Recommendation

An opinion given by an analyst to his/her clients about whether a given stock is worth buying or not. Investment firms employ thousands of analysts whose job is to issue reports and recommendations on specific stocks. These analysts typically look at the company's fundamentals and then build financial models in order to project future trends, most notably future earnings. They then use these projections as a basis for issuing recommendations on whether or not they think the stock should be bought or sold. Each brokerage has its own terminology, which makes it difficult to compare recommendations between brokerages, but the most common ratings are (in descending order of quality) strong buy, buy, hold, and sell.

Transactions between head office and foreign branch aren't international transactions under Transfer Pricing provisions

Aithent Technologies (P.) Ltd. V. ITO - (2015) 54 taxmann.com 261 (Delhi - Tribunal)


Transactions between head office and its foreign branch could not be deemed as international transactions under Section 92B since branch office was not a separate entity distinct from assessee-company.

Facts:

• Assessee, an Indian company, had entered into international transactions with its branch office located in Canada.
• In computation of the arm's length price, the assessee inadvertently considered transactions with its branch in Canada as international transactions. The TPO selected some comparable cases and determined their average operating profit rate. 
• Assessee raised objection before Tribunal that transactions with branch office were not in the nature of transactions with AEs and, hence, same should have been excluded.

Tribunal held in favour of assessee as under:

• Section 92B(1) provides that an "international transaction" means a transaction between two or more associated enterprises….". A bare perusal of the definition of 'international transaction' brings to light that for treating any transaction as an international transaction, it is essential that there should be two or more separate AEs.
• By considering the definition of 'International transaction' provided under section 92B along with the meaning of the AE given in section 92A, it would clearly emerge that there have to be two or more separate entities in order to describe a transaction as an 'international transaction'. 
• When the assessee was only one entity dealings with the head office and its branch office, such inter se dealings ceased to be commercial transactions in the primary sense, as the pre-requisite condition for an 'international transaction' is that transaction has to be between two or more associated enterprises. 
• Since the branch office in Canada was not a separate entity, distinct from the assessee, the transactions between the head office and its branch could not be considered as an international transaction under Section 92B.

Internal Rate of Return (IRR)

The rate of return that would make the present value of future cash flows plus the final market value of an investment or business opportunity equal the current market price of the investment or opportunity.

Sum paid to Non-Resident professional for preparation of scheme for raising finance and tie up for loans was Fee for Technical Service 'FTS'

GVK Industries Ltd. v. ITO - (2015) 54 taxmann.com 347 (Supreme Court)

Facts:

• The assessee-company intended to set up a gas based power project to generate and sell electricity. It entered into an agreement with Swiss company to utilize the expert services of qualified and experienced professionals who could prepare a scheme for raising the required finance and tie up the required loan.
• Pursuant to the aforesaid exercises carried out by the Swiss company, the assessee was successful in availing loan/financial assistance from India and outside India. In this backdrop, "success fee" was paid to the Swiss company. 
• Assessee approached AO for issuance of 'NOC' to remit the said sum with the contention that since Swiss company had rendered no technical services, thus, Section 9(1)(vii) was not attracted. 
• The non-success in revision petition compelled the assessee to approach the High Court. The High Court held that success fee" would come within the scope of technical service under Section 9(1)(vii)(b). The aggrieved assessee filed the instant appeal.

The Supreme Court held in favour of revenue as under:

• Swiss company was very actively associated not only in arranging loan but also in providing various services which fall within the ambit of both managerial as well as consultancy services. Swiss company acted as a consultant and it had the skill, acumen and knowledge in the specialized field, i.e., preparation of a scheme for required finances and to tie-up required loans.
• Nature of service rendered by the Swiss company would come within the ambit and sweep of the term 'consultancy service' and, therefore, tax at source should have been deducted as the amount paid as "Success Fess" would be taxable as 'fee for technical service'. 
• Once the tax was payable/paid, the grant of 'NOC' was not legally permissible.The order passed by the High Court was absolutely impregnable.

Risk

The quantifiable likelihood of loss or less-than-expected returns. 

Examples: currency risk, inflation risk, principal risk, country risk, economic risk, mortgage risk, liquidity risk, market risk, opportunity risk, income risk, interest rate risk, prepayment risk, credit risk, unsystematic risk, call risk, business risk, counterparty risk, purchasing-power risk, event risk.

Even statutory reserve created by NBFC was to be added back for computing book profits for MAT purposes

SREI Infrastructure Finance Ltd. v. ACIT - [2015] 54 taxmann.com 254 (Delhi High Court)

For the purpose of section 115JB, reserve required to be created by NBFC under the RBI Act is to be treated in a similar manner as other reserves. Such reserve is out of the profits earned by a NBFC and it is not an amount diverted at source by overriding title. Thus, statutory reserve created by NBFC is to be added back to book profits computed under Section 115JB.

