ALLOWANCE/RATE OF DEPRECIATION

SECTION 32

[2016] 74 taxmann.com 14 (Madras) 

Computerised machines : Where machineries for which depreciation was claimed represented plant and machinery eligible for 15 per cent depreciation, assessee could not have invented its own nomenclature and added word computer which was not there in invoice and then proceeded to claim depreciation at 60 per cent with argument that they were computers.

Simplified Proforma for Incorporating Company Electronically

The Ministry of Corporate Affairs has taken another bold initiative in Government Process Re-engineering (GPR) and launched Simplified Proforma for Incorporating Company Electronically (SPICe) e-Form, on the occasion of Gandhi Jayanthi 2016, with the specific objective of providing speedy incorporation related services within stipulated time frames which are in line with international best practices.

SPICe’s USP is as follows:

• Simplified and completely Digital form for Company Incorporation 
• Standard format of e-Memorandum of Association as per Companies Act, 2013
• Standard format of e-Articles of Association as per Companies Act, 2013
• Memorandum and Articles will now be filed as linked e-forms (except for Section 8 companies) 
• Provision to apply for Company Incorporation with a pre-approved Company Name
• Mandatory DSCs of Subscribers and Witnesses (max 7+1) in SPICe MOA and SPICe AOA
•  Back Office productivity gains due to faster review of e-MOA and e-AOA by approving authorities.

Existing INC-29 and INC-7 will be phased out and SPICe will be the Sole, Simplified & Versatile form available for incorporation of a company in India. 

Ban on circulation of trading tips via social media

The SEBI has issued consultation paper proposing amendments or clarifications to the investment adviser regulations. The objective of the consultation paper is to specify uniform standards across all the intermediaries/persons engaged in providing investment advisory services irrespective of whether such activity is incidental to their primary activity or not and to address the gaps or overlaps in legal or regulatory standards.

The highlights of consultative papers are as under:

• Ban on circulation of trading tips via social media platform: SEBI has proposed to curb the practice of providing trading tips (containing buy or sell recommendation on securities) to the general public through any social media platform such as SMS, Email, Telephonic call, Whatsapp, ChatOn, Wechat, Twitter, Facebook, etc.
• Restrictions on mutual fund distributors: Under the existing norms, a mutual fund distributor can sell mutual fund products and he can also provide basic advice on mutual fund products and in executing the transactions. It has been proposed that only corporate entities registered as investment advisers should offer execution or distribution services. Further, mutual fund distributors should be registered as investment advisors if they want to engage themselves in providing incidental or basic investment advisory services on mutual fund products.
• No exemption for professionals: Under the existing norms Chartered Accountants, Company Secretaries, Portfolio investors, stock brokers, etc., are exempted from registration to act as investment advisors. But now SEBI has proposed that all the persons engaged in financial planning services shall mandatorily be required to register themselves as investment advisors.
• Ban on schemes, games, and competitions: It is observed that various entities are offering schemes, competitions, games, leagues, etc., related to securities market. Such Schemes are generally based on predicting the price movement of securities and they are neither approved nor endorsed by SEBI. In order to protect the interest of the investors in the securities market and to curb such practice of offering schemes, etc., it is proposed to add new provision to restrict such activities.
• Compliance Audit: An investment adviser shall conduct yearly audit in respect of compliance with regulations from a CA or CS. Now it has been proposed that the compliance audit shall be completed within 3 months after the end of financial year and adverse observances or comments shall be brought to the notice of market regulator SEBI.
• Mode of acceptance of fee: Under the existing norms an investment advisor can accept fees in any mode including cash. Now SEBI has proposed that an investment adviser shall accept fees strictly by account by payee crossed cheque/demand draft or by NEFT/ RTGS/IMPS or any other mode allowed by RBI.
• Uniform advertisement code: Under the existing framework, there are no guidelines prescribed for issuing advertisement on mutual funds. Now SEBI has proposed uniform guidelines for issuing advertisement on mutual funds.
• Details of website: Many investment advisers are providing investment advisory services through websites without disclosing their details in a proper manner and thereby creating confusion to the investors with regard to authenticity of their registration. To clear the ambiguity, it has been proposed that all investment advisers shall display following details more prominently -
• Their name as registered with SEBI,
• Registration number, validity of registration, own logo, if any, and
• Complete address with telephone numbers on its portal /website, if any,
• Notice/display boards, advertisements, publications, know your client forms, client agreements and correspondences with the clients

