TAX UPDATES

The word “month” has been mentioned in the Income tax law in number of provisions. However the term has not been defined in the Income tax law. Interpretation of the term poses number of issues especially in the interest calculation. However to understand the controversy around it, we shall have to start the journey from genesis as under:

TOTAL RECALL VS PARTIAL RECALL OF ITAT ORDER – ITAT AMRITSAR COMPREHENSIVE DECISION

Often when department or the assessee is not satisfied with the order of the ITAT, then apart from resorting to appeal before High Court u/s 260A makes use of section 254(2). U/s 254(2), ITAT is vested with power to rectify mistake apparent from record with in four years from the date of order. As per section 254(2) read with Rule 34A of ITAT rules, application for rectification is required to be filed in triplicate and to be accompanied by fee of fifty rupees. The assessee might even file second application u/s 254(2) after earlier application fails. The ITAT

For Investment u/s 54 F funds other than from transfer of capital asset can also be used. Section 54F does not put any restriction in this regard-Held by Punjab and Haryana High Court in Kapil Kumar Aggarwal ITA 12/2015 dtd. 04-11-2015. P&H High Court relied upon K.C. Gopalan 107 taxman 591(Ker); Anandraj 56 taxmann.com 176 (karnatka); Rajesh Kumar jalan 286 ITR 274 (Gau) and V.R. Desai 197 taxman 52 (Ker). In Anand Raj the assessee used borrowed funds, still exemption was held allowable.[Page 13 Para 18]

Employer vs Employees Contribution: CBDT takes a step aback but does not leave the ground: 2nd Proviso of section 43B which provided for deduction of employer contribution to labor welfare funds only if payment is made with in time prescribed under relevant labor law was rescinded by Finance Act 2003 w.e.f. AY 2004-05 and was merged with first proviso which provided for deduction even of payment is made till due date of filing of return. Since first proviso operated was inserted w.e.f. AY 1988-89, SC in Alom Extrusions held that amendment is curative in nature. If it is applied prospectively, the person who did not pay employer contribution for so many years till AY 2004-05 and pays timely contribution for AY 2004-05 only shall stand at better footing as who paid employer contribution but after due date under relevant labor law. Hence the amendment should be applied retrospectively. Delhi High Court in AIMIL Limited, Uttrakhand High Court in Kichha Sugar Compnay, P&H High Court in Rai Agro Industries, Hemila Mills, Mark Auto Industries, held that for employees contribution also pay ment till due date of filing return shall qualify for deduction. This opinion was based on the view that relevant labor laws permit payment in grace period or after due date by charging some interest. However Gujrat High Court in Gujrat State Road Transport Corp and ITAT KOL(SB) in LKP Securities held that S.43B is not applicable to employee contribution and it is governed by express provisions of 36(1)(va). Now, CBDT in its circular has accepted the Alom Extrusion and has decided that issue of retrospective application of employer contribution shall no longer be contested and all grounds based there on shall be withdrawn/not pressed. However CBDT has in the same breath held that issue of employee contribution be armoured with whole hog.

Finance Act 2015 amended S. 195(6) w.e.f. 01-06-2015 to provide that person responsible for making payment to non resident shall funsih information as per prescribed rules whether or not tax is chargeable under the Act . However Rule 37BB was not amended at the same time and required that furnishing of information in 28 categories was not required because most of these comprised cases where income can not be said to be chargeable to tax in India like investment in equity abroad , personal; gifs, donations, travel for education including fee, hostel expenses etc. Also penal provisions providing that penalty for Rs. One lakh shall be levied for non furnishing or inaccurate information. Since then persons making remittance for import of goods were furnishing declarations even though no income is chargeable to tax in India. However now the CBDT has amended rule 37BB vide notification dated 16-12-2015 w.e.f. 01-04-2016. Important features of Rule 37BB are 1) No Information required to be filed where no income is chargeable to tax and remittance falls under Liberlased Remittance Scheme. 2) No information required to be filed where information apart from old 28 categories relates to advance/settlement payment against imports and three other categories. 3) Where however no tax is chargeable in India in respect of remittances and also it does not relate to Liberalised remittance system, Part D of 15CA without CA certificate in 15CB is sufficient 4) Limit of filing F. 15CA in summary manner (Part A) without obtaining CA certificate which was earlier Rs. 50000 for single payment and Rs. 250000 for aggregate of payments during financial year has been raised to Rs. 5 lacs albeit for remittances against sums chargeable to tax in India. 5) Now only where aggregate of remittances shall exceed Rs. 5 lacs and also remittance is chargeable to tax in India, the requirement of F. 15CB i..e CA certificate shall arise along with F. 15CA (PartC) shall arise. 6) In cases of lower/ no deduction AO certificate and Part B of F.15CA to be furnished. Again CA Certificate not required. 7) Further as per amended Rule 37BB(6) CA Certificate in F. 15CB shall also now be furnished and verified electronically. Earlier CA Certificate in 15CB was furnished manually. 8) Also in case of digitally signed 15CAs signed hard copies shall not be required to be provided by banks to income tax authorities. 9) Banks shall file digitally signed quarterly statement with in fifteen days from the end of the quarter to department in F. 15CC.

