be punishable with rigorous imprisonment for a term not less than one year but which may extend to 7 years and shall also be liable to fine which may extend to 25% of the fair market value of the property. 

The Benami Transactions (Prohibition) Amendment Act, 2016 came into effect from1st November, 2016. Several benami transactions have been identified since the coming into effect of the amended law. Show cause notices for provisional attachment of benami properties have been issued in 140 cases involving properties of the value of about Rs. 200 crore. Out of these, provisional attachment has already been effected in 124 cases. The benami properties attached include deposits in bank accounts and immovable properties. 

The Government has put in place empowered institutions for efficient implementation of the amended law. In exercise of powers conferred under sub-section (2) of section 28 read with section 59 of the amended Prohibition of Benami Property Transactions Act, 1988, vide Notification No. SO 3290E, dated 25.10.2016 the Central Government has notified specified Income-tax authorities to act as Initiating Officer, Approving Authority and Administrator in respect of benami transactions. Further, vide Notification No. SO 3288E, dated 25.10.2016, the Adjudicating Authority has been notified

10 March 2017

Net Indirect Tax collection upto February 2017 stood at Rs 7.72 lakh crore, 22.2% more than the corresponding period last year

The figures for indirect tax collections (Central Excise, Service Tax and Customs) up to February 2017 show that net revenue collections are at Rs 7.72 lakh crore, which is 22.2% more than the net collections for the corresponding period last year. Till February 2017, about 90.9% of the Revised Estimates (RE) of indirect taxes for Financial Year 2016-17 has been achieved.

As regards Central Excise, net tax collections stood at Rs. 3.45 lakh crore during April-February, 2016-17 as compared to Rs.2.53 lakh crore during the corresponding period in the previous Financial Year, thereby registering a growth of 36.2%.

Net Tax collections on account of Service Tax during April-February, 2016-17 stood at Rs. 2.21 lakh crore as compared to Rs.1.83 lakh crore during the corresponding period in the previous Financial Year, thereby registering a growth of 20.8%.

Net Tax collections on account of Customs during April-February 2016-17 stood at Rs. 2.05 lakh crore as compared to Rs. 1.94 lakh crore during the same period in the previous Financial Year, thereby registering a growth of 5.2%.

During February 2017, the net indirect tax grew at the rate of 8.4% compared to corresponding month last year. The growth rate in net collection for Customs, Central Excise and Service Tax was 10.9%, 7.4% and 7.6% respectively during the month of February 2017, compared to the corresponding month last year.

Direct Tax Collections up to February, 2017 show growth of 10.7%, Net growth in Corporate Income Tax at 2.6%, Net growth in Personal Income Tax at 19.5%

The Direct Tax collections up to February, 2017 continue to show a steady growth trend. The collection net of refunds stands at Rs. 6.17 lakh crore, which is 10.7 % more than the net collections for the corresponding period last year. This collection is 72.9 % of the total Budget Estimates for Direct Taxes for Financial Year 2016-17. 

As regards the growth rates for Corporate Income Tax (CIT) and Personal Income Tax (PIT), in terms of gross revenue collections, the growth rate under CIT is 11.9% while that under PIT (including STT) is 20.8 %. However, after adjusting for refunds, the net growth in CIT collections is 2.6 % while that in PIT collections is 19.5 %. Refunds amounting to Rs.1.48 lakh crore have been issued during April 2016- February 2017, which is 40.2% higher than the refunds issued during the corresponding period last year.

7 March 2017

INCOME TAX CASE-LAWS

INCOME TAX CASE-LAWS



SECTION 2(22)(e)



DEEMED DIVIDEND


Advances/loans received by HUF from a closely-held company is taxable as deemed dividend u/s 2(22)(e) if Karta, who is shareholder in lending company has substantial interest in the HUF even if HUF is not registered and/or shareholder - [2017] 77 taxmann.com 71 (SC)


SECTION 11

CHARITABLE OR RELIGIOUS TRUST - EXEMPTION OF INCOME FROM PROPERTY HELD UNDER

Application of income : SLP granted against High Court's ruling that merely because assessee-trust incurred expenditure in excess of income in relevant previous year for charitable purposes out of accumulated charity fund, it could not be denied benefit of exemption under section 11(1)(a) - [2017] 77 taxmann.com 2 (SC)