High Court rejects Section. 292C presumption for treating seized documents as true/correct; disallows expenses.

Harish Textile Engrs. Ltd. v. DCIT [2015] 63 taxmann.com 66 (Bombay High Court)

Section 292C provides that where any document is found in possession or control of any person in the course of search, then it may be presumed that the contents of such documents are true and correct. However, in the instant case, the documents (in respect of alleged expenditure) found during the course of the search did not indicate the name of payee and payer. Therefore, even if the presumption of Section 292C is to be applied and the documents are accepted as true, it would not lead to the conclusion that payments have been made so as to claim the expenditure.

Facts:

• During the course of search, the search party came across with documents pertaining to alleged expenditure incurred by assessee.
• The assessee wants to claim deduction under Section 37(1) on basis of such seized documents. Assessee was of the view it was not required to prove that it had actually incurred alleged expenditure as any document found during search presumed to be true and correct as per Section 292C.
• Assessing Officer (AO) disallowed such expenditure on ground that complete evidence in support of payment was not provided.
• The third member bench of Tibunal affirmed the order of AO. Aggrieved by the order of Tribunal, assessee filed the instant appeal before the High Court.

The High Court held in favour of revenue as under-

• Section 292C provides that where any document is found in possession or control of any person in the course of search, then it may be presumed that the contents of such documents are true and correct.
• The words 'may presume' as provided in Section 292C are in the nature of discretionary presumption. Therefore, invocation of such presumption is at discretion of the revenue authorities.
• An expenditure could be claimed under section 37(1) only when it has in fact been incurred and that too wholly and exclusively for the purposes of business.
• In the instant case, the documents found during the course of the search were inchoate. Document did not indicate the name of payee and payer. Therefore, even if the presumption is to be applied and the documents are accepted as true, it would not lead to the conclusion that payments have been made so as to claim the expenditure. Hence, AO was right in disallowing the expenditure.

Buy-back price to be disclosed even if promoter is exempt from public announcement under takeover code

A.R. DAHIYA v. Securities Exchange Board of India [2015] 63 taxmann.com 332 (Supreme Court)

SEBI: Where appellant-promotor bought back its shares from State Financial Institution, no public announcement was required as same is being protected under regulation 3 of the SEBI (SAST) Regulations, 1997, however, rate at which shares were bought back had to be disclosed.

Facts:

• In respect of an acquisition which was in excess of 15% of the total shareholding of the Target Company, the appellant neither in the public announcement nor in the letter had disclosed the fact that he and his associates had already bought back the shares of the Haryana State Industrial Development Corporation Limited (‘HSIDC’).
• The appellant had vainly and incorrectly attempted to justify his act of non-disclosure by stating that the transaction with HSIDC was protected by Regulation 3, which placed it beyond the ambit of Regulations 10, 11 and 12.
• Appellant had also issued post dated cheques towards the purchase consideration for the buy-back of equity of shares held by HSIDC in the Target company which were later on dishonoured.
• The appellant contended that the amount deposited with HSIDC via post-dated cheque was not in consideration for the buy-back of shares but were deposited by way of security for the buy-back obligation. Further, the appellant contented that cheques presented had been dishonoured on presentation, the transaction did not culminate in an acquisition.

