Fiscal year

A 12-month period over which a company budgets its spending. A fiscal year does not always begin in January and end in December; it may run over any period of 12 months. The fiscal year is referred to by the date in which it ends. For example, if a company's fiscal year ends October 31, 2006, then everything between November 1, 2005 and October 31, 2006 would be referred to as FY 2006. Not using the actual calendar year gives many companies an advantage, allowing them to close their books at a time which is most convenient for them.

Non Resident can claim benefit of first proviso to Sec. 48 along with Sec. 112 concessional rate; High Court quashes Cairn India ruling

CAIRN UK DINGS LTD. V. DIRECTOR OF INCOME-TAX (Delhi)

Proviso to section 112(1) doesn’t deny benefit of lower tax rate of 10% to a non-resident investor availing benefit of exchange rate neutralization under first proviso to section 48. It is incorrect to say that 10% rate under proviso to section 112(1) applies only where indexation benefit under 2nd proviso to section 48 applies and still assessee opts to not avail it.

The High Court held as under:

• The proviso to Section 112(1) doesn’t state that an assessee, who had availed benefit of the first proviso to Section 48, was not entitled to benefit of lower rate of tax. The said benefit couldn’t be denied because the second proviso to Section 48 was not applicable;
• The stipulation for taking advantage of the proviso to Section 112(1) is that the aggregate of long term capital gains to the extent it exceeds 10% of the amount of capital gains, should be before giving effect to the provisions of second proviso to Section 48.;
• First proviso to Section 48 stipulates that on sale of the securities by the non-resident, the consideration received in Indian rupee should be reconverted into the same foreign currency;
• For a non-resident who has utilized foreign currency for purchase of securities in Indian rupee, inflation in India was immaterial and inconsequential. He is most concerned with exchange rate fluctuation and his true and actual gain should take into account the exchange rate fluctuation;
• The second proviso is applicable to all others including non-residents, who are not covered by the first proviso and they are entitled to benefit of cost of indexation which neutralize inflation;
• It is a misnomer and wrong to state that inflation alone contributes and is the determinative factor in exchange rate fluctuation. Inflation by itself cannot be the sole or even a primary factor in exchange rate depreciation. These are several others complex factors and parameters which can affect the foreign exchange rate fluctuation.
• The first and second proviso to section 48 cannot be equated as granting same relief or benefit. They operate independently and have different purpose and objective. Thus, it couldn’t be deemed that benefits under the first proviso and the second proviso to Section 48 are identical or serve the same purpose;
• Thus, it was to be held that assessee was taxable at concessional rate of 10% as per proviso to section 112(1).

Free cash flow

Operating cash flows (net income plus amortization and depreciation) minus capital expenditures and dividends. Free cash flow is the amount of cash that a company has left over after it has paid all of its expenses, including investments. Negative free cash flow is not necessarily an indication of a bad company, however, since many young companies put a lot of their cash into investments, which diminishes their free cash flow. But if a company is spending so much cash, it should have a good reason for doing so and it should be earning a sufficiently high rate of return on its investments. While free cash flow doesn't receive as much media coverage as earnings do, it is considered by some experts to be a better indicator of a company's financial health.

Service Tax demand can't be made under a category not specified in the show cause notice

KALPATARU POWER TRANSMISSION LTD. V. COMMISSIONER OF CENTRAL EXCISE (Ahmedabad - CESTAT)
 
Where show cause notice sought classification under consulting engineering services but demand was confirmed under "Erection, Commissioning and Installation Services", demand was, prima facie, not maintainable

In the instant case the department issued a show-cause notice to the assessee for the period from 1997-98 to 9-9-2004 seeking payment of service tax under category of consulting engineering services. The adjudicating authority came to conclusion that services rendered by assessee were not 'consulting engineers' services but were taxable under Erection, Commissioning and Installation Services and confirmed demand accordingly. The assessee argued that demand was invalid as show-cause notice did not put them on notice as to that services would be classified under 'Erection, Commissioning and Installation Services'. Thus, this stay petition was filed by assessee for the waiver of pre-deposit requirement.

The Tribunal held as under:

• The assessee was not put to notice as regards the classification of its services under "Erection, Commissioning and Installation Services"; 
• The assessee had made out a prima facie case for the waiver of the pre-deposit requirement of the amounts involved, as the Board's circular dated 8-8-2007 specifically clarified that services provided by assessee would be classifiable under the category of Erection, Commissioning and Installation Services from 10-9-2004 only; 
• In view of this, the application filed by the assessee for the waiver of the pre-deposit requirement and stay of recovery was allowed.

