No Penalty leviable where disclosure made in audit report regarding non deduction of TDS

Decision of ITAT Delhi in case of New Horizon India Ltd. rendered on 5-5-2010

FACTS OF THE CASE

During the course of assessment proceedings, the Assessing Officer found that assessee had made certain payments, totalling Rs. 7.15 lakhs, on account of royalty, advertisement etc., on which tax at source had not been deducted. The auditors of the assessee had themselves quantified those payments as inadmissible under section 40(a)(ia); and the audit report was attached with the IT return. However, the same had not been reduced while computing the total loss for taxation purposes. The assessee had agreed to the disallowance with the condition that it will be allowed in the next year. The Assessing Officer held that as per the provision of section 40(a)(ia), the expenditure of Rs. 7.15 lakhs was not deductible. Hence, the Assessing Officer disallowed the same and gave further remark that as per the provision of section 40(a)(ia), the same will be allowable in the next assessment year, i.e., the year in which it would be paid by the assessee. On the above disallowance, penalty under section 271(1)(c) was also levied. The Commissioner (Appeals) confirmed the levy of penalty.

Search and Seizure in case of doctor

Decision of Allahabad High Court delivered on 2-03-2012 in case of Dr. Roop

Facts of the case:

Search conducted on doctor couple

Pleadings on behalf of doctor:

1. AO called for returns of doctor after conducting search. It means returns were not checked before conducting search. So, there was no reason to believe, at most there can be reason to suspect but that does not justify search u/s 132.

As per SC in Seth Brothers 74 ITR 836, PR Metreni  157 Taxmann 325,

- Search is a serious invasion on privacy and freedom of tax payer

-powers u/s 132 must be exercised strictly according to law .

If Interest offered to tax, the principle debt qualifies as bad debt

In Veerabhadra Rao 155 ITR 152 the Supreme Court held in the context of a loan that if the interest is offered to tax, the loan has been “taken into account in computing the income of the assessee” and qualifies for deduction u/s 36(1)(vii).The effect of the judgement is that in order to satisfy the condition stipulated in s. 36(2)(i), it is not necessary that the entire amount of debt has to be taken into account in computing the income of the assessee and it will be sufficient even if part of such debt is taken into account in computing the income of the assessee. 

If brokerage offered to tax, the principal debt qualifies as a “bad debt”

Judgements of Delhi and Mumbai High Court discussed as under:


In Shreya S. Morakhia held by ITAT Mumbai and confirmed by High Court

The assessee, a broker, claimed deduction for bad debts in respect of shares purchased by him for his clients. The AOrejected the claim though the CIT (A) upheld it. On appeal by the Revenue, the matter was referred to the Special Bench. Before the Special Bench, the department argued that u/s 36(2), no deduction on account of bad debt can be allowed unless “such debt or part thereof has been taken into account in computing the income of the assessee”. It was argued that as the assessee had offered only the brokerage income to tax but not the value of shares purchased on behalf of clients, the latter could not be allowed as a bad debt u/s 36(1)(vii). HELD rejecting the claim of thedepartment:

Even existence of a computer server amounts to existence of a PE

 A place of business means all tangible assets (e.g., premises, facilities, machinery or equipment or installations) used for carrying on the business, whether or not they are exclusively used for business purpose; para 17 of the Model Commentary states that a PE may exist if the business of the enterprise is carried on mainly through automatic equipment and the activities of the personnel are restricted to setting up, operating, controlling and maintaining such equipment; thus, even existence of a computer server amounts to existence of a PE within a jurisdiction-18 taxmann.com 171 (AAR - New Delhi) AUTHORITY FOR ADVANCE RULINGS (INCOME TAX), NEW DELHI AREVA T&D India Ltd.,(7-2-2012)

Sale of Software- Whether Royalty

Determination of question raised above is crucial in the context that if sale of software is held not royalty then if non resident does not have any PE in India, no income can be said to accrue or arise in India u/s9 and hence non resident is not taxable in India.
But if sale of software  is held to be royalty, income shall be deemed to accrue or arise in India if payment is made by resident and software is used for the business or profession in India, even if non resident does not have PE in India

Cost Inflation Indexation in case of Gift, inheritance etc.

