Expenses on higher education of director’s son was deductible as he committed to continue his employment after education

KOSTUB INVESTMENT LTD. V. CIT [2014] 45 taxmann.com 123 (Delhi)

Where expenditure on higher education of employee had an intimate and direct connection with assessee's business, it would be deductible, even though such an employee was son of a director.

Facts:

• The assessee, engaged in business of dealing in securities and investment, had incurred expenditure on higher education of 'D', an employee of the company, who happened to be the son of a director, for undertaking an MBA course in the UK.
• The Assessing Officer rejected the deduction under section 37(1). Further, the CIT(A) and the Tribunal upheld the disallowance. The aggrieved-assessee filed the instant appeal.

The High Court held in favour of assessee as under:

• As assessee was in business of investments and securities and expenditure was incurred on MBA course of D, it couldn’t be said that course was unconnected with the business of the assessee.
• The board of directors duly passed a resolution authorizing the disbursement of such expense. As assessee had secured a bond from ‘D’ by which he committed himself to work for a further five years period, after completing his MBA, such arrangement could not be regarded as a sham.
• The expenditure claimed by the assessee to fund the higher education of its employee had an intimate and direct connection with its business, i.e., dealing in security and investments. It was, therefore, deductible under section 37(1).

Composite contract of manufacture, supply and installation of lifts in buildings amounts to works contract

KONE ELEVATOR INDIA (P.) LTD. V. STATE OF TAMIL NADU [2014] 45 taxmann.com (Supreme Court)

Composite contract of manufacture, supply and installation of lifts in buildings (involving civil construction) amounts to works contract; however, if there are two contracts - purchase of components of lifts from a dealer and separate contract for installation, same would be 'sale' and 'labour and service' respectively. 

Facts:

The issue before the Supreme Court was:

Whether a contract for manufacture, supply and installation of lifts in buildings is a "contract for sale of goods" or a "works contract"?

The Supreme Court held as under:

• Lift is not a plant which is erected at site. It is basically comprised of components like lift car, motors, ropes, rails, etc., which have their own identity even prior to installation of lift. The Lifts cannot be functional without its installation because it is a permanent fixture in a building;
• Therefore, installation of a lift in a building could not be regarded as a transfer of a chattel or goods and it was to be deemed as composite contract;
• Thus, composite contract which required installation of lift in a building would be deemed as 'works contract' and liable to tax accordingly.
• However, if there was two contracts, namely, purchase of components of lift from a dealers, and separate contract for installation, they would be deemed as 'sale' and 'labour and service' respectively.

Section 54F doesn’t stipulate approval from Municipal Corporation for construction of residential house; says ITAT

B. SIVASUBRAMANIAN V. ITO [2014] 45 taxmann.com 74 (Chennai - Tribunal)

Provisions of section 54F mandate construction of a residential house within period specified, however, there is no condition that building plan of residential house should be approved by Municipal Corporation.

Facts:

• During relevant year, the assessee earned long-term capital gain on sale of shares. He claimed deduction under section 54F in respect of construction of a new residential property.
• The Assessing officer denied benefit under section 54F to assessee and made additions. On appeal, the CIT(A) upheld the order of AO on the ground that since there was no approval plan for new construction the assessee was not entitled to section 54F benefit.
• The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

• The provisions of section 54F mandate construction of a residential house within the period specified, however, there is no condition that the building plan of the residential house should be approved by the Municipal Corporation.
• If any person constructs a house without approval of building plan, he will be raising construction at his own risk and cost. As far as for availing of exemption under section 54F was concerned, approval of building plan was not necessary. The approved building plan, certificate of occupation, etc., are sought to substantiate the claim of new construction.
• In the instant case, the fact that the assessee had raised new construction was evident from the interim order issued by the Municipal Corporation. It was evident that the assessee had put up a new construction in place of old residential building; thus, he was entitled to claim exemption under section 54F.

Non-Resident’s capital gains are taxable at concessional rate under Proviso to sec. 112(1); Cairn’s judgment followed

PAN-ASIA IGATE SOLUTIONS, IN RE [2014] 45 taxmann.com 322 (AAR - New Delhi)

The first and second proviso to section 48 can't be said to be granting the same relief or benefit. Both provisos are neither identical nor they serve the same purpose. Hence, benefit of Proviso to section 112(1) is allowable to non-resident availing of benefit of first proviso to section 48.