Monday, 14 December 2015

Issue of Interest on Refund of Self Assessment tax : Bombay High Court in Stock Holding Corporation [17-11-2014] and Punjab and Haryana High Court in Punjab Chemical & Crop Protection Ltd [25-08-2014] have pronounced that interest on refund of self assessment tax is entitled u/s 244A(1)(b).However Delhi High Court in Engineers India Ltd [2015] 55 taxmann.com 1 (Delhi) FEBRUARY 26, 2015 had held that no interest u/s 244A can be paid on refund of self assessment tax u/s 244A(1)(b)because Expl below 244A(1)(b) defines expression "date of payment of tax or penalty" means the date on and from which the amount of taxes or penalty specified in the notice of demand issued under section 156 is paid in excess of such demand.” while self assessment tax is not paid in pursuance of notice u/s 156. Now Madras High Court in Rajaratna Mills Ltd [2015] 64 taxmann.com 89 (Madras) AUGUST 18, 2015 resolving the issue of interpretation of Explanation to S. 244A(1) has held that Assessee is entitled to interest on refund of self assessment tax because of substantive part of sub-section (1) of section 244A. The explanation to section 244A does not really talk about the entitlement or disentitlement. It only defines expression "date of payment of tax or penalty" .The above explanation does not give room for an interpretation that if a person has paid money otherwise than by way of demand under section 156, he is not entitled to interest on refund under section 244A. The explanation cannot, really, curtail the method of computation prescribed in clause (b) or the substantive part of section 244A

Sunday, 13 December 2015

Suggestion on S. 12(2) first proviso

1. As per proviso to section 12A(2) inserted by Finance Act 2014 w.e.f. 01-10-2014

where registration has been granted to the trust or institution under section 12AA, then, the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment year, for which assessment proceedings are pending before the Assessing Officer as on the date of such registration and the objects and activities of such trust or institution remain the same for such preceding assessment year

2. ITAT Kolkatta in ITA 1680 to 1685/2012 Sree Sree Ramkrishna Samity , pronounced on 09-10-2015 held that the above proviso is retrospective in operation.

3.Further that the Appeal proceedings are continuation of assessment proceedings and powers of appellate authority are coterminuous with assessing officer has been held by supreme court in CIT v Kanpur Coal Syndicate (1964) 53 ITR 225 (SC); CIT v Jute Corporation, 187 ITR 688; National Thermal Power Co. Ltd. v CIT (1998) 229 ITR 383 (SC); Ahmedabad Electrecity Co. Ltd. v CIT 199 ITR 351 (Bom) (FB)

4. However inspite of above position of law, if on the date of registration of trust the case of the assessee trust is pending before appellate authorities, the assessee may be denied the benefit of section 11 and 12 inspite of the fact that Para 8.2 of memorandum explaining the provisions of Finance Act says that

“8.2 Non-application of registration for the period prior to the year of registration caused genuine hardship to charitable organisations. Due to absence of registration, tax liability is fastened even though they may otherwise be eligible for exemption and fulfil other substantive conditions. However, the power of condonation of delay in seeking registration was not available”

5.Hence the position of law should be clarified to provide benefit to trusts even if proceedings are pending before appellate bodies.

