Uttarakhand High Court denies quashing of notification that blacklisted Cyprus for not sharing tax information

EXPRO GULF LTD. V. UNION OF INDIA (2015) 53 taxmann.com 413 (Uttarakhand High Court)

The Government had specified 'Cyprus' as notified jurisdictional area' for the purposes of the section 94A via NOTIFICATION NO.86/2013 as it was not providing information sought for by Indian Tax authorities. The instant petition was filed to quash such notification on the ground that "Cyprus" ought not have been declared as notified jurisdictional area as they had never denied any information and they had been ready and willing to supply the information sought for by the Indian Government. The High Court denied quashing of said notification.

Facts:

The instant petition was filed to quash the Notification no. 86/2013, on the ground that "Cyprus" ought not have been declared as notified jurisdictional area as Cyprus have never denied any information and they had been ready and willing to supply the information sought by the Government of India.

The High Court denied to quash the notification and made following observations:

• Bare perusal of the notification would reveal that Cyprus had not been providing the information as requested by the Indian Authorities under the provisions of Exchange of Information Agreement, therefore, Government of India had decided to notify Cyprus as notified jurisdictional area under Section 94-A.
• While exercising the writ jurisdiction ordinarily Court should not proceed to look into whether information sought by the Indian Authorities was declined by the Government of Cyprus or whether the Government of Cyprus was ready and willing to supply the information sought for by the Indian Authorities. Moreover, there seemed to be no valid reason to disbelieve the satisfaction so recorded by the Indian Authorities.
• Thus, relief sought for by petitioner could not be granted. -

Delhi High Court reads down first proviso to sec. 2(15); rescues genuine charities from its clutches

INDIA TRADE PROMOTION ORGANIZATION V. DGIT (EXEMPTIONS) (2015) 53 taxmann.com 404 (Delhi High Court)

Facts:

• The instant writ petition was filed for quashing of the first Proviso to Section 2(15) of the Income-tax Act, 1961 ('Act').
• The petitioner contended that the first proviso was arbitrary and unreasonable since the Finance Act, 2008 introduced it to deny the benefit of exemption to "purely" commercial entities, which wore the mask of a charity but it, hit even genuine charitable organizations.
• The petitioner also contended that the first proviso clubs together two unequal entities, i.e., 'purely business and commercial entities' and 'charitable entities'; therefore, it is violative of Article 14 of the Constitution of India.

The High Court upheld the constitutional validity of first proviso and made following observations:

• The Finance Act, 2008 introduced the first proviso to prevent the unholy practice of pure trade, commerce and business entities from masking their activities and portraying them in the garb of an activity with the object of a general public utility. It was not designed to hit those institutions, which had the advancement of the objects of general public utility at their heart and were charitable institutions.
• First Proviso carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. In order to determine whether the institution would fall within the ambit of first proviso to section 2(15), the dominant and the prime objective has to be seen behind both the activities.
• If the dominant and prime objective of the institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpose'.
• On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it would be regarded as an institution established for charitable purposes.

Mere cash deposit of above 10 lakhs in bank account doesn't indicate that income has escaped assessment, says ITAT

BIR BAHADUR SINGH SIJWALI V. ITO (2015) 53 taxmann.com 366 (Delhi - Tribunal)

 

The assessee had deposited cash in excess of Rs 10 lakhs in his saving bank account but he had not filed return of income. The AO reopened the assessment of assessee, as he had reason to believe that there was an escapement of income in respect of cash deposited in bank account. The Tribunal held that the AO proceeded on the fallacious assumption that bank deposits constituted undisclosed income and overlooked fact that the source of deposit need not necessarily be income of the assessee.

Facts:

• The assessee had deposited Rs 10 lakhs (approx) in his saving bank account but no return of income was filed by him. The AO reopened the assessment of assessee, as he had reason to believe that there was an escapement of income of Rs 10 lakhs on part of assessee.
• The instant appeal was filed against validity of reassessment proceedings.