Facts:

• 'P', a Mauritian Company ('applicant'), purchased listed shares of an Indian company from 'I' (a US based Company). 
• The applicant sought advance ruling on the issue whether tax had to be deducted at 10% under section 195 on long-term capital gain arising to such non-resident as per proviso to section 112(1)?

The Authority held as under:

• The observations of the High Court in case of Cairn UK Holdings Ltd. v. DIT [2013] 38 taxmann.com 179 (Delhi provided as under: 
• Proviso to section 112(1) gives an option to assessee to tax long-term capital gain at lower rate of 10% (without giving benefit of indexation as per second proviso to section 48) in case of transfer of listed securities, units or zero coupon bonds. 
• The first proviso to section 48 ensues that non-resident would be given benefit to adjust fluctuation in foreign exchange while computing capital gain. 
• The second proviso to section 48, which provides for cost inflation index, is applicable to all assessees including non-residents, if such non-residents are not covered by the first proviso. 
• The two provisos to Section 48 cannot be equated as granting same relief or benefit. They operate independently and have different purposes and objectives. 
• It is difficult to state that benefits under the first proviso and second proviso to section 48 are identical or serve the same purpose. 
• Thus, the legislative intent was to allow benefit of Proviso to section 112(1) to non-residents as well who are claiming benefit of first proviso to section 48.

• Following the order of High Court (supra), the Mauritian Company was directed to deduct tax at source at the rate of 10% under proviso to section 112(1).

Postal ballot voting can't completely serves as substitute for actual meeting; doesn't apply to court-convened meetings

WADALA COMMODITIES LTD., IN RE [2014] 45 taxmann.com 245 (Bombay)

 

Provisions for compulsory voting by postal ballot and by electronic voting to the exclusion of an actual meeting cannot and do not apply to court-convened meetings.

Facts:

The issue before the High Court was:

Whether in view of the provisions of Section 110 of the Companies Act, 2013, a resolution for approval of amalgamation Scheme can be passed by a majority of the shareholders casting their votes by postal ballot, which includes voting by electronic means, which would eliminate need for an actual meeting?

The High Court held as under:

• Provisions for compulsory voting by postal ballot and by electronic voting to the exclusion of an actual meeting could not and do not apply to court-convened meetings;
• At such meetings, provision ought to be made for postal ballots and electronic voting, in addition to an actual meeting. Electronic-voting would also be made available at the venue of the meeting; 
• Any shareholder who has cast his vote by postal ballot or by electronic voting from a remote location (other than the venue of the meeting) would not be entitled to vote at the meeting. He or she might attend the meeting and participate in those proceedings.

Notice is required while contemplating attachment of bank account and not for initiating action for such attachment

ANIL KUMAR BANERJEE V. UNION OF INDIA [2014] 44 taxmann.com 465 (Calcutta)

 

No notice is required for initiating action for attaching account of tax defaulter; notice required when such act is contemplated.

Facts:

• The assessee filed an application for stay before the assessing authority when the matter was pending before the CIT (A). The Assessing Officer did not dispose of the stay application without any explanation for nearly two years. 
• During the pendency of that application, the authorities passed an order for attachment of bank account of assessee under section 226(3) in haste without giving any prior notice. 
• The aggrieved-assessee filed the instant writ petition. One of the issues for consideration of High Court was:

Whether before taking recourse to section 226(3), the authorities should have issued a prior notice to the assessee?

The High Court held as under:

• In Golam Momen v. Asstt. CIT [2003] 132 Taxman 826 (Cal.), it was held that mere filing of an appeal does not tantamount to stay of the recovery proceedings. Section 226(3) contemplates the notice to be issued to the assessee but it does not prescribe issuing of prior notice to assessee before taking course to the aforesaid provision. 
• The section does not postulate that before an action is set into motion, a notice is required to be served on the assessee but what is held is that if such an action is contemplated, the notice should also be served to the assessee. Therefore, the judgment rendered in the case of Golam Momen (supra) depicted the correct proposition of law.

MGT 14 - Approval of Financial statements of a Company

Approval of Financial statements of a Company for FY 2013-14 – Have You filed form MGT-14?