Voice recorded CDs are documents under evidence Act Held by SC in Shamsher Singh Verma CRIMINAL APPEAL NO. 1525 OF 2015 (Arising out of S.L.P. (Crl.) No. 9151 of 2015)24-11-2015

“………..11. Word “document” is defined in Section 3 of the Indian Evidence Act, 1872, as under: - “ ‘Document’ means any matter expressed or described upon any substance by means of letters, figures or marks, or by more than one of those means, intended to be used, or which may be used, for the purpose of recording that matter

Division Bench of Supreme Court splits on the issue of simultaneous deduction u/s 80IB rws 80IA(9) and 80HHC. Where assessee is carrying export business as well as domestic business and is eligible for deduction both u/s 80HHC as well as 80IB, the issue is whether amount of eligible deduction computed u/s 80IB rws 80IA(9) shall be deducted in computing profits of business u/s 80HHC. An example will make position clear. Supposing an assessee has gross total income of Rs. 1,000/- and is entitled to deduction under Sections 80IA and 80HHC and the deduction under Section 80IA is Rs. 300/-, then the department says that gross total income of which deduction under Section 80HHC is to be computed would be Rs. 700/-, and not Rs. 1,000/-. On the other hand, the case of the assessee is that the gross total income would not undergo a change or reduction for the purpose of Section 80HHC [Extracted from Para 15 and 16 of Judgment. The issue has arisen due to language of section 80IA(9). Which reads as “ Where any amount of profits and gains of an (undertaking) or of an enterprise in the case of an Assessee is claimed and allowed under this Section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading "C.-Deductions in respect of certain incomes", and shall in no case exceed the profits and gains of such eligible business of (undertaking) or enterprise, as the case may beSection 80-IA(9) consists of three parts. The second part of section 80-IA(9) provided that the deduction to the extent of profits allowed under section 80-IA(1) shall not be allowed under any other provisions. It obviously means that the deductions that are allowable under other provisions under heading C of Chapter VI-A would be allowed to the extent of profits as reduced by the profits allowed under section 80-IA(1). The second part of section 80-IA(9) does not even remotely refer to the method of computing deduction under other provisions under heading C of Chapter VI-A. Thus, section 80-IA(9) seeks to curtail allowance of deduction and not computability of deduction under any other provisions under heading C of Chatper VI-A of the Act. Matter now referred to larger bench Micro Labs Ltd. [2015] 64 taxmann.com 199 (SC) DECEMBER 10, 2015

Supreme Court on duplication of CD in Oracle Software India Ltd. 320 ITR 546(SC): Commercial duplication cannot be compared to home duplication. Complex technical nuances are required to be kept in mind while deciding issues of the present nature. 8. From the details of Oracle Applications, we find that the software on the master media is an application software. It is not an operating software. It is not a system software. It can be categorized into product line applications, application solutions and industry applications. A commercial duplication process involves four steps. For the said process of commercial duplication, one requires master media , fully operational computer, CD blaster machine (a commercial device used for replication from master media ), blank/unrecorded CD also known as recordable media and printing software/labels. The master media is subjected to a validation and checking process by software engineers by installing and rechecking the integrity of the master media with the help of the software installed in the fully operational computer. After such validation and checking of the master media , the same is inserted in a machine which is called as the CD blaster and a virtual image of the software in the master media is thereafter created in its internal storage device. This virtual image is utilized to replicate the software on the recordable media. 9. What is virtual image ? It is an image that is stored in computer memory but it is too large to be shown on the screen. Therefore, scrolling and panning are used to bring the unseen portions of the image into view. [See Microsoft Computer Dictionary, Fifth Edition, p. 553] According to the same dictionary, burning is a process involved in writing of a data electronically into a programmable read only memory (PROM) chip by using a special programming device known as a PROM programmer, PROM blower, or PROM blaster [See pp. 64, 77 of Microsoft Computer Dictionary, Fifth Edition]