The Tribunal held in favour of assessee as under:

• At the stage of recording the reasons for reopening the assessment, the formation of prima facie belief that an income has escaped the assessment is necessary. However, it is also necessary that there must be something which indicates, even if not establishes, the escapement of income from assessment.
• Merely because some further investigation had not been carried out, which, could have led to detection to an income escaping assessment could not be a reason enough to hold the view that income had escaped assessment.
• In the instant case, merely the fact that deposits have been made in a bank account do not indicate that these deposits constitute an income which had escaped assessment.
• AO proceeded on the fallacious assumption that bank deposits constituted undisclosed income and overlooked the fact that the sources of deposit need not necessarily be income of the assessee. The reassessment proceedings could not be resorted to unless there was reason to believe, rather than suspect, that income had escaped assessment. Thus, reassessment proceeding was to be set aside.

Acceptance of the Order of the High Court of Bombay in the case of Vodafone India Services Private Limited

The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, in a major decision, has decided to accept the order of the High Court of Bombay in the case of Vodafone India Services Private Limited (VISPL) dated 10.10.2014. This is a major correction of a tax matter which has adversely affected investor sentiment.

Based on the opinion of Chief Commissioner of Income-tax (International Taxation), Chairperson (CBDT) and the Attorney General of India, the Cabinet decided to:

• accept the order of the High Court of Bombay in WP No. 871 of 2014, dated 10.10.2014; and not to file SLP against it before the Supreme Court of India;
• accept of orders of Courts/ IT AT/ DRP in cases of other taxpayers where similar transfer pricing adjustments have been made and the Courts/ IT AT/ DRP have decided/decide in favour of the taxpayer.

The Cabinet decision will bring greater clarity and predictability for taxpayers as well as tax authorities, thereby facilitating tax compliance and reducing litigation on similar issues. This will also set at rest the uncertainty prevailing in the minds of foreign investors and taxpayers in respect of possible transfer pricing adjustments in India on transactions related to issuance of shares, and thereby improve the investment climate in the country.

The Cabinet came to this view as this is a transaction on the capital account and there is no income to be chargeable to tax. So applying any pricing formula is irrelevant.

VISPL is a wholly owned subsidiary of a non-resident company, Vodafone Tele-Services (India) Holdings Limited, Mauritius. On 21.8.2008, VISPL issued shares (at a premium of Rs.8509/-) which resulted in VISPL receiving a total consideration of Rs.246.39 crore from Vodafone Mauritius, on issue of shares and this was shown as "Capital Receipts" in the books of accounts. VISPL reported this transaction as an "International Transaction" and stated that this transaction does not affect its income.

The Transfer Pricing Officer (TPO), vide order dated 28.01.2013, determined the Arm's Length Price of the shares issued by VISPL on the basis of Net Asset Value, at Rs.53,775/- per share and made an upward adjustment of Rs.1,308.91 crore. In addition, the difference Rs.1,308.91 crore between the transaction price and the Arm's Length Price was treated as 'deemed loan' given by VISPL to the holding company; and interest that would have been payable on the loan in an arm's length transaction was computed at Rs.88.35 crore. In total, transfer pricing adjustment of Rs.1,397.26 crore was proposed by the TPO for Assessment Year 2009-10. The matter was agitated by VISPL at the stage of Draft AO itself and therefore the tax payable could not be crystallized. However, the tax rate of 33 percent was applicable for Assessment Year 2009-10.

The DRP, on 11.2.2014, held that the premium determined by the TPO, to the extent not received, is an income arising from issue of shares, and that the AO and the TPO have jurisdiction.

