Giving advance to builder constitutes "purchase" of new house even if construction is not completed and title to the property has not passed to the assessee within the prescribed period

Hasmukh N. Gala vs. ITO I.T.A. No. 7512/Mum/2013 (ITAT Mumbai)

The assessee declared sale of a residential property vide sale agreement dated 8/12/2009 for a total consideration of Rs.1,02,55,000/-. After considering the indexed cost of acquisition of Rs.14,17,904/-, the long term capital gain was computed at Rs.88,37,096/-. The relevant capital gain was claimed as exempt under section 54 of the Act on the strength of having acquired a new residential house. The investment in acquisition of the new residential house was claimed by the assessee based on an advance of Rs.1.00 crore given to the builder as booking advance through a cheque dated 6/2/2010. The AO denied the claim for exemption on the ground that the provisions of section 54 of the Act require the assessee to purchase a new residential house either within a period of one year before the date on which the transfer of original asset took place or two years after date on which such transfer take place. He held that as even after two years of the date of transfer of old house the construction of the new property was not completed and that assessee had not gained possession of the new premises also. He, therefore, held that assessee did not comply with the requirements of section 54 of the Act in as much as it could not be said that assessee had purchased a new residential house within the period prescribed therein. This was confirmed by the CIT(A). 

 

On appeal by the assessee to the Tribunal HELD allowing the appeal:

• It is not disputed by the Revenue that the sum of Rs.1.00 crore has been invested by the assessee towards acquiring new property. Of course, the legal title in the said property has not passed or transferred to the assessee within the specified period and it is also quite apparent that the new property was still under construction. So however, the allotment letter by the builder mentions the flat number and gives specific details of the property. The word ‘purchase’ used in Section 54 of the Act should be interpreted pragmatically. The intention behind Section 54 was to give relief to a person who had transferred his residential house and had purchased another residential house within two years of transfer or had purchased a residential house one year before transfer. It was only the excess amount not used for making purchase or construction of the property within the stipulated period, which was taxable as long term capital gain while on the amount spent, relief should be granted. Principle of purposive interpretation should be applied to subserve the object and more particularly when one was concerned with exemption from payment of tax (CIT vs. Kuldeep Singh, 270 CTR 561 (Del), Smt. Ranjeet Sandhu vs. DCIT, 49 SOT 7 (Chandigargh) & Sanjeev Lal v. CIT [2014] 46 taxmann.com 300 referred) 
• The plea of the Revenue is that no purchase deed was executed by the builder and that there was only an allotment letter issued. As per the Revenue the advance could be returned at any time and, therefore, the assessee may lose the exemption under section 54 of the Act. In our considered opinion, the aforesaid does not militate against assessee’s claim for exemption in the instant assessment year, as there is no evidence that the advance has been returned. In case, if it is found that the advance has been returned, it would certainly call for forfeiture of the assessee’s claim under section 54 of the Act. In such a situation, the proviso below section 54(2) of the Act would apply whereby it is prescribed that such amount shall be charged under section 45 as income of the previous year, in which the period of three years from the date of the transfer of the original asset expires. The aforesaid provision also does not justify the action of the Assessing Officer in denying the claim of exemption under section 54 in the instant assessment year.

SEBI notifies norms for listing of start ups on Institution Trading platforms

SEBI had taken some key decisions in its board meeting held in June 2015, wherein one of the key decision was introduction of new platform for raising of capital by startups. Now SEBI has notified rules for listing of startups on Institution Trading platforms (‘ITP’) making it easier for such companies to raise capital. Such a bold move could change the landscape of the country’s equity capital markets. Consequently, SEBI has also made certain other changes due to introduction of Institutional Trading Platform.

The Key changes are given hereunder:

• Eligibility of entities for listing on ITP: Following entities are eligible for listing on ITP:
• Entities which are intensive in the use of technology, information technology, intellectual property, data analytics, bio-technology or nano-technology to provide products, services or business platforms with substantial value addition. 25% of pre-issue capital of such entities should be held by qualified institutional buyer(s) as on the date of filing of draft information document or draft offer document with the Board, as the case may be; or
• Any other entity in which at least 50% of the pre-issue capital is held by QIBs as on the date of filing of draft information document or draft offer document with the Board, as the case may be.

The norms further provides that no person, individually or collectively with person acting in concert shall hold 25% or more of the post-issue share capital in the start ups.