 Held in [2012] 18 taxmann.com 261 (Delhi) HIGH COURT OF DELHI Arun ShunglooTrust (13-2-2012): Benefit of indexed cost of inflation is given to ensure that the taxpayer pays capital gain tax on the 'real' or actual gain and not on the increase in the capital value of the property due to inflation; this is the object or purpose in allowing benefit of indexed cost of improvement, even if the improvement was by the previous owner in cases covered by section 49; accordingly, there is no justification or reason to not allow the benefit of indexation to the cost of acquisition in cases covered by section 49; this is not the legislative intent behind clause (iii) of Explanation to section 48 of the Act

The expression 'held by the assessee' used in Explanation (iii) to section 48 has to be understood in the context and harmoniously with other sections; the term 'held by the assessee' should be interpreted to include the period during which the property was held by the previous owner

Calculation of time limit for 54EC Bonds liberally construed- 6 months to be calculated from date of receipt of consideration

Held in Chanchal Kumar Sircar [2012] 18 taxmann.com 304 (Kolkata - Trib.):
Where property is sold by assessee under a transaction ('deemed transfer') covered by section 53A of Transfer of Property Act, possession handed over to buyer on execution of agreement against part payment and balance payment received after 6 months on registration of property, period of six months for making deposit under section 54EC of the Act should be reckoned from dates of actual receipt of consideration; if period is reckoned from date of agreement and receipt of part payment at first instance, then it would lead to an impossible situation by asking assessee to invest money in specified asset before actual receipt of same; this is based on High Court decisions in the context of sections 54E, 54B, 54EA and 54EB which are similarly worded as section 54EC

TDS on Commission Income of non resident for services outside India

Held in SKF Boilers & Driers (P.) Ltd. by AAR (dtd 22-02-2012):18 taxmann.com325

 Fact that agents have rendered services abroad in form of soliciting orders and commission is to be remitted to them abroad are wholly irrelevant for purpose of determining situs of their income; income arising on account of commission payable to two agents is deemed to accrue and arise in India, and is taxable under the Income-tax Act in view of specific provision of section 5(2)(b) read with section 9(1)(i); provision of section 195 would apply, and rate of tax will be as provided under Finance Act for relevant year

Fee for freight and logistics is not fee for technical services under s. 9

Held by ITAT Mumbai in UPS SCS Asia Ltd. (dtd 22-02-2012)

Freight and logistics services (such as transport, procurement, customs clearance, sorting, delivery, warehousing, pick up) do not fall within the ambit of 'managerial, technical or consultancy services' which fall within definition of 'fees for technical services' in Explanation 2 to section 9(1)(vii)

Service tax on pre closure charges and commitment charges

As per LETTER [F.NO. 137/62/2011 - SERVICE TAX], DATED 21-10-2011, relating to commitment charges and LETTER F.NO. 345/6/2008-TRU, DATED 11-6-2008 relating to pre closure charges, CBEC has opined that they are not in nature of interest and in nature of service, there fore service tax to be charged.

Non resident having liasion office

As per section 285 introduced by Finance Act w.e.f. 01-06-2011
Every person, being a non-resident having a liaison office in India set up in accordance with the guidelines issued by the Reserve Bank of India under the Foreign Exchange Management Act, 1999 (42 of 1999), shall, in respect of its activities in a financial year, prepare and deliver or cause to be delivered to the Assessing Officer having jurisdiction, within sixty days from the end of such financial year, a statement in such form and containing such particulars as may be prescribed


The form 49C has been provided vide notification dtd 6-2-2012 by inserting new rule 114DA  which also required certification of F. 49C by chartered accountant or by person authorized by non resident

Service tax on toll in the nature of ‘user charge' or ‘access fee' paid by roads users

Circular No. 152/3/2012-ST, Dated : 22nd February, 2012
 Service tax is not leviable on toll paid by the users of roads, including those roads constructed by a Special Purpose Vehicle (SPV) created under an agreement between National Highway Authority of India (NHAI) or a State Authority and the concessionaire (Public Private Partnership Model, Build-Own/Operate-Transfer
arrangement). ‘Tolls' is a matter enumerated (serial number 59) in List-II (State List), in the Seventh Schedule of the Constitution of India and the same is not covered by any of the taxable services at present. Tolls collected under the PPP model by the SPV is collection on own account and not on behalf of the person
who has made the land available for construction of the road.

Deduction of Bad debts in case of Banks- Supreme Court Decision

The decision has been rendered by supreme court on 17-02-2012 In case of Catholic Syrian Bank Ltd.

In this case Supreme Court affirmed the decision of South Indian Bank Ltd. (2003) 262 ITR 579 (Kerala). Supreme over ruled full bench decision of kerela High Court in Catholic Syrian Bank Ltd which had declared interpretation given in South Indian Bank case as wrong.

Relaxation in repatriation of export proceeds

RBI/2011-12/241A.P. (DIR Series) Circular No.40, Dated- November 01, 2011

Export of Goods and Software – Realisation and Repatriation of export proceeds – Liberalisation

Attention of Authorised Dealer Category-I (AD Category-I) banks is invited to A.P. (DIR Series) Circular No. 47 dated March 31, 2011 enhancing the period of realization and repatriation to India of the amount representing the full export value of goods or software exported, from six months to twelve months from the date of export. This relaxation wasavailable up to September 30, 2011.