The Supreme Court rules as under:

• Regulation 3 only protects a transaction between a co-promoter and a State financial institution to the extent that for such transaction a public announcement would not be required to be made as provided under Regulations 10, 11 and 12. However, it does not imply that the said transaction is to be protected from the rigours of other Regulations provided for under the Act.
• Thus, the transaction between the Appellant and HSIDC would have to be subject to Regulations 16 and 20, and the rate at which the Appellant bought back the shares from HSIDC had to be disclosed in the public announcement.
• With regard to appellant’s contention on post-dated cheque, the Apex Court said the post-dated cheques amounted to a promise to pay and that promise would be fulfilled on the date mentioned on the cheque. Thus, this promise to pay amounted to a sale of shares/equity. The subsequent dishonouring of the post-dated cheque would have no bearing on the case.
• At the time of making the public announcement the Appellant had bought back the shares of HSIDC by making payment via the said post-dated cheques. Further, as the buy-back was in pursuance of an agreement, there was consensus ad idem. The Appellant had subsequently shirked his responsibility and had tried to slither away from honouring the agreement, which he could not be allowed to gain from, as is established by the legal maxim commodum ex injuri su non habere debet.
• Under Regulation 2 clause (1) Sub-clause (a)- ‘acquisition’ means directly or indirectly acquiring or agreeing to acquire shares or voting rights in, or control over, a Target Company. This definition clarifies that an acquisition takes place the moment the acquirer decides or agrees to acquire, irrespective of the time when the transfer stands completed in all respects. The definition clarifies that the actual transfer need not be contemporaneous with the intended transfer and can be in future.

BUSINESS DISALLOWANCE – CASH PAYMENT EXCEEDING PRESCRIBED LIMITS

SECTION 40A(3)

[2016] 74 taxmann.com 87 (Madras)

 

Where assessee did not offer any explanation as to why expenditure in cash had been incurred for first time during relevant year, while similar expenditure was not reflected at all in preceding four years, particularly, when there was no change in line of business activity of assessee, all these years, Assessing Officer rightly discredited expenditure incurred in cash -

During course of international voyage traffic between Indian ports deemed as 'international traffic'

CIT v. Taurus Shipping Services [2015] 64 taxmann.com 64 (Gujarat High Court)

Journey of a vessel between two Indian ports deemed as "international traffic" under Article 8 of India-Singapore DTAA as same was part of a larger journey between two foreign ports


Facts

• Assessee-company had acted as an agent of three vessels which had transported goods from Kandla Port to Vizag. The vessels had undertaken such freight transportation during the journey from Singapore to Dubai.
• The freight beneficiary was one M/s. Jaldhi Overseas Pte Limited, who claimed benefit under Article 8 of India-Singapore DTAA.
• The Assessing Officer (AO) contended that transportation between Kandla to Vizag cannot be considered as international traffic in terms of India-Singapore DTAA.
• The tribunal set aside the order of AO. Aggrieved by the order of tribunal, revenue filed the instant appeal before the High Court.

The High Court held in favour of assessee as under-

• The word ‘international traffic' is defined in Article 3 of DTAA between India and Singapore as under:

"the term "international traffic" means any transport by a ship or aircraft operated by an enterprise of a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State."

• The term 'international traffic', as noted above, is defined to mean any transport by a ship or aircraft operated by an enterprise of a contracting state. This definition, however, has an exceptional clause which excludes the transport when the ship or aircraft is operated solely between the places in the other contracting state.
• Hence, it is only when a ship or aircraft is operating 'solely' between places in other contracting state that the transport is excluded from scope of "international traffic".
• In the instant case, the transportation between two Indian ports was undertaking during a larger journey of the vessels from Singapore to Dubai. Therefore, the requirement of such journey being solely between places in the other contracting state was not satisfied.
• Thus, journey of a vessel between two Indian ports would be deemed as "international traffic" under Article 8 of India-Singapore DTAA if the same was part of a larger journey between two foreign ports.