RIM offers interception solution using Cloud Computing

With the approaching deadline to offer complete solution for monitoring of its contents by January 31, BlackBerry maker Research in Motion (RIM) has offered lawful interception in its security architecture through cloud computing from Indian operators. Cloud computing is Internet-based service, whereby shared servers provide software and data to computers and other devices on demand.

RIM infrastructure is ready to receive and process through the cloud computing-based system, lawfully intercepted

BlackBerry Messenger data from Indian service providers, the Canada-based firm said in a letter to the government.

Earlier, RIM had assured the Government that they will provide the 'final solution' for the lawful interception of BlackBerry Messenger services by January 31, 2011. The company has said that this was the understanding that they were to put in place the system by January 31.

According to sources in the know, the Ministry of Home Affairs has asked the Intelligence Bureau (IB) to validate the technology (cloud computing) being offered by RIM.

BlackBerry has over one million subscribers in India, which is one of the fastest growing markets in the world in terms of new subscriber additions.

The Canada-based company made it clear that its security systems are still cutting edge by saying, "RIM maintains a consistent global standard for lawful access requirements that does not include special deals for specific countries.

Last year, RIM had assured the Government that it would provide a final solution for lawful interception of BlackBerry Messenger services by January next year. The project is likely to be completed by the end of January 2011.

With regard to Blackberry's Enterprise mail service, however, it had asserted that the company had no ability to provide customers' encryption keys.

With respect to the same issue, Robert E Crow, Vice President, Industry, Government and University Relations, RIM, had met Home Minister P Chidambaram and explained the status of its project.

Company had also claimed that there was no deadline from the government and it was RIM that had said it would work with operators to ensure that security agencies were able to intercept BlackBerry Messenger data.

The company had also asserted that there was "no change" in its security architecture and sought to dispel talks of its ban in India as mere rumours.

The rumours around BlackBerry services stems from the fact that Indian government had earlier asked Blackberry to provide complete access or face a ban.

Source: Hindustan Times

Where while deleting penalty, Tribunal had not considered decision of jurisdictional High Court, Tribunal's order was liable to be set aside

Where while deleting penalty, Tribunal had not considered decision of jurisdictional High Court, Tribunal's order was liable to be set aside - [2010] 8 TAXMANN.COM 265 (KAR.)

Goldman Sachs - Facebook

Facebook, the popular social networking site, has raised $500 million from Goldman Sachs and a Russian investor in a deal that values the company at $50 billion, according to people involved in the transaction.


The deal makes Facebook now worth more than companies like eBay, Yahoo and Time Warner.

The stake by Goldman Sachs, considered one of Wall Street’s savviest investors, signals the increasing might of Facebook, which has already been bearing down on giants like Google.

The new money will give Facebook more firepower to steal away valuable employees, develop new products and possibly pursue acquisitions — all without being a publicly traded company. The investment may also allow earlier shareholders, including Facebook employees, to cash out at least some of their stakes.

The new investment comes as the Securities and Exchange Commission has begun an inquiry into the increasingly hot private market for shares in Internet companies, including Facebook, Twitter, the gaming site Zynga and LinkedIn, an online professional networking site. Some experts suggest the inquiry is focused on whether certain companies are improperly using the private market to get around public disclosure requirements.

The deal could add pressure on Facebook to go public even as its executives have resisted. The popularity of shares of Microsoft and Google in the private market ultimately pressured them to pursue initial public offerings.

So far, Facebook’s chief executive, Mark Zuckerberg, has brushed aside the possibility of an initial public offering or a sale of the company. At an industry conference in November, he said on the topic, “Don’t hold your breath.” However, people involved in the fund-raising effort suggest that Facebook’s board has indicated an intention to consider a public offering in 2012.

There has been an explosion in user interest in social media sites. The social buying site Groupon, which recently rejected a $6 billion takeover bid from Google, is in the process of raising as much as $950 million from major institutional investors, at a valuation near $5 billion, according to people briefed on the matter who were not authorized to speak publicly.

“When you think back to the early days of Google, they were kind of ignored by Wall Street investors, until it was time to go public,” said Chris Sacca, an angel investor in Silicon Valley who is a former Google employee and an investor in Twitter. “This time, the Street is smartening up. They realize there are true growth businesses out here. Facebook has become a real business, and investors are coming out here and saying, ‘We want a piece of it.’ ”

The Facebook investment deal is likely to stir up a debate about what the company would be worth in the public market. Though it does not disclose its financial performance, analysts estimate the company is profitable and could bring in as much as $2 billion in revenue annually.