VISPL filed a 2nd Writ Petition in the High Court of Bombay. The High Court, on 10.10.2014, has amongst other things observed:

• "Section 92(2) of the Act deals with a situation where two or more AEs enter into an arrangement whereby they receive a benefit, service or facility then the allocation, apportionment or contribution towards the cost or expenditure is to be determined in respect of each AE having regard to ALP. It would have no application in the cases like the present one, where there is no occasion to, allocate, apportion or contribute any cost and/ or expenses between the Petitioner and the holding company."
• The crucial words “shall be chargeable to income tax” which are found in Section 42(2) of the 1922 Act are absent in Chapter X of the Act..... Therefore it is clear that the deemed income which was charged to tax under Section 42(2) of 1922 Act was done away with under this Act."
• The tax can be charged only on income and in the absence of any income arising, the issue of applying the measure of Arm's Length Pricing to transactional value/ consideration itself does not arise."
• If its income which is chargeable to tax, under the normal provisions of the Act, then alone Chapter X of the Act could be invoked. Sections 4 and 5 of the Act brings /charges to tax total income of the previous year. This would take us to the meaning of the word income under the Act as defined in Section 2 (24) of the Act. The amount received on issue of shares is admittedly a capital account transaction not separately brought within the definition of Income, except in cases covered by Section 56(2)(viib) of the Act. Thus such capitalccount cannot be brought to tax as already discussed herein above while considering the challenge to the grounds as mentioned in impugned order." 
• The issue of shares at a premium is on Capital account and gives rise to no income. The submission on behalf of the revenue that the shortfall in the ALP as computed for the purposes of Chapter X of the Act is misplaced. The ALP is meant to determine the real value of the transaction entered into between AEs. It is a re-computation exercise to be carried out only when income arises in case of an International transaction between AEs. It does not warrant re-computation of a consideration received / given on capital account.

The Bombay High Court quashed the reference dated 11.7.2011 by the AO to the TPO, order dated 28.1.2013 of the TPO, draft AO dated 22.3.2013 of the AO and order dated 11.2.2014 of the DRP on the preliminary issue of jurisdiction to tax, setting them aside as being without jurisdiction, null and void.

Press Information Bureau
Government of India
Ministry of Finance 

Hidden Costs While Buying Property

All eyes dream of owning a home. The decision of buying a house is one of the most important ones as it not only involves a lot of money but has many emotions attached to it as well. For majority of the people, all their dreams and savings get invested when they plan to own a house.

At the first go the house that you plan to buy may look manageable but after buying it you realize there are many other costs also involved. It happens that the payment varies with what you might have calculated. Actually, your calculations are done by multiplying the cost per square feet with the total area. But this is not what you actually have to pay.

There are some other costs such as registration cost, stamp duty, service tax, property tax etc that go unaccounted for in your calculations but they exist and finally get added in the cost that is reflected in your final payment schedule. The additional costs also vary from builder to builder and facilities that your house is equipped with.

Obviously, if the cost of home turns out to be more than what you have calculated it becomes difficult to go for it. There are number of add-ons that the developers and real estate agents disclose later and that shoots up the actual cost of the place by approximately 20% to 25%. It goes without saying that it is important for you to be well prepared and have a clear view about all the additional costs and add-ons that might come in the way when you are buying a house.

What are the Hidden Costs?

Following are the additional costs that you might have to incur when you plan to purchase your dream home. Take a look.

Parking Space – When it comes to large residential buildings, an additional amount is charged under the head of Parking Space allotment. This is quite a new trend in the Indian realty market and a good amount is charged to you for providing you with an exclusive parking space for your vehicle. The type of property decides this amount. This amount may vary from Rs 2 Lacs – Rs 5 Lacs. Primarily, factors like locality, type of property and parking space are taken into consideration prior to fixing the amount under this head. Going by the ruling of Supreme Court after March 2012, additional amount for parking rights at residential areas cannot be charged by the developers but this ruling is being by-passed and the amount is being still included in the property cost.

Registration Costs – The registration charge is based on the actual worth of your property. There are a number of states wherein approximately 6% to 10% amount of the property cost falls under the head of legal charges in form of registration fees and stamp duty etc. About 5% to 7% of the cost of property forms the stamp duty. For example – If your property is worth Rs 10 Lac then you will be required to purchase a stamp of Rs 50K in order to get the sale deed typed. The registration fees of approximately 1% - 2% of the cost of property is also charged that is payable to the court. This does not end here. Apart from these costs you will also bear the cost of number of miscellaneous expenses like fees of lawyers and notary who represent you and get your job done in the court.

