Credit Union

A non-profit financial institution that is owned and operated entirely by its members. Credit unions provide financial services for their members, including savings and lending. Large organizations and companies may organize credit unions for their members and employees, respectively. To join a credit union, a person must ordinarily belong to a participating organization, such as a college alumni association or labor union. When a person deposits money in a credit union, he/she becomes a member of the union because the deposit is considered partial ownership in the credit union.

No denial of section 35 deduction without seeking opinion of prescribed authority about nature of research activity

CIT V. MASTEK LTD. (2015) 53 taxmann.com 388 (Gujarat High Court)

Where assessee raised claim for deduction under section 35(1), Assessing Officer (AO) could not decide the issue but had to place the issue before the Board who, in terms of section 35(3), would refer the question to the prescribed authority to seek opinion on nature of research activity undertaken by assessee.

The issue that arose before the High Court was as under:

Whether AO could disallow deduction under section 35(1) without placing the matter before the CBDT to make a reference to the prescribed authority if he was not sure about nature of research activity undertaken by assessee?

The High Court held in favour of assesse as under:

• Section 35(3) requires a reference to be made by the Board to the prescribed authority when a question arises as to whether and if so to what extent, any activity constitutes or constituted or any asset is or was being used for scientific research. The decision of the prescribed authority on such a question would be final.
• Therefore, whenever any such question arises, the Assessing Officer cannot decide the issue but must place the issue before the Board who, in terms of section 35(3) of the Act, would refer the question to the prescribed authority.
• However, no such reference is required in cases where the assessee lodges a claim without any supporting material or claim of the assesse is accepted by AO.

ITAT denies to make TP adjustment for location saving relying on BEPS Action plan

Watson Pharma (P.) Ltd. v. Deputy Commissioner of Income-tax-8 (3), Mumbai - (2015) 54 taxmann.com 88 (Mumbai - Tribunal)

Facts:

• The assessee was engaged in providing contract manufacturing and contract research and development services to its AE(s). In consideration of the said services, the AE(s) compensate the assessee on a total operating cost plus arm's-length mark-up basis.
• During the course of proceeding, TPO/DRP accepted the TNM method and also the comparables selected by assessee for benchmarking contract manufacturing services provided by the assessee to its AEs.
• However, the TPO/DRP contended that the assessee ought to have received extra compensation on account of location savings over and above the margins earned by the comparables. Thus, TPO suggest adjustment on account of location savings.
• On appeal, the DRP sustained the approach of TPO.

The ITAT held in favour of assessee as under:

• The comparables selected by the assessee to determine arm's length price of transaction were local Indian comparables operating in similar economic circumstances as the assessee. Further, OECD and G20 in 'Action 8: Guidance on Transfer Pricing Aspects of Intangibles' which is part of Base Erosion and Profit Shifting Project, has provided guidance on issue of location savings and concluded that where local market comparables are available specific adjustment for location saving is not required.
• The concept of Transfer Pricing is based on the principle that instead of entering into a transaction with related party, if the assessee had entered into a similar transaction with unrelated party, what would have been the prices of said transaction between the assessee and unrelated party. The comparison is always in the context of the effect of the related party transaction and unrelated party transaction in the hands of the assessee. Therefore, the financial results of the AE were not relevant for the purpose of determination of arm's length price in relation to the international transaction entered into by the assessee.
• Thus, once the TNMM method was accepted as method of considering assessee as a tested party then any benefit/advantage accruing to AE would be irrelevant if the PLI was within the range of comparables
• The TPO had based his computation on a method, which was not ascribed by the provisions of the Act. The AO erred in making the adjustment on account of location savings. Therefore, the order of the DRP was to be set aside and the AO was to be directed to delete the addition.

TPO can't decide about deductibility of an expense as his jurisdiction is limited to determination of ALP

ITW India Ltd. v. ACIT (2015) 53 taxmann.com 531 (Delhi - Tribunal)

Facts:

• The international transaction which was disputed in the instant case was commission payment by the assessee to its AEs.
• The TPO held that ALP of this transaction was Nil because the assessee failed to provide any evidence of an independent transaction between unrelated parties and further the assessee could not explain with any documentary evidence about the functions performed by the AE necessitating the payment of such commission.
• The assessee remained unsuccessful before the DRP and the Assessing Officer, accordingly, made addition of entire commission paid by the assessee to its AEs. The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

• The Delhi High Court in the case CIT v. Cushman and Wakefield India Pvt. Ltd. (2014) 46 taxmann.com 317 (Delhi), held that the authority of the TPO was limited to conducting transfer pricing analysis for determining the ALP of an international transaction and not to decide if such services exist or benefits did accrue to the assessee. Such later aspects have been held to be falling in the exclusive domain of the AO.
• Applying the ratio decidendi of Cushman and Wakefield India Pvt. Ltd. (supra) to the facts of the instant case, it was to be held that the TPO was required to simply determine the ALP of this transaction unconcerned with the fact, if any benefit accrued to the assessee and thereafter, it was for the AO to decide the deductibility of this amount under Section 37(1).
• Therefore, case was remanded to AO with an instruction to decide the deductibility of the commission paid to foreign AE.

BCCI to pay service tax on reverse charge basis on payments made to foreign Cos for audio-visual coverage of IPL matches

Board of Control for Cricket In India v. Commissioner of Service Tax, Mumbai-I (2015) 53 taxmann.com 533 (Supreme Court)

Services received by BCCI from foreign media companies for coverage of Indian Premier League Matches through audio-visual coverage of the cricket matches are covered under 'Programme production services' and liable to service tax on reverse charge basis.

