Where assessee had no tax incidence but otherwise was liable to tax in the UAE, benefits of India-UAE DTAA were applicable

ADIT V. SIMATECH SHIPPING FORWARDING LLC (Mumbai - Trib.)

In the instant case the assessee, a resident of the UAE, was engaged in the business of shipping. It claimed that Article 8 of the India-UAE treaty would be applicable to it. The AO, however, held that the assessee was not eligible for treaty benefit. He, therefore, invoked the provisions of section 44B and computed the presumptive profit on total receipt. On appeal, the CIT (A) deleted the order of the AO. Aggrieved revenue filed the instant appeal.

The Tribunal held as under:

• The revenue’s contention was that since the assessee had not paid taxes in the UAE, there could be no curtailment of tax liability, by pressing the treaty. The reason could being that DTAA applies on juridical double taxation, i.e., if income was not taxed in one State, then it would be taxed in full in the other, if it was otherwise taxable, without granting any benefit of the Treaty; 
• This argument couldn’t be sustained, because the assessee was 'otherwise liable to tax' in UAE. Simply because there was no tax incidence in the UAE, didn’t mean that the assessee ceased to be otherwise liable to tax as per Article 4 of India-UAE treaty; 
• Treaty becomes applicable once the assessee gets within the expression 'otherwise liable to tax' in Treaty. Therefore, the order of CIT (A) was to be set aside and the AO was to be directed to consider the nature of income in issue and, consequently, the availability of Article 8 of the India UAE Treaty.

School to apply sec. 194C and not sec. 194I on transport contract if transporter incurs running cost and keeps possession of vehicle

ACIT (TDS) V. DELHI PUBLIC SCHOOL (Delhi - Trib.)

Contract awarded by assessee-school to transporter for carrying students would be covered by sec. 194C and by not sec. 194I if bus remained in possession of transporter and all running and maintenance costs were incurred by him

In the instant case the assessee-school awarded contracts to various transporters for carrying its students from their homes to school and from school back to homes. It had deducted tax under section 194C for making payments to bus owners. The AO held that the assessee should have deducted tax under section 194I on such payments. On appeal, the CIT(A) reversed the order of AO. Aggrieved revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

• The object of the assessee to enter into such agreement was a simple activity of carrying its students from their homes to the school and similarly from school back to their homes; 
• The assessee had no responsibility whatsoever regarding the buses to be utilized for that purpose which was the sole responsibility of the transport contractor; 
• The transport contractor only was liable to keep and maintain the required number of buses for such activity at its own expenses with the specified standards; 
• Therefore, the said contract was purely in the nature of services rendered by the transport contractor to the assessee. The assessee was not having any responsibility whatsoever regarding the transport vehicles used in such activity; 
• The assessee itself had not utilized the buses but they were used by the transport contractor for fulfilling the obligations set out in the contract. Thus, the aforesaid payments were not covered in the definition of 'rent' which was defined in Explanation to section 194-I,; 
• Therefore, the provisions of section 194-I could not be applied in the instant case. The assessee had rightly deducted tax at source under the section 194C on the aforesaid payments.

IPL in FEMA violation; Special Director had to form an opinion before calling BCCI President for personal hearing

SHASHANK VYANKATESH MANOHAR V. UNION OF INDIA (Bombay)

Special Director was directed to first form his opinion whether to proceed against petitioner President of BCCI, for remittances in violation of FEMA before calling petitioner for personal hearing as per rule 4 of Adjudication Rules

Facts:

• The petitioner was President of BCCI during years 2008 to 2011. In 2009, after the second edition of IPL at South Africa, the Assistant Director, Directorate of Enforcement filed a complaint with Special Director alleging that the provisions of FEMA had been violated by the Board and its officers while conducting second edition of IPL; 
• On basis of the complaint, show-cause notices were issued to the Board and its office bearers calling upon the Board to show cause in respect of a particular conduct/transaction amounting to violation of the Act; 
• The petitioner was also called upon in each of the notices to show cause as to why penalty should not be imposed upon him in his capacity as the President of the Board in terms of section 42. Special Director issued notice to petitioner for personal hearing according to rule 4 of Adjudication Rules; 
• Petitioner filed writ petition contending that he had no role in remittances and receipts of foreign exchange in 2009 and a separate committee had been constituted to administer IPL with a separate bank account to be operated by Treasurer, BCCI.

The High Court held as under:

1. The petitioner was not in charge of and responsible to BCCI for aforesaid matters, as far as opening and operating of bank account of IPL or obtaining permission of Reserve Bank of India for making remittances or receipts of foreign exchange was concerned; 
2. It would be necessary for adjudicating authority to form an opinion whether petitioner could at all be considered as covered by substantive part of section 42(1), since petitioner himself was not in charge for opening and operating bank accounts involving receipts and remittances of foreign exchange to parties outside India; 
3. That communication calling petitioner for personal hearing was to be set aside since adjudicating authority had not considered aforesaid aspects before forming an opinion to proceed further with inquiry under sub-rule (4) of rule 4 of Adjudication Rules; 
4. The Special Director was to be directed to first form his opinion, after recording reasons before proceeding against petitioner with regard to impugned show-cause notices in accordance with rule 4(3) of Adjudication Rules.

Depreciation available on imported cars acquired in M&A even if cars acquired by merged entity before 01-04-2001

CIT V. MIRA EXIM LTD. (Delhi)

Depreciation admissible to transferee-co on imported cars "acquired" under M&A scheme effective after 1-4-2001.

The High Court held as under:

M & A can be modes of "acquisition" of imported cars for the purposes of clause (a) of proviso to section 32(1). Transferee-company couldn’t be denied depreciation on imported motor cars acquired by it under scheme of merger effective from a date after 1-4-2001 on the ground that the imported motor cars were originally acquired by merged entities after 28-2-1975 but before 1-4-2001.

Software license for one year doesn’t confer any enduring benefit; licensing fee held as revenue expenditure

DY. CIT V. DANFOSS INDUSTRIES (P.) LTD. (Chennai - Trib.)

In the instant case the assessee had incurred expenses towards software license and claimed the same as revenue expenditure. The AO disallowed the claim of the assessee. On appeal, the CIT (A) reversed the order of AO. Aggrieved revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

• When the assessee had acquired the license to use the software and the license was valid only for one year, it might be useful to the assessee for various functions like sales, finance, logistics operations and use of ERP system and it might confer certain benefits to the assessee but it couldn’t be said that there was enduring benefit to the assessee; 
• Thus, respectfully following the decision of the Bombay High Court in the case of CIT v. Raychem RPG Ltd. (2012) and taking into consideration the facts of the case, it was to be held that the expense incurred by the assessee to acquire the software license was revenue expense.

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).