Loss of Tax Rebate, Interest and Rental – A number of reasons call for delay in the projects and this is very common - almost everywhere around us. These delays in project add to your worries. They not only add to your additional expenses in form of extra interest that you pay towards your home loan but they also lead to price escalations. Projects are generally expected to get delayed by six months to one year. It is always advisable to include the extra interest that you might have to pay due to delay in project while you plan your finances for buying property. The rental earnings for the delayed period are also to be kept into account. Till the time the property is not completed and handed over to you, you also lose on to the tax rebates that are applicable on home loans. These costs cannot be ignored while you plan your budget for purchasing a property.

Deposit for Maintenance – Many of the builders take an upfront maintenance deposit that may range from a period of 10 years or more and for lifetime, at places. The buyer suffers a loss due to charges under this head. You are required to pay a good lump-sum amount on the initial level and bear interest on such borrowings. Going by the trend of inflation the amount that is charged for the above mentioned period is likely to run out earlier than predicted. You will then be required to pay another lump-sum amount under the head of deposit for maintenance. Developers keep insisting on the deposit for maintenance to be paid initially as it provides them with more capital.

Cost of Interiors – You simply cannot ignore the fact that your choices and preferences are ought to be different from the developer. Once you acquire the property of your choice you will, for sure, spend on the interiors of your newly acquired home as per your requirements and choice. Generally, when we plan for purchasing a property, expenses under this head somehow escape our mind. However, we cannot ignore the fact that this head may also require substantial amount to be invested depending on the type and nature of interior work that is opted by you. To be on the safer side, approximately 1%-1.5% of the cost of property may be dedicated to this head of expense.

Preferential Location Charges (PLC) – These charges are clamped by the builder for your choice about the floor on which your want to purchase your home or you want your home to be east facing or corner one and so on. Developers generally charge you for providing you with preferential locations. The amount, however, varies with how many preferential options you have opted for.

Apart from the above mentioned costs, there are charges like unpaid civic authority dues; unapproved plans etc may also add to your pain. Therefore, it is always advisable to keep a surplus of approximately 20%-25% over and above the initial cost of property before you plan to buy your dream home. Clear knowledge about the add-on costs help you in planning your finances accordingly. It saves you from facing the ugly situation of “buy or not to buy” once you have set your heart on your favorite property after the add-ons get revealed.

Common Mistakes to Avoid in Personal Finance Planning

Financial planning involves a complete understanding of one’s financial needs and future goals. Once these are established it is easy to finalise on a comprehensive solution. In the journey towards securing ourselves financially there are some common mistakes that we commit. Some of the mistakes to avoid and the solution are discussed in detail.

No Concrete Budget Plan in place

This is the most unhealthy personal finance habit that we must be wary of. This has two disadvantages: firstly we end up spending excessively in areas that are not necessary and secondly we end up not spending money where it is needed. This could leave you high and dry, in spite of all your hard work and years of service. A sound budget is one that includes all the expenses (don’t forget to allocate funds towards entertainment, house repair and renovation and retirement savings) and factors in affordability and consistency. This must be backed by proper execution of the plan. Ensure financial discipline by all family members.

Trying to Make a Quick Buck When Investing

Many of us plan and budget well, but we skid and slip in the execution phase. Temptation gets the better of us and we try to put hard earned money in schemes that lure the investors with false promises. Most of these investments turn sour and we end up losing our investments. It is better to keep safe distance from such companies that promise say, to double your money in one month or give returns as high as 40-50% etc.

Making Investments That You Can’t Really Afford

Do not make investments that you cannot afford. Example, do not invest in life insurance that requires you to pay a huge sum as premium at the beginning of your career. Plan the amount of investment in each instrument with care and ensure you have enough to spend for rest of your needs.