Facts:

• Assessee was a NBFC engaged, interalia, in the business of leasing of commercial vehicles and financing of infrastructure project equipment's. It had created a special reserve under the RBI Act. The AO added back the amount of said reserve to Book profit computed under section 115JB.
• The CIT(A) and the Tribunal affirmed the finding of AO. The contention of the assessee was two-fold. Firstly, the reserve created as per the mandate of Section 45-IC of the RBI Act was, in fact, a liability and not a reserve. Secondly, it did not have any title over the reserve and, therefore, it was a case of diversion of income at source. 
• The aggrieved-assessee filed the instant appeal before the High Court.

The High Court held in favour of revenue as under:

• Explanation 1 to Section 115JB provides that "book profit" shall be increased by the amounts carried to any reserves, by whatever name called [other than a reserve specified under section 33AC]. The word "any" refers to all kinds of reserves and encompasses all types and categories without any exception. Only reserves specified in section 33AC of the Act have to be excluded from computing book profit.
• The reserve which is required to be created under the RBI Act, is out of the profits earned by a non-banking financial institution. It is not an amount diverted at source by overriding title. 
• Such reserve of not less than 20% of net profit can only be computed after net profit is calculated and computed. Reserve so created is not a liability known or ascertained, even estimated. Hence, it can neither be diversion of income at source nor an expenditure or liability.
• Section 45-IC ensures that a NBFC does not appropriate entire net profit as disclosed in the Profit and Loss account but this percentage is either ploughed back into business or is represented by a portion of the asset. 
• It is an added measure of protection created by the statute to prevent defaults by the NBFCs. Section 45-IC of the RBI Act also permits appropriation but in restricted or controlled manner by a NBFC. 
• Hence, statutory reserves required to be created by NBFC under section 45-IC of the RBI Act was to be added back for computing book profits under section 115JB.6)

Fee charged for late filing of TDS return isn't a tax; High Court upholds constitutional validity of section 234E

Rashmikant Kundalia v. Union of India (2015) 54 taxmann.com 200 (Bombay High Court)

The fee sought to be levied under section 234E is not a tax that is sought to be levied on the deductor. The provisions of section 234E is not onerous on the ground that the section does not empower the AO to condone the delay in late filing of the TDS return, or that no appeal is provided for from an arbitrary order passed under section 234E

Facts :

• Petitioner, a practicing Chartered Accountant, challenged the constitutional validity of section 234E. Section 234E seeks to levy a fee of Rs.200/- per day (subject to certain other conditions) inter-alia on a person who deducts Tax at Source and then fails to deliver or cause to be delivered the TDS return to the authorities within the prescribed period.
• He argued that legislature had categorically termed the levy under section 234E of the Act as a "fee", it necessarily could be levied only in the event the Government was providing any service. In the absence thereof, the said section seeks to collect tax in the guise of a fee. This, according to the learned counsel, was impermissible either in common law or under the taxing statute, and encroached on the rights of life and liberty of the citizens. 
• He further submitted that the provisions of section 234E were extremely onerous as the AO was not vested with any power to condone the delay in filing the TDS return and there was also no provision of appeal against order of AO.

The High Court upheld the constitutional validity of Section 234E and made following observations:

• There is an obligation on the Income Tax Department to process the income tax returns within the specified period. Department cannot accurately process the return until information of TDS is furnished by the deductor within the prescribed time.
• If the income tax returns having refund claims were not processed in a timely manner, it would result in delay in issuing refunds or raising of infructuous demands. Late payment of refund also affects the government financially as the Government has to pay interest for delay in granting the refunds. 
• The Legislature took note of the fact that a substantial number of deductors were not furnishing their TDS returns within the prescribed time frame which was absolutely essential. This led to an additional work burden upon the Department due to the fault of the deductor by not furnishing the TDS returns in time. It was in this backdrop, and to compensate for the additional work burdened upon the Department, that a fee was sought to be levied under section 234E. Thus, section 234E is not punitive in nature but a fee which is a fixed charge for the extra service which the Department has to provide due to the late filing of the TDS statements. 
• A right of appeal is not a matter of right but is a creature of the statute, and if the Legislature deems it fit not to provide a remedy of appeal, so be it. Even in such a scenario it was not as if the aggrieved party was left remediless. Such aggrieved person could always approach this Court in its extra ordinary equitable jurisdiction under Article 226 / 227 of the Constitution of India, as the case may be. Therefore, we do not agree with the argument of the Petitioners that simply because no remedy of appeal was provided for, the provisions of section 234E were onerous.