Where One of the arguments advanced on behalf of the Department was that since the software on the master media and the software on the pre-recorded media is the same, there is no manufacture because the end-product is not different from the original product SC in Oracle Software India Ltd. 320 ITR 546(SC) quoted Tata Consultancy Services vs. State of Andhra Pradesh (2004) 192 CTR (SC) 257 : (2004) 137 STC 620 (SC) It was held that a software programme may consist of commands which enable the computer to perform a designated task. The copyright in the programme may remain with the originator of the programme. But, the moment copies are made and marketed, they become goods. It was held that even an intellectual property, once put on to a media, whether it will be in the form of computer discs or cassettes and marketed, it becomes goods. It was further held that there is no difference between a sale of a software programme on a CD/floppy from a sale of music on a cassette/CD. In all such cases the intellectual property is incorporated on a media for purposes of transfer and, therefore, the software and the media cannot be split up. It was further held, in that judgment, that even though the intellectual process is embodied in a media, the logic or the intelligence of the programme remains an intangible property. It was further held that when one buys a software programme, one buys not the original but a copy. It was further held that it is the duplicate copy which is read into the buyer’s computer and copied on memory device [See pp. 630 and 631 of the said judgment]. If one reads the judgment in Tata Consultancy Services (supra), it becomes clear that the intelligence/logic (contents) of a programme do not change. They remain the same, be it in the original or in the copy. The Department needs to take into account the ground realities of the business and sometimes over-simplified tests create confusion, particularly, in modern times when technology grows each day. To say, that contents of the original and the copy are the same and, therefore, there is (sic—no) manufacture would not be a correct proposition. What one needs to examine in each case is the process undertaken by the assessee.[Para 11 of Judgement]

In the case of Gramophone Co. of India Ltd. vs. Collector of Customs 1999 (114) ELT 770 (SC) the question which arose for determination was whether recording of audio cassettes on duplicating music system amounts to manufacture. The answer was in the affirmative. It was held that a blank audio cassette is distinct and different from a pre-recorded audio cassette and the two have different use and name. In Tata Consultancy Services vs. State of Andhra Pradesh (2004) 192 CTR (SC) 257 : (2004) 137 STC 620 (SC) it was held that there is no difference between a sale of software programme on a CD/floppy and a sale of music on a CD/cassette. Held by Supreme Court in Oracle Software India Ltd. 320 ITR 546(SC) Applying that test to the facts of the present case, we hold that a blank CD is different and distinct from a pre-recorded CD. Hence it amounts to manufacture.

Supreme Court on technological advancements in Oracle Software India Ltd. 320 ITR 546(SC) “………Technological advancement in computer science makes knowledge as of today obsolete tomorrow. We need to move with the times.[Para 7]………………………….. “…………..The Department needs to take into account the ground realities of the business and sometimes over-simplified tests create confusion, particularly, in modern times when technology grows each day[Para 11]…………………..”

Depreciation would be allowed as long as the asset is kept ready . CIT v. Refrigeration & Allied Industries Ltd 247 ITR 12 (Del), Capital Bus Service Pvt. Ltd. v. CIT (Del)123 ITR 404 and Assistant Commissioner of Income Tax v. Ashima Syntex Ltd. 251 ITR 133 (Guj).

Delhi High Court in Radio Today Broadcasting Ltd. [2015] 64 taxmann.com 164 (Delhi)on broadcasting radio programmes on FM channel held that for claiming additional depreciatin u/s 32(1)(iia) assessee must be engaged in the business of manufacture or production of any article or thing .'Manufacture' in the context of 'broadcast' it could encompass the processes of producing, recording, editing and making copies of the radio programme followed by its broadcasting. The activity of broadcasting, in the above context, would necessarily envisage all the above incidental activities which are nevertheless integral to the business of broadcasting.[para 32] The production of radio programmes, as explained by the Assessee, involved the processes of recording, editing and making copies prior to broadcasting. When the radio programmes is made there comes into existence a 'thing' which is intangible, and which can be transmitted and even sold by making copies. Therefore, it can definitely be stated that the radio programmes produced by the Assessee is 'thing', if not an 'article.'[para 27] For the purpose of additional depreciation u/s 32(1)(iia).Hence broadcast of radio programmes by FM channel qualifies for additional depreciation u/s 32(1)(iia). Comments: However High Court also held that if Assessee might be only 'broadcasting' the programmes produced by others , it would be arguable whether in the first place it could be said that the Assessee is "engaged in the business of manufacture or production of any article or thing"[Para 25] However , Under number of sections of Income tax law , manufacture has been defined to include recording of programmes on any disc, tape, perforated media or other information storage device. Further in Oracle Developers SC has held that mere commercial duplication of storage device with computer doftware is also manufacture. In case of Gramophone Co., SC has held that recording of sound cassettes is manufacture. Hence broadcasting without production might also tantamount to manufacture

Delhi High Court in para 30 Radio Today Broadcasting Ltd. [2015] 64 taxmann.com 164 (Delhi)on definition of manufacture u/s 2(29BA) held that “………..Although this definition was introduced with effect from 1st April 2009 it must be understood as being clarificatory in nature given the common parlance understanding of the term 'manufacture'………………..”