Sum paid to acquire clients of another company is an intangible asset; eligible for depreciation

SKS MICRO FINANCE LTD. V. DY. CIT (Hyderabad - Trib.)

Where assessee-company had acquired entire business of an another company, which included acquisition of its existing clients, sum paid by assessee for acquisition of such clients was an intangible asset and, thus, eligible for depreciation

Facts:

• The assessee-company was engaged in the business of micro-financial lending services. It had acquired entire business of ‘S’, which was also engaged in similar business; 
• This acquisition included the acquisition of rights of existing clients of 'S'. Besides other payments, the assessee paid certain sum to 'S' for acquisition of its clients; 
• The assessee claimed depreciation on the aforesaid sums by contending that it was towards transfer of clients, which was an intangible asset and eligible for depreciation; 
• Such depreciation claim of assessee was disallowed by revenue. Aggrieved assessee filed the instant appeal.

The Tribunal held as under:

1. It was not disputed that the assessee had acquired the entire business and commercial assets of 'S' on payment of lump sum consideration, which included the cost of acquisition of the existing customer base of 'S'; 
2. It was also a fact that the customer base acquired by the assessee had provided an impetus to the business of the assessee, as the customers acquired were with proven track record since they had already been trained, motivated, credit checked and risk filtered; 
3. They were source of assured economic benefit to the assessee and certainly were tools of the trade, which facilitated the assessee to carry out the business smoothly and effectively; 
4. Therefore, by acquiring the customer base the assessee had acquired business and commercial rights of similar nature as provided for in section 32(1)(ii). The client acquisition cost paid by the assessee was towards acquiring an intangible asset and, thus, was eligible for depreciation under section 32(1)(ii).

Execution of irrevocable power of attorney of a property in favour of land developers deemed as ‘transfer’

SMT. BINDER KHOKHER V. ACIT (Chandigarh - Trib.)
 
Where an irrevocable power of attorney was executed and registered by a housing society, leading to overall control of property in hands of developer, it constituted transfer under section 2(47)

In the instant case the assessee was a member of a housing society, which transferred certain land to developers under a Joint Development Agreement (‘JDA’), whereby each member was entitled to monetary consideration and a furnished flat. An irrevocable Special Power of Attorney (‘ISPOA’) was executed in favour of the developers which was deemed as a transfer under section 2(47) by the revenue. But assessee contended that handing over of possession of property was conditional in order to enable the builder to obtain necessary permission from the Governmental agencies, and there was no transfer as per section 2(47).

The Tribunal held in favour of revenue as under:

• Clauses of the ISPOA and JDA clearly showed that the developers were authorized to enter upon the property not only for the purpose of development but for other purposes also; 
• Developers were authorized to amalgamate the project with any other project in the adjacent area or adjoining area as per the special Power of Attorney. The position contemplated by clause (v) of section 2(47) need not be exclusive possession. What is required is that the transferee by virtue of possession should be able to exercise control for intended purposes; 
• In the instant case, the assessee had not given only a license as claimed by the ld. Counsel of assessee, but also the powers of selling, amalgamating, etc, mentioned in the JDA and ISPOA. Section 2(47)(vi) clearly shows that any transaction which has the effect of transferring or enabling enjoyment of any immovable property would be covered by the definition of transfer; 
• Where developers were vigorously pursuing issue of permission/sanction for executing agreement, requirement under section 53A of Transfer of Property Act, regarding willingness of transferee to perform contract, was also fulfilled; 
• Though it is a settled principle of law that notional income can’t be taxed yet in case of capital gain, rigour of tax in case of capital gain would come into play on the transfer of capital asset and total consideration arising on such transfer has to be taxed; 
• Therefore, capital gains tax had to be paid on the total consideration arising on transfer which would include the consideration which had been received as well as the consideration which had arisen and become due and might be received later on.

Proviso to sec. 206C providing for immunity on TCS default in tax neutral situation has retro effect, rules SB

Bharti Auto Products v. Commissioner of Income-tax -II, Rajkot (Rajkot - Trib.) (SB)

The first proviso to sec 206C(6A) introduced by the Finance Act, 2012 with effect from 1-7-2012 relieves the assessee from consequences of assessee-in-default for non-collection of TCS based on proof of “no loss to Revenue” in the form of a CA’s certificate certifying specified matters.

As the said proviso seeks to rationalize TCS provisions and is also beneficial in nature in the sense that it seeks to provide relief to collectors of taxes from consequences of short collecting TCS after ensuring that Revenue’s interest is well-protected. Said proviso shall apply retrospectively even to pending matters also, though it is expressed to be applicable with effect from 1-7-2012.