Depreciation
SLP granted against High Court's ruling that amendment made in section 11(6) is prospective in nature and it would operate with effect from 1-4-2015 - [2017] 77 taxmann.com 14 (SC)



SECTION 44BBB

FOREIGN COMPANIES, CIVIL CONSTRUCTION BUSINESS IN CERTAIN TURNKEY PROJECTS

Conditions precedent : Section 44BBB which deals with turnkey project, not applicable to assessee being engaged in providing consultancy services - [2017] 77 taxmann.com 4 (Delhi - Trib.)

SECTION 68
CASH CREDIT

Gift : SLP dismissed against High Court's ruling that where assessee failed to establish creditworthiness of donor and genuineness of transaction, addition made in terms of section 68 of gift amount was justified - [2017] 77 taxmann.com 1 (SC)


Gift : SLP dismissed against High Court's ruling that where Assessing Officer after making proper and detailed enquiries, took a view that amount received by assessee as gift from his relatives was a genuine transaction, impugned revisional order passed by Commissioner directing Assessing Officer to enquire into capacity of donors and to decide about genuineness of gift afresh, was not sustainable - [2017] 77 taxmann.com 15 (SC)

SECTION 92C
TRANSFER PRICING - COMPUTATION OF ARM'S LENGTH PRICE

Comparables and adjustments/Comparables – Illustrations : In transfer pricing proceedings, a company performing similar functions can not be rejected as a comparable on ground that it has higher proportion of material cost in total operating cost - [2017] 77 taxmann.com 17 (Chennai - Trib.)

6 March 2017

Trade Mark Rules 2017

The Trade Mark Rules, 2017 have been notified and have come into effect from 06th March, 2017. These Rules, which replace the erstwhile Trade Mark Rules 2002, will streamline and simplify the processing of Trade Mark applications. 

Some salient features of the revamped Rules are as follows: 
  • Number of Trade Mark (TM) Forms have been reduced from 74 to 8. 
  • To promote e-filing of TM applications, the fee for online filing has been kept at 10% lower than that for physical filing. 
  • Based on stakeholders feedback, the fees for Individuals, Start-ups and Small Enterprises have been reduced from that proposed in the draft Rules – i.e. only Rs 4,500 as against Rs 8,000 for e-filing of TM applications proposed at the draft stage. 
  • Modalities for determination of well-known trademarks have been laid out for the first time.
  • The provisions relating to expedited processing of an application for registration of a trade mark have been extended right upto registration stage (hitherto, it was only upto examination stage). 
  • Over all fees have been rationalized by reducing the number of entries in Schedule I from 88 to just 23. 
  • Modalities for service of documents from applicants to the Registry and vice-versa through electronic means have been introduced to expedite the process; e-mail has been made an essential part of address for service to be provided by the applicant or any party to the proceedings so that the office communication may be sent through email. 
  • Hearing through video conferencing has been introduced. 
  • Number of adjournments in opposition proceedings has been restricted to a maximum of two by each party, which will help dispose off matters in time. 
  • Procedures relating to registration as Registered User of trademarks have also been simplified. 
It may be recalled that the examination time for a TM application has already been brought down from 13 months to just 1 month in January 2017; this is despite a stupendous 35% jump in TM filings in 2015-16 vis a vis the previous year. The new Rules should give a boost to the Intellectual Property Regime in India.

Goods and Services Tax GST) Council approves the Central Goods and Services Tax (CGST) Bill and the Integrated Goods and Services Tax (IGST) Bill.

The Goods and Services Tax GST) Council, in its meeting held today in Vigyan Bhawan in New Delhi under the Chairmanship of the Union Minister for Finance & Corporate Affairs, Shri Arun Jaitley has approved the draft CGST Bill and the draft IGST Bill as vetted by the Union Law Ministry. This clears the deck for the Central Government to take these two Bills to the Parliament for their passage in the ongoing Budget Session.