Buying a Product Because it Looks Attractive

You must have your future in mind before buying an investment product. For e.g. taking a health insurance plan when you are already covered in a previous policy becomes redundant, however attractive the product may seem. Similarly, there could be newer and better sounding products that surface from time to time. It is imperative to check if these are suited to your needs and fit into the general scheme of things before you invest in them.

Investing – as a Quick Fix Solution

Investment cannot be done as a quick fix option to existing situation. For instance, in order to save tax you should not buy a product which cannot be serviced or continued in the future. Instead the extra tax liability can be paid for one year and a proper tax saving cum investment option should be planned for the years ahead.

Listen to Advice, Implementation Can Wait

Procrastination can defeat the purpose of listening to advice. If you postpone the actual investment to a later date, the features of the plan or even its availability could vary. Deciding on what to buy and implementing the decision at the earliest are both equally important.

Portfolio Without Diversity

Putting all the eggs in the same basket may spell danger as far as investments go. Remember, diversifying portfolio reduces the risk associated with a single industry. Not only should you invest in various schemes like pension, life insurance, medical insurance etc…, but also varied options like insurance, bonds, stocks of blue chip companies, gold, real estate etc.

Only One Person in the Family Knows Where the Money Goes

This situation should be avoided due to the uncertainties associated with human life. In case of an emergency it is always preferable that more than one person in the family knows where the funds have been invested. Details regarding medical claim, insurance claim should be shared with the spouse. Physically held investments like bond certificates, gold, etc. should be secured in lockers and the key should be kept safe. 

There is No Emergency Fund

We are living in an era of ATMs and therefore may be tempted to leave the money in the bank as long as we can, so that it can earn interest till we find the need for the cash. While this lends so seamlessly to logical thinking, care must be taken before you empty the house of the minimum cash which may be required during times of emergency. There are times when the ATMs near the house do not work or are out of cash. Some vendors do not believe in credit cards and hence do not accept them.

Children are Kept Away From Money Concepts

In the fast paced world it is very important to teach children about money matters. Children should be allowed not only to buy what they need from nearby shops, they should also be told about the finances of the house to the extent understandable by them. This will help them draw up their budget and plan their expenses when they start earning. While this will make them avoid unwanted expenses, it will also encourage them to spend where required.

Employee Benefits aren’t Well Understood or Utilized

There are certain benefits given by employers for the benefits of employees. It is imperative to understand these correctly and utilize them as they are intended to be utilised. For instance your company could make a part of the payment in the form of food coupons. Make sure you collect them and use them in the relevant outlets.

Renting Your Living Accommodation Rather Than Buying It

If you do this you will end up paying a lower rent, nevertheless at the end of the many years of paying increasing rent you will retire without a roof over your head. Investing in a house is important as it saves the tax that you need to pay, while creating an asset for you.

The points discussed above are broad guidelines which will help you in planning your finances. As a final word of caution I would like to add that there are no quick ways of making money. Better be safe than sorry!

Basic Investment Principles for Beginners

Investment is like planting a tree today so that in future you and your family may be able to enjoy its fruits and also be able to rest in its shade comfortably. You all know how important it is for you to provide financial security to your family and yourself.

It is needless to say that all the hard work and effort that you put in from morning to evening in earning those dollars and rupees is aimed at providing your family and yourself a good standard of living and also securing future. The best way to manage your hard earned money is to invest it sensibly so that in future it not only helps you when in need but also multiplies itself in the due course of time.

There cannot be a rule book that can guide you through with your investment planning and procedure but there are a few basic principles or guidelines that can help you to become a successful investor. These are: 

1. Investing Early – It is always advisable to start investing as soon as you start earning. It is quite obvious that you may be able to invest say as little as Rs 500 every month but you should not forget that compounding earns you good margins even with small savings. This also cultivates a habit of investing regularly in a disciplined manner. It is also advisable to re-invest the interest that you earn and just wait and watch how magically it grows through compounding formula. 