• Listing of securities on ITP without public issue: The entity shall obtain in-principle approval from the recognised stock exchanges on which it proposes to get its securities listed. It should list its specified securities on the recognised stock exchange(s) within thirty days from the date of issuance of observation by the Board. Norms of SEBI relating to allotment, opening and closing of issue, advertisement, underwriting, etc., shall not be applicable on such entities.
• Easier exit for entities listed on ITP without making a public issue: Entity whose securities are listed on the ITP platform may exit from such platform if:
• Its shareholders approve such exit by passing a special resolution via postal ballot where 90 % of the total votes and the majority of non-promoter votes should be in favor of such move; and
• Recognised stock exchange approves of such exist.
• Listing of securities on ITP pursuant to public issue: For such listing of securities SEBI has kept the size of minimum trading lot and minimum application amount as Rs. 10 lakhs. The number of allottees in such case shall be more than 200. The allocation in the net offer to public category shall be 75% for institutional investor and 25% for non-institutional investor.
• Lock in: The entire pre-issue capital of the shareholders shall be locked-in for a period of 6 months. In case of listing pursuant to public issue such period of 6 months will be counted from the date of allotment of securities. However, in case listing without public issue such period will be counted from date of listing of securities.
• Migration to main board: The start-ups listed on the institutional trading platform can migrate to the main board after expiry of three years by meeting certain guidelines.
• Other provisions: In order to reduce the timeline of public issue process, SEBI has mandated that acceptance of bids shall be made only by using Application Supported by Blocked Amount (‘ASBA’). In order to reduce the burden on compliance on start ups, SEBI also provides exemption to startups (listed on ITP without making public issue) from delisting norms and Take over code.

Auditor's certificate can't be a substitute for Transfer Pricing study to benchmark international transaction

Metro Tunneling Group v. JCIT- [2015] 58 taxmann.com 372 (Mumbai - Tribunal)

Facts:

• Assessee reimbursed certain costs and expenses to its associated enterprises (‘AEs’) for coordination and liaison works.
• Transfer Pricing Officers (TPO) determined the ALP of transactions relating to “reimbursement of Head office overheads” as NIL.
• The assessee argued that he had claimed expenditure as per the certificate issued by auditors which spelled out Head office overheads as a percentage of revenues.
• TPO rejected the claim of assessee and made additions, which was further confirmed by CIT(A). Aggrieved-assessee filed the instant appeal before Tribunal.

Tribunal held in favour of Revenue as under:

• Assessee had not conducted any transfer pricing study forbenchmarkingof head officer expenditure. He had benchmarked this transaction on basis of certificate issued by the auditors.
• Under transfer pricing study, what is required to be seen is whether any other independent entity would have charged or the independent entity receiving the services would have paid to the extent that were charged by the AEs.
• This kind of study had not been carried out by the assessee as he was under the impression that the certificate issued by the auditors would satisfy the tests of Transfer Pricing study.
• In transfer pricing study, what is required to be done is to validate the claimwith an external comparable. Certificate issued by the auditors only spelled out the percentage of overheads over the revenue and, hence, it was only a factual aspect of internal figures.
• Accordingly,certificate issued by auditors could not be used as a substitute for Transfer Pricing study to benchmark international transaction.

Amendment in Benami Act

There is a proposal to amend the Benami Act. The Benami Transactions (Prohibition) Amendment Bill, 2015 was introduced in the Lok Sabha on 13th May, 2015 to amend the Benami Transactions (Prohibition) Act, 1988.

Any transaction within the definition of ‘benami transaction’ shall attract consequential action under the Benami Transactinos (Prohibition) Act, 1988 after the enactment of the Benami Transactions (Prohibition) Amendment Bill, 2015. Clause 4 of the Benami Transactions (Prohibition) Amendment Bill, 2015 defines a “benami transaction” to mean, -

a transaction or an arrangement –

• where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and
• the property is held for the immediate for future benefit, direct or indirect, of the person who has provided the consideration, except when the property is held by-
• a Karta, or a member of a Hindu undivided family, as the case may be, and the property is held for his benefit or benefit of other members in the family and the consideration for such property has been provided or paid out of the known sources of income of the Hindu undivided family;
• a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 and any other person as may be notified by the Central Government for this purpose;
• any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of income of the individual;
• any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother and sister or lineal ascendant or descendant and the individual appear as joint-owners in any document, and the consideration for such property has been provided or paid out of the known sources of income of the individual; or
• a transaction or an arrangement in respect of a property carried out or made in a fictitious name; or
• a transaction or an arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership;
• a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious.

Amendment to Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007

The Reserve Bank of India vide Notification No. DNBR (PD) 016/CGM (CDS)-2015 dated 10-4-2015 has amended the Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 to state that all NBFCs with asset size of Rs.100 crores and above lending against the collateral of listed securities shall maintain a Loan to Value (LTV) ratio of 50% for loans granted against the collateral of shares. Further it is mandated that all shortfalls in the maintenance of the 50% LTV shall be made good within 7 days.