Some of the main features of the two Bills, as finalized by the GST Council, are as follows:
  • A State-wise single registration for a taxpayer forfiling returns, paying taxes,and to fulfil other compliance requirements. Most of the compliance requirements would be fulfilled online, thus leaving very little room for physical interface between the taxpayer and the tax official.
  • A taxpayer has to file one single return state-wise to report all his supplies, whether made within or outside the State or exported out of the country and pay the applicable taxes on them. Such taxescan be Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST), Union Territory Goods and Services Tax (UTGST) and Integrated Goods and Services Tax (IGST).
  • A business entity with an annual turnover of upto Rs. 20 lakhs would not be required to take registration in the GST regime, unless he voluntarily chooses to do so to be a part of the input tax credit (ITC) chain. The annual turnover threshold in the Special Category States (as enumerated in Article 279A of the Constitution such as Arunachal Pradesh, Sikkim, Uttarakhand, Himachal Pradesh, Assam and the other States of the North-East) for not taking registration is Rs. 10 lakhs.
  • A business entity with turnover upto Rs. 50 lakhs can avail the benefit of a composition scheme under which it has to pay a much lower rate of tax and has to fulfil very minimal compliance requirements. The Composition Scheme is available for all traders, select manufacturing sectors and for restaurants in the services sector.
  • In order to prevent cascading of taxes, ITC would be admissible on all goods and services used in the course or furtherance of business, except on a few items listed in the Law.
  • In order to ensure that ITC can be used seamlessly for payment of taxes under the Central and the State Law, it has been provided that the ITC entitlement arising out of taxes paid under the Central Law can be cross-utilised for payment of taxes under the laws of the States or Union Territories. For example, a taxpayer can use the ITC accruing to him due to payment of IGST to discharge his tax liability of CGST / SGST / UTGST. Conversely, a taxpayer can use the ITC accruing to him on account of payment of CGST / SGST / UTGST, for payment of IGST. Such payments are to be made in a pre-defined order.
  • In the Services sector, the existing mechanism of Input Service Distributor (ISD) under the Service Tax law has been retained to allow the flow of ITC in respect of input serviceswithin a legal entity.
  • To prevent lock-in of capital of exporters, a provision has been made to refund, within seven days of filing the application for refund by an exporter, ninety percent of the claimed amount on a provisional basis.
  • In order to ensure a single administrative interface for taxpayers, a provision has been made to authorise officers of the tax administrations of the Centre and the States to exercise the powers conferred under all Acts.
  • An agriculturist, to the extent of supply of produce out of cultivation of land, would not be liable to take registration in the GST regime.
  • To provide certainty in tax matters, a provision has been made for an Advance Ruling Authority.
  • Exhaustive provisions for Appellate mechansim have been made.
  • Detailed transitional provisions have been provided to ensure migration of existing taxpayers and seamless transfer of unutilised ITC in the GST regime.
  • An anti-profiteering provision has been incorporated to ensure that the reduction of tax incidence is passed on to the consumers.
  • In order to mitigate any financial hardship being suffered by a taxpayer, Commissioner has been empowered to allow payment of taxes in instalments.

The remaining two Bills namely, State Goods and Services Tax (SGST) Bill and the Union territory Goods and Services Tax (UTGST) Bill, which would be almost a replica of the CGST Act, would be taken-up for approval after their legal vetting in the next meeting of GST Council scheduled on 16 March 2017.

5 March 2017

Assessing Officer couldn't expand scope of special audit for those years which weren't specified in show cause notice


Facts
  • Several firms converted into 5 companies, which amalgamated with assessee-company on 30-3-2012. 
  • For year 2012-13, Assessing Officer found that properties of assessee-company had undergone multiple revaluation. Having regard to nature and complexity of accounts, he found it necessary to get the accounts audited by Special Auditor. 
  • However, Assessing Officer(AO) ordered for special audit not only concerning financial year 2012-13 but also for financial year 2009-10 and also called for special audit of erstwhile firms and companies. However, there was no proposal in show-cause notice as to expanding scope of special audit for other years or for erstwhile firm and companies.
  • Aggrieved by the order of AO, assessee filed the instant writ before the High Court.