Under the terms of the deal, Goldman has invested $450 million, and Digital Sky Technologies, a Russian investment firm that has already sunk about half a billion dollars into Facebook, invested $50 million, people involved in the talks said.

Goldman has the right to sell part of its stake, up to $75 million, to the Russian firm, these people said. For Digital Sky Technologies, the deal means its original investment in Facebook, at a valuation of $10 billion, has gone up fivefold.

Representatives for Facebook, Goldman and Digital Sky Technologies all declined to comment.

Goldman’s involvement means it may be in a strong position to take Facebook public when it decides to do so in what is likely to be a lucrative and prominent deal.

As part of the deal, Goldman is expected to raise as much as $1.5 billion from investors for Facebook at the $50 billion valuation, people involved in the discussions said, speaking on the condition of anonymity because the transaction was not supposed to be made public until the fund-raising had been completed.

In a rare move, Goldman is planning to create a “special purpose vehicle” to allow its high-net-worth clients to invest in Facebook, these people said. While the S.E.C. requires companies with more than 499 investors to disclose their financial results to the public, Goldman’s proposed special purpose vehicle may be able get around such a rule because it would be managed by Goldman and considered just one investor, even though it could conceivably be pooling investments from thousands of clients.

It is unclear whether the S.E.C. will look favorably upon the arrangement.

Already, a thriving secondary market exists for shares of Facebook and other private Internet companies. In November, $40 million worth of Facebook shares changed hands in an auction on a private exchange called SecondMarket. According to SharesPost, Facebook’s value has roughly tripled over the last year, to $42.4 billion. Some investors appear to have bought Facebook shares at a price that implies a valuation of $56 billion. But the credibility of one of Wall Street’s largest names, Goldman, may help justify the company’s worth.

Facebook also surpassed Google as the most visited Web site in 2010, according to the Internet tracking firm Experian Hitwise.

Facebook received 8.9 percent of all Web visits in the United States between January and November 2010. Google’s main site was second with 7.2 percent, followed by Yahoo Mail service, Yahoo’s Web portal and YouTube, part of Google.

For Mr. Zuckerberg, the deal may double his personal fortune, which Forbes estimated at $6.9 billion when Facebook was valued at $23 billion. That would put him in a league with the founders of Google, Larry Page and Sergey Brin, who are reportedly worth $15 billion apiece.

Even as Goldman takes a stake in Facebook, its employees may struggle to view what they invested in. Like those at most major Wall Street firms, Goldman’s computers automatically block access to social networking sites, including Facebook.

By ANDREW ROSS SORKIN and EVELYN M. RUSLI

Source: The New York Times

After Vodafone, Govt mulls taxing Kraft-Cadbury deal

The finance ministry is looking into whether Kraft Foods will have to pay taxes to Indian authorities in its $19 bn takeover of Cadbury last year, in response to a public interest petition.

The case is the second in recent years where questions have been raised on global firms' tax liability in India following a blockbuster deal, adding to regulatory uncertainty for foreign companies chasing the India growth story.

Indian tax authorities last year asked Vodafone to pay $2.5 billion tax on its 2007 purchase of Hutchison Whampoa Ltd's mobile business in the country, which the company is currently fighting in court.

Uncertainty over taxes, environmental clearances and other regulations, on top of a slew of corruption scandals, have eroded Asia's third-largest economy's appeal among overseas corporate investors.

"These types of cases are something the Indian authorities have been pursuing for the past two or three years, but it is not a widespread international practice," said Abhishek Goenka, a partner at BMR Advisors in Bangalore.

"We are expecting a number of similar cases which will obviously create an element of concern for cross-border M&A from an Indian perspective," he added.

Foreign direct investment in India fell more than 24 percent in the first seven months of the current fiscal year to $12.56 billion, and analysts have said flows were likely to remain subdued for the near term on concerns over the slow pace of reforms and political volatility in India.

WEAK CASE?

Last month, a New Delhi-based law firm filed a writ petition on behalf of a social activist Ved Prakash in the Delhi High Court, saying Cadbury evaded substantial tax liability in India, as a global deal in which U.S.-based Kraft took over Cadbury also included assets in India.

"On paper, it looks weak," N.C. Hegde, a tax partner at Deloitte Haskins & Sells in Mumbai, told Reuters on Tuesday.

Kraft's Cadbury acquisition was global, with India just a part of the transaction, and thus should not be subject to Indian taxes, he said.

The Delhi High Court asked the petitioners to make a representation before the ministry of finance.

"It seems to be very premature now. The court could not ignore a public interest litigation ... the court will ask the government to look into the matter, the government will look into if they have any kind of case against Cadbury," Hegde said.