CA Certificate required for import payments also

Given below is a RBI Circular which requires submission of CA certificate to the banker even in respect of import payments (A1 payments).

Going forward, businessmen now have to provide their banker with a CA certificate for import payments as well.

A. P. (DIR Series)CIRCULAR NO03/RBI., Dated: July 19, 2007

Advance Remittance for imports of services

RBI/2008-09/ 158 ,A.P.(DIR Series) Circular No. 15, September 08, 2008

Attention of all Authorized Dealer Category – I (AD Category – I) banks is invited to paragraph 3 of A. P.(DIR Series) Circular No.65 dated January 6, 2003, in terms of which AD Category – I banks are required to obtain a guarantee from a bank of international repute situated outside India or a guarantee from an AD Category – I bank in India, if such a guarantee is issued against the counter guarantee of a bank of international repute situated outside India for advance remittances exceeding USD 100,000 or its equivalent for import of services into India.

Advance Remittance for imorts

Presently, an AD category – I bank is required to obtain unconditional, irrevocable standby Letter of Credit (LC) or guarantee from an international bank of repute situated outside India, or a guarantee of an AD Category – I bank in India, if such a guarantee is issued against the counter guarantee of an international bank of repute situated outside India, for an advance remittance exceeding US $ 1 ,00,000 or its equivalent for imports of goods into India.  With a view to liberalizing the procedure, RBI has enhanced the aforesaid limit of US $ 100,000 to US $ 200,000 or its equivalent, for importers (other than a Public Sector Company or a Department/Undertaking of Central/State Governments where the requirement of bank guarantee is to be specifically waived by the Ministry of Finance, Government of India for advance remittances exceeding US$ 100,000 or its equivalent). The said amendment has become effective from 29 April 2011.

RBI allows exporters to receive advance payment for export of goods which would take more than one year to manufacture and ship

RBI/2011-12/403 A.P. (DIR Series) Circular No.81 February 21, 2012

Export of Goods and Services – 
Receipt of advance payment for export of goodsInvolving shipment (manufacture and ship) beyond one year

Attention of Authorised Dealer Category – I (AD Category I) banks is invited to the sub-regulation (2) of Regulation 16 of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000, notified videNotification No.FEMA.23/RB-2000, dated 3rd May 2000, as amended from time to time, in terms of which prior approval of the Reserve Bank is required to be obtained by an exporter for receipt of advance where the export agreement provides for shipment of goods extending beyond the period of one year from the date of receipt of advance payment.

2. With a view to liberalizing the procedure, it has been decided to permit AD Category- I banks to allow exporters to receive advance payment for export of goods which would take more than one year to manufacture and ship andwhere the ‘export agreement’ provides for shipment of goods extending beyond the period of one year from the date of receipt of advance payment subject to the following conditions:-

Enhancement of limit for foreign remittances

RBI/2007-08/ 146 A. P. (DIR Series) Circular No.9     Dated: September 26, 2007

Liberalised Remittance Scheme for Resident Individuals- Enhancement of limit from USD 100,000 to USD 200,000

1. Attention of Authorised Dealer Category – I (AD Category – I) banks is invited to A. P. (DIR Series) Circular No. 51 dated May 8, 2007 on the Liberalised Remittance Scheme for Resident Individuals (the Scheme). 

2. With a view to further liberalize the Scheme it has been decided, in consultation with the Government of India, to enhance the existing limit of USD 100,000 per financial year to USD 200,000 per financial year (April – March) with immediate effect. Accordingly, AD Category – I banks may now allow remittance up to USD 200,000, per financial year, under the Scheme, for any permitted current or capital account transaction or a combination of both.

Release of Foreign Exchange for Visits Abroad – Currency Component

RBI/2009-10/446 A.P. (DIR Series) Circular No. 50 A.P. (FL Series) Circular No. 7, May 4, 2010

Release of Foreign Exchange for Visits Abroad – Currency Component

Attention of  Authorised Persons in foreign exchange is invited to A.P.(DIR Series) Circular No. 19 dated October 30, 2000 and A.P. (DIR Series) Circular No.11 [A.P. (F.L. Series) Circular No.1] dated November 13, 2001, in terms of which Authorised  Dealers and Full Fledged Money Changers are permitted to sell foreign exchange in the form of foreign currency notes and coins, up to USD 2,000 or its equivalent, to the travellers proceeding to countries other than Iraq, Libya, Islamic Republic of Iran, Russian Federation and other Republics of Commonwealth of Independent States. The existing limits have been reviewed and it has been decided to increase this ceiling, with immediate effect, to USD 3,000 (US Dollar Three thousand only) to the travellers proceeding to these countries, without the prior permission from the Reserve Bank. Authorised Dealers and Full Fledged Money Changers may accordingly sell foreign exchange in the form of foreign currency notes and coins, up to USD 3,000 or its equivalent, out of the overall foreign exchange released.