The High Court held in favour of assessee as under-
  • Insofar as the direction for auditing the company's account for the financial year 2012-13, same is backed by proper materials on record and reasons recorded by the Assessing Officer Therefore, his formation of the belief that looking to the complexity and volume of the accounts, a special audit was called for, cannot be faulted.
  • However, in the impugned order, AO expanded the scope of special audit and directed the special audit not only for the financial year 2009-10 in case of the assessee, but also called for special audit of various other entities for number of years without any proposal in the show cause notice.
  • It was held that where there was no proposal in show-cause notice as to expanding scope of special audit for other years or for erstwhile firms and companies, AO could not call for special audit in respect of same.

[2017] 77 taxmann.com 162 (Gujarat High Court)

4 March 2017

INCOME TAX CASE-LAWS

SECTION 2(47)
CAPITAL GAINS – TRANSFER

Firm/partner, in case of : Where assessee-company made capital contribution in a partnership firm in form of land, shares and securities, since said firm was genuine which carried on its business activities regularly, even though in such a case, aforesaid contribution constituted transfer of capital asset, yet it did not result in any capital gain subjected to capital gain tax - [2017] 77 taxmann.com 350 (Bombay)


SECTION 14A
EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME

Where an assessee claims that no expenditure has been incurred by him in relation to exempt income, Assessing Officer can resort to Rule 8D only if having regard to accounts of assessee he is not satisfied with correctness of claim of assessee that no expenditure has been incurred by him in relation to income which does not form part of total income under Act - [2017] 78 taxmann.com 65 (Punjab & Haryana)


SECTION 28(i)
BUSINESS LOSS/DEDUCTIONS - ALLOWABLE AS

Forward exchange contracts : No disallowance of loss under forward contract just because assessee had Nil export turnover due to ban on export - [2017] 78 taxmann.com 17 (Visakhapatnam - Trib.)


SECTION 50C
CAPITAL GAINS - SPECIAL PROVISION FOR FULL VALUE OF CONSIDERATION IN CERTAIN CASES

Leasehold rights : Section 50C will not be applicable while computing capital gains on transfer of leasehold rights in land and buildings - [2017] 77 taxmann.com 308 (Bombay)


SECTION 69B
UNDISCLOSED INVESTMENTS

Unaccounted purchases : Once raw material quantity that did not appear in regular books of account was discovered and could be inferred as a result of search, onus lay upon assessee to furnish full particulars as to cost of that raw material or average cost - [2017] 77 taxmann.com 345 (Delhi)


SECTION 69C
UNEXPLAINED EXPENDITURE

Bogus purchases : Where purchases of paddy recorded by assessee matched with purchases as per report of Agricultural Marketing Committee (AMC), Assessing Officer could not disallow a part of said purchases on ground that assessee failed to maintain proper books of account - [2017] 78 taxmann.com 17 (Visakhapatnam - Trib.)


SECTION 92B
TRANSFER PRICING - MEANING OF INTERNATIONAL TRANSACTION

Brand promotion/Marketing expenses : Matter was remanded back to Tribunal to decide whether reporting of AMP expenditure in regard to outbound business constituted an international transaction for which ALP determination was necessary - [2017] 78 taxmann.com 14 (Delhi)


SECTION 92C
TRANSFER PRICING - COMPUTATION OF ARM'S LENGTH PRICE

Comparables and adjustments/Comparables – Illustrations : A foreign company can be taken as a tested party provided assessee makes sure that necessary relevant information about tested party and sufficient data in relation to comparables is furnished to tax administration in order to verify selection and application of transfer pricing method - [2017] 77 taxmann.com 352 (Hyderabad - Trib.)


Comparables and adjustments/Comparables – Illustrations : In case of assessee-company rendering software development services to its AE, a company developing its own software products and a company which outsourced major portion of its work, could not be accepted as comparables while determining ALP - [2017] 77 taxmann.com 352 (Hyderabad - Trib.)