• Assessee, BCCI, received services from foreign media companies for coverage of Indian Premier League Matches.
• As per agreements, such non-resident service providers were required to provide audio-visual coverage of the cricket matches conducted by BCCI and digitalized images of coverage were uploaded and broadcasted for benefit of the viewers of cricket match all over the world.
• Department demanded service tax from BCCI under reverse charge.

Tribunal held in favour revenue:
 

Section 65(86a) of the Finance Act, 1944 defines "programme" as any audio or visual matter, live or recorded, which is intended to be disseminated by transmission of electro-magnetic waves through space or through cables intended to be received by the general public either directly or indirectly through the medium of relay stations.
The Tribunal in its judgment observed that non-resident service providers had installed cameras in stadium to capture images of cricket matches.
A combination of audio and visual recording would be a programme and expression 'audio or visual matter' in section 65(86a) can be read as 'audio and visual matter' also, hence, activities undertaken by non-resident service providers would fall within definition of 'programme' and service providers would be 'programme producers', as defined.
Even services rendered by way of supply of equipments and personnel for recording live programmes and actually participating in such programmes would also fall within definition of 'programme producer's services'.

The Supreme Court dismissed appeal preferred against the judgment of Tribunal holding there was no infirmity in the said judgment.

Aluminium dross and skimmings aren't manufactured goods; decision of larger bench of CESTAT reversed

Hindalco Industries Ltd. v. Union of India (2015) 53 taxmann.com 156 (Bombay High Court)

Aluminium dross and skimmings and similar non-ferrous metal drosses and skimmings which arise as by-products in process of manufacture of aluminium/non-ferrous metal products are "not manufactured goods" and, hence, not liable to excise duty.

Facts:

• The assessee was a manufacturer of aluminium sheets and coils falling under heading 7607 1190 of the Central Excise Tariff Act using major raw material 'aluminium ingots'. 
• In the course of manufacture of aluminium sheets/coils, aluminium dross/skimmings emerge as by products. The assessee sold these by products on a regular basis.
• The department raised demand of duty on "aluminium dross/skimmings" on ground that it was a manufactured product and liable to excise duty in view of Explanation to section 2(d) of the Central Excise Act, 1944. The Tribunal's Larger Bench held in favour of revenue.
• Assessee argued that 'aluminium dross/skimmings' were not 'manufactured goods' and were not, therefore, liable to duty. It further argued that the Explanation was inserted in section 2(d) in order to clarify that the goods which could be bought and sold in the market were deemed to be marketable. The explanation deals only with the marketability aspect of the question and does not say that even non-manufactured goods are deemed to be manufactured goods.

The High Court held in favour of assessee as under:

• In case of Indian Aluminium Co. Ltd. v. A. K. Bandyopadhyay 1980 (6) ELT 146 (Bom.), it was held that dross and skimmings are not manufactured goods. 
• In Union of India v. Indian Aluminium Co. Ltd. 1995 (77) ELT 268 (SC), the Supreme Court agreed with the reasons and conclusions of the Single Judge and confirmed the view taken in case of A.K. Bandyopadhyay (supra).
• Further, the Supreme Court has held in Grasim Industries Ltd. v. Union of India 2011 (273) ELT 10(SC) that the conditions contemplated under section 2(d) and section 2(f) have to be satisfied conjunctively in order to entail imposition of excise duty under section 3 of the Act, therefore the impugned judgment of the Tribunal could not be agreed with. The larger Bench's decision did not take into account the fact that the authoritative pronouncement by the Supreme Court was binding on it.
• Merely because the goods satisfying the test of being maerketable and saleable, it does not mean that the test of being manufactured in India has been satisfied. The Supreme Court had in aforesaid cases rejected argument of addition of dross, cinder, skimmings, etc. in the list of the items to the Schedule to the Central Excise Tariff and also held 'that is not safe to make it excisable as it has to pass further test of manufactured or produced in India.'
• Fact that the revenue did not wish to abide by them would not mean that the Tribunal was justified in not following them. The issue stood completely covered by the Judgments of the Supreme Court and which had been totally disregarded by the Tribunal. 
• All Circulars impugned in this Writ Petition brought to the notice of this Court would not survive after the legal position had been set out as above.

Income Tax authorities can collect relevant information to check tax evasion

Pattambi Service Co-operative Bank Ltd. v. Union of India (2015) 53 taxmann.com 453 (Kerala High Court)

High Court has upheld the constitutional validity of amendment made to section 133(6) by the Finance Act, 1995 which widened the scope of the said section and gave power to AO to call for information not only in case of 'pending proceedings' but also as a part of the enquiry as said amendment was brought in to tackle tax evasion.

Facts:

• The income tax authorities had issued notice to petitioner ('Co-Operative Bank'), asking it to furnish details of cash deposit in 'Savings Bank Accounts', aggregating to Rs.5 lakhs and details of payment of interest exceeding Rs.10,000/- to the depositors.
• Consequently, the petitioner filed the instant writ to challenge the constitutional validity of section 133(6) which empowered the tax authorities to call for information not only in case of 'pending proceedings' but also as a part of the enquiry.
• The petitioner contended that rights of privacy is an integral part of Article 21 of the constitution of India, which in turn, was violated.

The High Court dismissed the writ by holding as under:

• Even assuming that the right to privacy is itself a fundamental right, such fundamental right must be subject to restriction, on the basis of compelling 'public interest'.
• There is no prohibition on the State in gathering information for preventing tax evasion and curbing black money as proceedings can be pursued against wrongdoers only on basis of some information.
• It is well-settled principle that the 'taxation entry' confers powers upon the Legislature to legislate in matters 'ancillary or incidental', including the provisions for evasion of tax.
• Thus, no case was made out for striking down section 133(6) or second proviso thereto as unconstitutional, in so far as they apply to inquiries when no proceeding is pending