Advance given by educational institution u/s 10(23C)(iiiad) to another institution existing for educational purposes does not take away the exemption of educational institution Vairams Kindergarten Society [2015] 63 taxmann.com 165 (Chennai - Trib.) FEBRUARY 6, 2015 Madras High Court in the case of V.G.P. Foundation rendered in the context of funds given to a sister concern, which was a private limited company of which the trustees of the assessee were also directors. However, in the instant case, the assessee, being an educational institution, has advanced money to another charitable society registered under section 10(23C)(vi) of the Act and further the recipient society is also an educational institution. Also decision rendered in the case of St. Francis Convent School (P&H) is also not applicable, since the funds were diverted by the assessee therein to the Diocese of Jalandhar.

Delhi High Court in the case of DIT (Exemption) v. ACME Educational Society [2010] 326 ITR 146, held that the amount advanced by one educational society to another educational society cannot be considered as violation of provisions of section 13(1)(d) read with section 11(5) of the Act, since the interest-free loan given by the assessee-society was neither an investment nor a deposit.

The contention of revenue that objects “To foster and develop an active and positive feeling of love and brotherhood for everyone and cultivate a strong sense of patriotism., To ensure an all round development of their personalities through educational social and cultural activities, To foster such education to the poor irrespective of caste, creed and culture” do not fall under with in definition of 'solely for educational purpose held not correct by Uttrakhand High Court in Maharani Luxmi Bai Memorial Educational Society[2015] 64 taxmann.com 44

Where a society is running an educational institution, it can make application under section 10(23C)(vi) on behalf of educational institution and application need not be filed by educational institution itself . Maharani Luxmi Bai Memorial Educational Society[2015] 64 taxmann.com 44 (Uttarakhand) JULY 29, 2015

As per news published in economic times, the service tax department has issued directives to its officers to levy service tax on amount of security deposit of employees forfeited by employers received in lieu of providing service by letting employees to leave ahead of time u/s 66E(e) Declared Service "obligation to refrain from an act, or to tolerate an act or a situation, or to do an act".

Friday, 11 December 2015

Section 40(a)(i) [Disallowance for non deduction of TDS ]is not applicable to depreciation. SAB Miller India LtdJULY 3, 2015 [2015] 63 taxmann.com 341 (Mumbai - Trib.) following SKOL Breweries (Mum Trib). Punjab and Haryana High Court in Mark Auto Industries 57/2012 dtd 08-10-12 has pronounced that 40(a)(i) is not applicable to capital expenditure.

Admission fee paid to clubs is revenue in nature .[ Delhi High Court in Samtel Color Ltd [2009] [IT Appeal No.1152 of 2008, dated 20-1-2009] followed by Mum Trib in SAB Miller 63 taxmann.com 341

ITAT Mumbai in Sunshield Chemicals held that inclusive method of valuation u/s 145A introduced by Finance Bill 1998 wef AY 1999-2000 is not relevant under present regime of indirect taxes and under likely roll out of GST. ITAT also held that only basic customs duty and central sales tax on which credit is not allowed can be said to paid or incurred to bring the inventory to its present location and condition. All other indirect taxes including Vat are more of in nature of current assets to be set off against excise duty/vat payable can be again added to inventories because Supreme Court in Eicher Tractors has held that credit of duty once awarded can not be effaced. Further ITAT following SC in Indo Nippon 261 ITR 275 has said that trading results both for inclusive and exclusive methods shall be same. Comments : Punjab and Haryana High Court in Avery Cycle Indus Ltd. [07-01-2015] has upheld the same view.

The Hon'ble Supreme Court in the case of Eicher Motors v. UOI, 1999(106) E.L.T. 3 (S.C.) has observed that”……… when on the strength of the Rules available, certain acts have been done by the parties concerned, incidents following thereto must take place in accordance with the Scheme under which the duty had been paid on the manufactured products and if such a situation is sought to be altered, necessarily it follows that the right, which had accrued to a party such as the availability of a scheme, is affected and, in particular, it loses sight of the fact that the provision for facility of credit is as good as tax paid till tax is adjusted on future goods on the basis of the several commitments which would have been made by the assesses concerned. Therefore, the Scheme sought to be introduced cannot be made applicable to the goods which had already come into existence in respect of which the earlier Scheme was applied under which the assessees had availed of the credit facility for payment of taxes. It is on the basis of the earlier Scheme necessarily that the taxes have to be adjusted and payment made complete. Any manner or mode of application of the said Rule would result in affecting the rights of the assesses……………” Hence credit of taxes on stock, inputs sold/consumed and not lying in the stock can not be denied under Rule 21(4) which says that where goods as input or output lying in stock of a taxable person become tax free from a particular date, then from that date no ITC shall be admissible on sale of goods lying in stock or on using the goods as inputs for making such tax free goods.