Comparables and adjustments/Adjustments - Allocation of cost : Where TPO made ALP adjustment by taking value of SAP implementation charges paid by assessee to its AE at nil, in view of fact that in succeeding year TPO had submitted a remand report to Commissioner (Appeals) accepting genuineness of payment in question, impugned adjustment was to be set aside and, matter was to be remanded back for disposal afresh -[2017] 78 taxmann.com 15 (Bangalore - Trib.)


SECTION 132
SEARCH AND SEIZURE

Statement made during search : Where statements recorded were corroborated by materials, there was no justification to reject statements, which merely explain documents seized - [2017] 77 taxmann.com 345 (Delhi)


SECTION 144C
TRANSFER PRICING - REFERENCE TO DRP

Scope of : In respect of proceedings which come under ambit of section 144C, there can be no application of section 153 - [2017] 78 taxmann.com 16 (Chennai - Trib.)


Scope of : Where DRP in terms of order passed under section 144C(5) gave directions to TPO and not to Assessing Officer, it resulted in a procedural defect and not a jurisdictional error that could invalidate proceedings in toto - [2017] 78 taxmann.com 16 (Chennai - Trib.)


SECTION 220
COLLECTION OF TAX AT SOURCE - WHEN TAX PAYABLE & WHEN ASSESSEE DEEMED IN DEFAULT

Stay of demand : Where factors that assessee had very little liquid income but had sufficient assets in form of immovable property were not considered by revenue while passing stay order and bank accounts of assessee were also hastily attached, order as to reconsidering stay application was justified - [2017] 78 taxmann.com 9 (Madras)

3 March 2017

SERVICE TAX CASE-LAWS

SECTION 65(16)
TAXABLE SERVICE - BROADCASTING AGENCY OR ORGANISATION

Where assessee-production house produced programmes that were broadcast by broadcasting agency, question as to whether assessee's activities in selling time slots/fillers available with programmes to advertisers was 'sale of space or time for advertising' or 'broadcasting agency service' was to be determined in terms of contract between assessee and broadcaster as well as assessee and advertisers - [2017] 78 taxmann.com 18 (Mumbai - CESTAT)


SECTION 65(90a)
RENTING OF IMMOVABLE PROPERTY

Where assessee had constructed commercial building for renting and had taken interest free security deposit from customers and forfeited amount of advance given by customers on relegation of contract by customer, interest free security deposit and forfeited amount were not liable to service tax under 'renting of immovable property' - [2017] 78 taxmann.com 12 (Mumbai - CESTAT)

No response for suspicious deposits may invite tax department at your doorstep

The Income-Tax department had identified around 18 lakh taxpayers in its first phase who had made cash deposits during demonetization. These taxpayers were required to submit online response till 15th February 2017.

Now, the tax department has initiated verification of such accounts. It has issued the following Standard Operating Procedure for verification of cash transactions of taxpayers.

  • Wherein online response has not been submitted the tax authorities may initiate survey. During survey, tax dept. can check CCTV recording at cash counters of banks where there is suspicion of back dating transaction or fictitious cash transactions. 
  • In case cash loans or deposits above Rs 20,000 come to the notice of AO then penalty proceedings can be initiated. 
  • In case of individuals, not having any business income, no verification shall be made by Assessing Officer ('AO') if the cash deposits do not exceed Rs 2,50,000. In case of taxpayers above 70 years of age, the threshold limit shall be Rs 5,00,000. The source of such deposits can be either household savings or savings from the past. 
  • In case of individuals having cash deposits above the aforesaid threshold, the Assessing Officer may quantify the undisclosed income, if any, on the basis of following factors: 
    • Income earned during the past years; 
    • Source of such income; 
    • Filing of return of income; 
    • Cash withdrawal made from accounts. 
  • In case of taxpayers engaged in any business no further verification is necessary if total cash deposited is not more than closing cash balance shown in return of income as on March 31, 2016. AO shall carry out further verification if closing cash balance in return of income has been increased by revising the return or due to backdated transactions in books of account. 
  • No further verification shall be carried out by AO if the cash deposits have been disclosed in the IDS 2016. 
  • AO may carry out verification even in those cases wherein cash deposits were made below the threshold limit of Rs 2,50,000 or Rs 5,00,000 if he has any information or if he is suspicious that a particular bank account has been misused for money laundering, tax evasion, etc. 
  • AO shall make verification on basis of following factors in case taxpayer claims that cash deposits were made out of cash withdrawal from bank account: 
    • Bank statement may be verified to confirm the name of account holder; 
    • The date and amount of cash withdrawal and cash deposits may be matched; 
    • The AO should take a balanced view for analyzing the time gap in withdrawal and deposit of cash. 
  • Following may be treated as indicators for backdated recording of cash sales or fictitious sales: 
    • Abnormal jump in the cash sales during the period November to December, 2016. 
    • Abnormal jump in percentage of cash sales to unidentifiable persons 
    • More than one deposit of old bank notes in the bank account late in demonetization period, 
    • Attempt to inflate stock by introducing fictitious purchases, 
  • If AO requires any additional information with respect to response submitted on cash transaction then taxpayers can be contacted only through electronic mode, i.e., by email or SMS. Any additional information which is required to be submitted by person should be asked through online mode by providing a hyperlink in the email. Tax payers are required to upload documents on given hyperlink.