Similar Amendments are also carried out in Non-Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015.

Mumbai ITAT interprets Article 5 of India-Singapore DTAA to decide constitution of installation PE in India

Kreuz Subsea Pte. Ltd vs DDIT - 58 taxmann.com 371

Facts:

• The assessee was tax resident of Singapore. It had undertaken installation and construction activity in respect of certain projects. The DRP held that the presence of assessee in India in excess of 90 days constitutes PE in India under Article 5(6) of India-Singapore DTAA (‘treaty’).
• The Ld. Counsel of assessee submitted that assessee was purely into installation and construction activity, which would clearly fall within Article 5(3) of treaty. Thus, activities of assessee would not constitute PE due to its presence in India for less than 183 days under Article 5(3) of DTAA.

The Tribunal held in favour of assessee as under:

• Article 5(3) of DTAA provides that -

“A building site or construction, installation or assembly project constitutes a permanent establishment only if it continues for a period of more than 183 days in any financial year.”

• Article 5(6) of DTAA provides that -

“An enterprise shall be deemed to have a permanent establishment in a contracting State if it furnishes services , other than services referred to in paragraphs 4 and 5 of this Article and technical services as define in Article 12, within a contracting State through employees or other personnel, but only if…...”

• Article 5(3) is a specific provision dealing with ‘Service PE’, on account of construction, installation or assembly project. Service PE would constitute if project continues for a period of more than 183 days in any fiscal year. Whereas Article 5(6) envisages that, if an enterprise is “furnishing services” in the contracting State through its employees for a period of 90 days or more, then it is deemed to have Service PE, except for the services referred to in paras 4 and 5.
• The threshold period under Article 5(6) is 90 days and more; if such activities are carried out for a related enterprise, then threshold period is more than 30 days. The Article 5(6) explicitly provides that it applies to “services” other than those covered by Articles 5(4) and 5(5), however, the said article is silent as regards its relationship with Article 5(3). Thus, Article 5(6) covers various services which are not covered by paras 4 and 5 of article 5 and technical services as defined in Article 12.
• In contradistinction, para 3 of article 5 is very specific and, therefore, such specific activities cannot be read into para 6 of article 5. There cannot be overlapping of activities carried out within the ambit of Article 5(3) and furnishing of services as stated in Article 5(6). Both should be read independent of each other, or else there would be no requirement of enshrining separate provisions.
• If the activities related to construction or installation are specifically covered under Article 5(3), then one need not to go in for Article 5(6). Thus, the activity of the assessee which is purely installation services has to be scrutinized under Article 5(3) only and not under Article 5(6). 

ITAT makes Section 43B disallowance even when assessee opts for presumptive taxation scheme

Non-payment of statutory liability before due date of filing of return would attract disallowance under Section 43B even if assessee had offered his income on presumptive basis.

Issue:

Whether disallowance of Section 43B could be made even when assessee opted for presumptive taxation Scheme?

The Tribunal held in favour of revenue as under:

• Under the presumptive taxation scheme, income of an assessee is computed at a fixed percentage of turnover and it would be deemed that that all deductions allowable under the head business or profession have already been allowed to assessee. In other words deductions allowable under Sections 28 to 43C are deemed to have been granted to assessee.
• Perusal of provisions of Section 43B shows that said provision is a restriction on allowance of particular expenditure, inter-alia, statutory liability, as it allows deduction of such liability on actual payment basis, i.e., expenditure shall not be allowed to be deducted unless same has been paid before the due date of filing the return.
• Section 44AF starts with the words “notwithstanding anything to the contrary contained in Sec. 28 to 43C”, whereas section 43B starts with the words “notwithstanding anything contained in any other provisions of this Act”. 
• The non-obstante clause in Sec. 43B has a far wider amplitude because it uses the words “notwithstanding anything contained in any other provisions of this Act”. Therefore, even assuming that the deduction is permissible or the deduction is deemed to have been allowed under any other provisions of this Act, still the control placed by the provisions of Sec. 43B in respect of the statutory liabilities still holds precedence over such allowance.
• Hence, disallowance could be made by invoking the provisions of Sec. 43B in respect of the statutory liabilities, even though the assessee offered his income to tax on presumptive basis.

Note:

In the instant case, assessee has offered his income to tax on presumptive basis under Section 44AF. Provisions of Section 44AF are not applicable from assessment year beginning on or after the April 1, 2011. Thus, it can be inferred that the principal laid down by the ITAT would squarely apply when taxpayer has opted for presumptive taxation scheme under Section 44AD or Section 44AE.