Pending Appeals before ITAT where tax effect does not exceed Rs. 10 lacs (enhanced from 4 lacs) to be withdrawn/ not pressed w.e.f. 10-12-2015 retrospectively. Similar limit for HC is Rs. 25 lacs (enhanced from 10 lacs) to apply retrospectively. However for Supreme Court the monetary limit of Rs. 25 lacs (no change since 09-02-11) to apply prospectively for appeals filed before SC on or after 10-12-2015. [Circular 21/2015 dated 10-12-2015] Comments: Earlier SC in Suman Dhamija on 01-07-2015 had pronounced that earlier Instructions No. 3/2011 dtd 09-02-2011 on the subject applies prospectively . The SC decisions was equally applicable to subsequent instruction no 5/2014 dated 10-07-2014. Due to SC decisions CBDT earlier issued letter on 27-08-2015 to file review petitions/misc application where appeals were rejected before various courts due to retrospective application of instructions. Earlier Allahabad High Court in Shyam Bidi Works on 06-05-15, consolidating all the earlier high court judgments on the subject had held that instructions have to be read in light of National Litigation Policy 2009 which is a beneficial piece of legislation and hence instructions are applicable retrospectively.

Friday, 27 November 2015

Suzuki India agreed to pay a sum of Rs. 1,32,00,000 to the appellant, in consideration of the appellant , who was managing director of joint venture company of Suzuki India for not providing "the benefit of his knowledge of regulatory matters, negotiating skills and strategic planning expertise to any other person in India in the two wheeler segment for a period of two years from the date of the Agreement". Held by ITAT Delhi in Satya Sheel Khosla NOVEMBER 10, 2015 [2015] 63 taxmann.com 293 (Delhi - Trib.) 1. Clause (va) of section 28 of the Act taxes a sum received for a restrictive covenant in relation to a business, but not a profession. Book of Kanga and Palkhivala relied upon. 2. Further Amount received by managing director of the company for managing all affairs of the company; evolving business strategies; and advising the company is not profit in lieu of salary because managing director is not employee as per purview of his duties. Supreme Court in Ram Prashad [1972] 86 ITR 122 relied upon.

Suzuki India agreed to pay a sum of Rs. 1,32,00,000 to the appellant, in consideration of the appellant , who was managing director of joint venture company of Suzuki India for not providing "the benefit of his knowledge of regulatory matters, negotiating skills and strategic planning expertise to any other person in India in the two wheeler segment for a period of two years from the date of the Agreement". Held by ITAT Delhi in Satya Sheel Khosla NOVEMBER 10, 2015 [2015] 63 taxmann.com 293 (Delhi - Trib.) on issue 1. Whether amount is chargeable to tax under section 17(3) of the Income-tax Act, 1961 as "profits in lieu of salary". Held relyng upon Ram Prashad [1972] 86 ITR 122 Supreme Court page 126 that: "A servant acts under the direct control and supervision of his master. An agent, on the other hand, in the exercise of his work, is not subject to the direct control or supervision of the principal, though he is bound to exercise his authority in accordance with all lawful orders and instructions which may be given to him from time to time by his principal." Since following duties were assigned to managing director: "a. Managing all affairs of the company. b. Evolving business strategies and development. c. Advising management on various issues in relation to business of the company. d. Overlook the management of the company." The wide amplitude of the role assigned to the appellant clearly show that he was not subject to the direct control or supervision of Suzuki India, but was managing all affairs of the company; evolving business strategies; and advising the company. His role was clearly that of a joint venture partner in Suzuki India and not that of an employee of the company. In view of the foregoing and the submissions made by Shri Aggarwal, summarized in paragraphs 4 to 7 above, we are of Opinion that the appellant was not an employee of Suzuki India and, as such, the sum of Rs. 1,32,00,000 received by him from the company cannot be taxed as "profits in lieu of salary" under section 17(3) of the Act. 2. Further Clause (va) of section 28 of the Act taxes a sum received for a restrictive covenant in relation to a business, but not a profession. Compensation attributable to a negative/restrictive covenant is a capital receipt and as the same does not fall within the ambit of section 28(va), it is not taxable ITAT also mentioned (in Para 17 of Judgement) that observations in paragraph 28 on page 692 of Kanga and Palkhivala's "Law and Practice of Income-tax" that clause (va) of section 28 of the Income-tax Act "taxes a sum received for a restrictive covenant in relation to a business, but not a profession"; and, therefore, does not fall within the ambit of section 28(va).