Six months investment period given under section 54EC should be treated as six British Calendar Months

Facts
  • Assessee earned long-term capital gains from sale of his ancestral property on 3-10-2008. 
  • He invested amount of capital gains in REC bonds and claimed deduction under section 54EC. 
  • Assessing Officer (AO) held that since the investment in the specified securities as stipulated under section 54EC was not made on or before 12-4-2009, i.e., within six months from the date of transfer of the property, the assessee was not entitled to claim deduction under section 54EC. 
  • Commissioner (Appeals) upheld the order of AO. Aggrieved-assessee filed the instant appeal before Tribunal.

The Tribunal held in favour of assessee as under:
  • Section 54EC clearly stipulates that the investment has to be made in specified long term assets within a period of six months after the date of transfer of the original asset. 
  • The word "month" is not defined under the Act, thus it has to be reckoned according to British Calendar in terms of section 3(35) of the General Clauses Act, 1897.Hence, six months period should be reckoned from end of month in which transfer took place. 
  • REC bonds were subscribed by the assessee on 24-4-2009 and were allotted to the assessee by REC on 30-4-2009 which is within six months after the date of transfer of asset as per British Calendar month. 
  • Since assessee fulfilled the conditions laid down under section 54EC, he was eligible for deduction under section 54EC.
[2017] 77 taxmann.com 174 (Mumbai - Tribunal)

2 March 2017

Foreign Company can claim profits below section 44BBB presumptive rate even when AS-7 is applicable on it


Facts:
  • Foreign company was engaged in the business of erection, testing and commissioning of power plants. It had opened a project office for the execution of projects in India and opted for presumptive tax scheme under section 44BBB. 
  • Its books of account were audited and prepared as per Accounting Standard-7 (AS-7).It claimed profits to be lower than the 10% presumptive rate u/s 44BBB. 
  • The Assessing Officer (AO) discarded the method of accounting followed by the assesseeand rejected books of accounts in terms of section 145(3). He invoked the provisions of section 44BBB determined income @ 10%. 
  • The CIT(A) held that AO had no right to reject audited books of accounts. Aggrieved from order of CIT(A), the revenue filed instant appeal before Tribunal.

The Tribunal held in favour of assessee as under:

  • Section 44BBBB clearly provides an option to an assessee to offer to tax lower profits and gains than profit deemed of 10% if books of accounts is maintained and also audited as per section 44AB. 
  • Assessee had recognized revenue and cost following the percentage completion method prescribed by AS-7. 
  • Assessee-company prepared its Balance Sheet and Profit & loss account in compliance with AS-7. 
  • Assessee-company fulfilled all conditions prescribed u/s 44BBB and also has followed one of the recognized methods as prescribed in para 29 of the Accounting Standard-7 "Construction Contracts". 
  • AO was of the view that method of accounting followed by assessee as per AS–7 was not correct and proper income could not be determined on that basis. 
  • Hence, AO's action of rejecting books of accounts in terms of Section 145(3) and assessing income u/s 44BBBon presumptive basis was not justified.
 [2017] 77 taxmann.com 266 (Ahmedabad - Tribunal)