Increase in limit to USD 5000 for foreign exchange remittance towards imports without any documentation formalities

RBI/2011-12/404
A.P. (DIR Series) Circular No. 82

February 21, 2012

To

All Authorised Dealers in Foreign Exchange

Madam / Sir,

Release of Foreign Exchange for Imports – Further Liberalisation

Attention of all the Authorised Dealers (ADs) in foreign exchange is invited to the A.P.(DIR Series) Circular No. 106 dated June 19, 2003 in terms of which applications by persons, firms and companies for making payments, exceeding USD 500 or its equivalent towards imports into India must be made in Form A-1.

2. Based on suggestions received from the various stake holders, the said limit has been reviewed and it has been decided as a measure of liberalization to raise the above limit for foreign exchange remittance towards imports without any documentation formalities, from USD 500 or its equivalent to USD 5000 or its equivalent, with immediate effect.

3. It is clarified that the ADs need not obtain any document, including Form  A-1, except a simple letter from the applicant containing the basic information viz., the name and the address of the applicant, name and address of the beneficiary, amount to be remitted and the purpose of remittance, as long as the exchange being purchased is for a current account transaction (and is not  included in the Schedules I and II of the Foreign Exchange Management (Current Account Transactions) Rules, 2000 framed by Government of India vide Notification No. G.S.R.381 (E) dated May 3, 2000, as amended from time to time, the amount does not exceed USD 5000 or its equivalent and the payment is made by a cheque drawn on the applicant’s bank account or by a Demand Draft.

Foriegn law firms can not practice in India

Foreign Lawyers cannot practice law in India but are entitled to visit India for short periods to advice on foreign law & conduct international commercial arbitration

A Writ Petition was filed claiming that Foreign Law Firms and foreign lawyers were practising the profession of law in India in contravention of the Advocates Act and that they should be restricted from having any legal practice either on the litigation side or in the field of non-litigation and commercial transactions within the territory of India. HELD by the HighCourt:

INTERNATIONAL TAXATION-ARTICLE

RULE OF RESIDENCE
Resident status for Individual means:
a)In case of citizen of India who leaves India for employment outside India or as member of crew of Indian ship if he is in India for 182 days or more during previous year
b)In case of citizen of India who being outside India comes on visit to India if he is in India for 182 days or more during previous year
c)In any other case , if he is India for 182 days or more or is In India for 60 days or more in current PY and for 365 days or more in preceding 4 PYs

Penalty-Shares Trading

(Anoop Jain HUF, ITAT Delhi, delevered on 3-2-2012)

A. On disallowance of Interest for Shares Trading

Facts of the case: A.Y.06-07

The assessee claimed deduction of interest out of his speculative income taxable @30%. AO asked him to prove that interest has been paid to earn speculative income and not earn short term capital gain taxable @10%. However since assessee could not offer any documentary proof to substantiate the same, AO treated the same as towards STCG and disallowed interest resulting addl tax @ 20% on interest component. Now AO seeks to impose penalty and CIT(A) confirmed the order

CBDT-Instructions – Handing Over Of Charge

Instruction No. 09/2011 Dated 25-8-2011
It has come to the notice of the Board that at the time of transfer of an officer/official,detailed Handing Over Note indicating the confidential records and documents, including documents relating to survey and search and seizure, pending important and time bound matters such as audit objections, appeals, revision matters, approvals for retaining impounded/seized documents, reopening of assessments, pending search and survey
assessments etc. is not given to the successor. In the absence of a proper handing over of records, important documents get misplaced and even lost in some cases.

INPUT TAX CREDIT (SECTION 13,14, RULE 18 TO 26, FORM 7,8)

Only taxable person can claim ITC
Note: Registered person or casual trader can not claim ITC

ITC is available only against Input tax on taxable goods
Issue: What if goods no longer remain taxable ?
Note: As per Rule 21(4), if some goods are lying as input or output in the stock of a taxable, and such goods become tax free from a particular date, no ITC shall be admissible to taxable person on sale of goods lying in the stock or on using the the goods as input for making such tax free goods
Further as per Rule 21(6), where ITC has already been availed of by a taxable person against the purchase of goods which are used in mfg. tax free goods or are disposed off otherwise than by way of sale, ITC already availed shall be reversed. If as a result of reversal there is –ve ITC, it shall become payable forthwith.
There is no restriction in VAT law that ITC shall be available only against goods mentioned in registraiton certificate only.