We are all in the process of finalising the accounts of Companies for the Financial Year 2013-14 or have already finalised such financial statements. But, do we know that the resolution with respect to approval of financial statements by the Board for the FY 2013-14 is to be filed with the Registrar of Companies.

As per the provisions of Companies Act’2013, the financial statements of a company along with the Directors’ report are to be approved by the Board of Directors of the company at a meeting of the Board of Directors. 

Let us take a look at the resolutions to be filed with the Registrar:

As per clause (g) of Section 117 (3) of the Companies Act’2013 the following resolutions are to be filed with the Registrar:

Resolutions passed in pursuance of sub-section (3) of section 179

Now let us look at the provisions of sub-section (3) of section 179:

Section 179(3):

The Board of Directors of a company shall exercise the following powers on behalf of the company by means of resolutions passed at meetings of the Board, namely:—

(a) to make calls on shareholders in respect of money unpaid on their shares;

(b) to authorise buy-back of securities under section 68;

(c) to issue securities, including debentures, whether in or outside India;

(d) to borrow monies;

(e) to invest the funds of the company;

(f) to grant loans or give guarantee or provide security in respect of loans;

(g) to approve financial statement and the Board’s report;

(h) to diversify the business of the company;

(i) to approve amalgamation, merger or reconstruction;

(j) to take over a company or acquire a controlling or substantial stake in another company;

(k) any other matter which may be prescribed:

From the simultaneous reading of the above Sections 117 and Section 179 (3) of the Companies Act’2013, it is clear that unlike the previous years, the resolution with respect to approval of financial statements and the Board’s report for the FY 2013-14 onwards has to be separately filed with the Registrar of Companies.

Form MGT-14 has been prescribed for filing resolutions listed under section 117 of the Companies Act’2013.

What is the last date for filing the form MGT-14?

As per the provisions of Section 117 of the Companies Act’2013, every resolution listed under sub-section (3), has to be filed with the Registrar within thirty days of passing of such resolution.

Therefore, in order to avoid late fee under the provisions of the Companies Act’2013, the resolution approving the financial statements and the Board’s Report has to be filed within 30 days of such approval.

Now let us examine the latest date upto which the financial statements can be approved and Form MGT-14 could be filed.

As per the provisions of Section 96 of the Companies Act’2013, every company other than a one-person company shall hold in each year a general meeting as its Annual General Meeting within a period of six months, from the closing of the financial year.

Since, the accounting year of most of the companies is the financial year i.e period beginning from 1^st day of April of the preceding year and ending with the 31^st day of March of the subsequent year. 1^stApril’2013 to 31^st March’2014 in our case, therefore

The Annual General Meeting can be held latest by 30^th September’2014.

Section 101:

As per the provisions of Section 101 of the Companies Act’2013,

(1) A general meeting of a company may be called by giving not less than clear

Twenty one days’ notice either in writing or through electronic mode in such manner as may be prescribed:

Therefore, the notice of the meeting should reach the members latest by the 8^th of September’2014.

Since, the facility of internet is not available in everywhere in India, therefore we consider notice in writing to be sent by registered post. In that case we consider three clear days as the time lag between the posting of notices and the receipt of the notices by the members. Therefore the notices need to be posted by the 4^th of September’2014 for the AGM of FY 2013-14.

Since the notices are to be posted by the 4^th of September’2014, therefore the Board meeting approving the financial statements alongwith the Board’s Report and setting the Agenda for the AGM for FY 2013-14 should have taken place latest by the 3^rd of September’2014.

So, If 3^rd of September’2014 is taken as the date of Board meeting for approval of the financial statements then MGT-14 has to be filed latest by 2^nd of October’2014 in order to avoid late fee under section 403 of the Companies Act’2013.

Notes:

• In this situation, we have considered clear twenty days notice for the AGM. The AGM can be called at a shorter notice if consent is given in writing or by electronic mode by not less than ninety-five per cent of the members entitled to vote at such meeting. The situation may alter in that case.

• The notice of the meeting can also be called by electronic mode i.e E-mail, the notice in that case will be received on the day of mailing itself and the same can be done by the 7^th or 8^th of September’2014 and the meeting could be held on the seventh of September’2014 and MGT-14 can be filed latest by 6^th October’2014.