Source: The Economic Times

Whether, for expenses to be allowed against 'income from other sources' a nexus between expenditur and income is mandatory? [Sec 57(iii)]

Sec 57(iii) - Whether, for expenses to be allowed against 'income from other sources' a nexus between expenditur and income is mandatory?

-YES, says ITAT

BANGALORE, DEC 21, 2010: THE issues before the ITAT are - whether, for expenses to be allowed against 'income from other sources' u/s 57, nexus between the expenditure and the receipt is mandatory. YES, says Tribunal. The nex questin is - Whether such expenses can be allowed in the manner business expenditure is allowed. NO, says the Tribunal.

Facts of the case

The assessee is the owner of a hotel property at Bangalore consisting of land, building and other facilities, which was given on lease to Taj Group of Hotels. The assessee receives lease rent computed on the basis of the profit of the business. In the previous year relevant to the assessment year under appeal, the assessee received a license fee of Rs.3,59,88,998/-. It is the principal source of income of the assessee company. It has also received an interest income of Rs.13,36,240/. After claiming the expenditure under different heads, a total income of Rs.3,07,71,200/- was returned by the assessee company. The assessee had always claimed that the lease income was received under the head `business income'. But this proposition was not accepted by the Revenue. The Revenue treated the license fee and other incidental income as `income from other sources'. This dispute reached up to the High Court of Karnataka and the HC held that the Revenue was right in treating the income under the head `income from other sources'. Thus, the dispute on the head of income was resolved and the assessee also accepted the same.

In the course of assessment proceedings, the Assessing Officer found that the assessee company had claimed expenditure to the extent of Rs.68,09,588/- under different heads. The Assessing Officer observed that the assessee company was earning income as licence fee under the head `income from other sources' and it was not carrying on defacto business and, therefore, the expenses allowable in the computation of income must be confined to the rule provided u/s 57 of the Income-tax Act. The Assessing Officer held that the expenses cannot be held as deduction in the nature of business expenditure. The expenses can be allowed only to the extent permitted u/s 57. Initially he proposed to disallow all the expenditure claimed by the assessee company. In response to that proposal, the assessee submitted that the expenses were allowable under the head `income from other sources' and the claim of the assessee has already been accepted by the ITAT Bangalore Bench in its own case relating to the assessment years 1995-96 to 1998-99 and, therefore, based on the order of the ITAT, expenses need to be allowed.

The Assessing Officer accepted some of the contentions of the assessee and agreed to allow essential expenditure in the nature of salaries, PF, ESI etc. The Assessing Officer allowed expenditure necessary for the assessee company to retain its corporate status and other establishment expenses. But the Assessing Officer held that many of the expenses claimed by the assessee company as deduction are not directly connected to its income assessed under the head `income from other sources'. For eg. he found that salary, wages and bonus amounting of Rs.17,08,300/- included the commission of Rs.15,26,770/- paid to the executive Chairman of the assessee company which cannot be allowed. Finally, the Assessing Officer disallowed expenditure to the extent of Rs.49,27,648/- as against a total amount of Rs.68,09,588/- claimed by the assessee company. The CIT (A) confirmed the additions made by the assessing officer except depreciation allowance.

On further appeal, the Tribunal held,

• it is one thing that the assessee company might have incurred expenses under the above heads and it is another thing that whether all those expenses could be allowed as deduction in computing income from other sources;
• expenses could be allowed as deduction u/s 57(iii) only if the assessee has established the nexus between the expenditure and the income earned;
• in the present case, the assessee was not able to establish any nexus between the various disallowances confirmed by the CIT(A) and the income earned by the assessee company by way of lease rentals. The assessee could not produce evidence to prove the nexus of the traveling expenses of the directors, entertainment expenses and the commission expenses with the income from other sources that whether these have resulted into any increase in lease rentals. Hence, addition is confirmed.

Object of setting up an educational institution is by definition "charitable" and such an entity will essentially be of charitable nature

Object of setting up an educational institution is by definition "charitable" and such an entity will essentially be of charitable nature.


There cannot be any limit on the fees charged in order to fulfill such object of setting up an educational institution. - [2010] 8 TAXMANN.COM 279 (KOL. - ITAT)

Deductibility of legal expenses will depend on nature and purpose of legal proceeding in relation to business whose profits are under computation and cannot be affected by final outcome of that proceeding

Deductibility of legal expenses will depend on nature and purpose of legal proceeding in relation to business whose profits are under computation and cannot be affected by final outcome of that proceeding.

In case the legal expenses are in the nature relating to the business of the assessee then the expenses are allowable under section 37(1). - [2010] 8 TAXMANN.COM 268 (MUM. - ITAT)