2. Analyze Yourself – This means it is important for you to identify the kind of investor you are. It is important for you to realize if you are the one who will get deeply involved in the art of investing and put in your time and energy in exploring every possible lucrative investing option thus earning higher returns, or are you an individual who will put in less effort and time and will be satisfied with a lower profit margin. 

3. Know the Market in which you will Invest – It is important for you to gather as much information as possible about the scheme, plan or options in which you plan to invest. It is also important for you to take a glance at all the market players who are offering the same or similar schemes and plans and the returns or commitments that each one of them is giving. This will help you in cracking the most profitable deal for your investment. It is very important for you to understand completely the plan you are investing in, the player you are investing with and the returns you are aiming at. 

4. Investment Goals – It is advisable for you to comprehend your goals pertaining to your investment. This would include the assessment of your current financial condition, the amount you can spare from your expenditure, time frame i.e monthly, quarterly, half-yearly etc, the kind of investment and also the kind of returns that you wish to have which again maybe based on your personal requirements like for a retired individual monthly credit of interest seems to be quite apt. 

5. Diversification of Funds – As the famous phrase goes “You should never put all your eggs in one basket” it is very important for you to diversify your funds i.e do not put all your money in one particular scheme or plan. Always invest in a bouquet of funds in order to balance the risk. 

6. Time Factor – When it comes to time, you need to keep in mind two factors related to time. First is the time when you enter the market and the second is the duration for which you play in the market. It is very difficult to anticipate the movements in the market. You need to be clear and specific about when you enter the market and for how long you have to stay there. 

7. Long Duration Investment – It is always advisable to stay tuned in market for a longer duration. The duration of investment determines the risks and returns on your investment. It depends on you as to how much return you aim at and the risk you are ready to take. Generally if you stay invested for long duration, your risk gets balanced due to an average market condition thereby bringing better returns. Put it this way - it is important for you to analyze the risk that you can take. 

8. Adopt a conservative approach when it comes to valuation of profits – you need to understand that you can not be overly optimistic about the investments you are making. You need to adopt a conservative approach while weighing your returns from a particular investment. It is very important to be cautious and careful while computing your future growth rates. 

9. Hallo and Horn Effect – Do not get affected by the Hallo and Horn Effect. This means that you should not judge an investment plan or scheme merely on the basis of its past performance or solely because it benefited your friend so it will benefit you as well. You cannot totally neglect the past performance of the stock but you cannot predict the future of the same solely on past performance. 

10. Don’t let one slump affect future prospects – It is very important to be cautious. So goes the famous phrase “once bitten twice shy” but it emphasizes on being cautious, learning from past experiences but it doesn’t say that you will let one market slump hinder your long-term investment planning. Do not get discouraged by the bulls and bears of the market. 

11. Once sold, it is gone – It is always advisable to let bygones be bygones. Once you have taken a decision of selling your stock, do not check the price of your stock once you have sold it. You have just started investing. It’s a big life and a long game. “Ohhh I sold it…should have waited more.” This can always tickle your mind after you have sold your stock. But what if you had waited and the returns have been less than what you gained today? Seize the day and go ahead with no regrets. 

12. Keep Patience – There are moments when we all run out of patience and when its money that you are playing with it is obvious to be anxious and be impatient. But keeping your cool will always help you to sail smoothly through the lows and highs of the market. 

13. Monitoring your Portfolio – It is very important for you to keep yourself updated with the market scenario and keep a constant check on your portfolio. You cannot hold on to a stock forever. So keep updating your portfolio with the ever changing scenario of the volatile market. 

14. Accept, you can not be right always – You need to accept this before you get started that you are a human being and you are bound to make mistakes. You can not always make a right decision for every investment that you make. The key is to make the best out of the right choice and to learn from the wrong ones. 

Financial Investment Options

There are a number of financial investment options available in the market and you can pick and choose as per your requirement from the bouquet of options which are as follows:

• Equities
• Precious Stones
• Gold/Silver
• Bonds
• Mutual Funds
• Fixed Deposits
• Recurring Deposits
• Real Estate
• Insurance Plans