CBEC clears the enigma over service tax on seed testing

CBEC clears the enigma over service tax on seed testing :

1. Prior to introduction of negative list of service technical testing and analysis and technical inspection and certification of seeds, rendered by notified Central/ State Seed Testing Laboratories /Agency were exempt from Service Tax vide notification No.10/2010-Service Tax

2. The above notification was rescinded by subsequent notification 34/2012 dated 20-06-2012 after introduction of negative list of services

3. In negative list of services, u/s 66D w.e.f. 01-07-2012, (d) services relating to agriculture or agricultural produce by way of— (i) agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or seed testing; was kept outside the tax net

4. However by Finance Act 2013 word “seed” preceeding “seed testing “ was omitted w.e.f. 10-05-2013

5. W.e.f. 10-05-2013, negative list of services read as under (d) services relating to agriculture or agricultural produce by way of— (i) agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing

6. However agriculture produce under section 65B((5) is defined as under: “ agricultural produce ” means any produce of agriculture on which either no further processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market

7. Admittedly and apparently seeds are outside the purview of agriculture produce.

8. This resulted in issue of service tax notices to this sector in abundance.

9. However, CBEC vide Circular no. 354/279/2015-TRU dated 26-11-2015 has clarified that purpose of amendmend was to widen its scope and not restrict it a manner to exclude seed testing and other incidental services.

10. The departmental has further clarified that without certification and other services seed testing is futile exercise hence such other services like seed certification, technical inspection, technical testing, analysis, tagging of seeds, rendered during testing of seeds, are covered within the meaning of ‘ testing ’

11. Therefore, such services are not liable to Service Tax.

Thursday, 26 November 2015

SC in Zuari Estate Development & Investment Company Limited has held that intimation u/s 143(1) is not assessment and hence while issuing notice u/s 148 there is no change of opinion and hence notice is valid. Bombay High Court Judgement is set aside and matter restored to ITAT to decide on merits. Comments : In this case the notice u/s 148 was issued for not reflecting capital gain u/s 2(47)(v) rws 53A of Transfer of Property Act in respect of an agreement entered in 1984 by which property was stipulated to be transferred in 1991 only. However section 2(47)(v) has come into operation w.e.f. AY 1988-89 only and high court had held in para 18 of its judgement that “ no prudent or reasonable person, reasonably instructed in law, could have come to the conclusion that an agreement as contemplated by section 53A of the Transfer of Property Act had been entered into for the assessment year 1991-92” and that mere exchange of letters is not agreement u/s 53A. SC has not considered this part of the judgement. How shall now ITAT decide the issue ?

Wednesday, 25 November 2015

Section 153A does not speak specifically about the extension of time to be granted for filling of return u/s 153A. However, with reference to clause 14 of The General Clause Act, 1897 which states that where any power is conferred that unless a different intention appear, that power may be exercised from time to time.

The assessee can make complains to Human Rights authority if harassment is caused to the family during raids or survey. Very recently the human right commission has observed that continuing search without any break at odd hours and forcing the assessee and or his family members to remain awake was a torturers act. The Patna High Court in CCIT v. State of Bihar, Through Chief Secretary (Rajendra Singh) (2012) 205 Taxman 232 / 71 DTR 268 / 250 CTR 304 upheld the decision of the human rights commission that interrogation till late night amounts to “torture” & violation of basic “human rights”

Searches should be carried out only in cases where there is credible evidence to indicate substantial unaccounted income/assets in relation to the tax normally paid by the assessee or where the expected concealment is more than Rs. 1 crore.

Section 132 of the Income-tax Act 1961 - Search & Seizure - matters relating thereto

F.No. 286/77/2003-IT(Inv.II)
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes

All Director Generals of Income-tax (Inv.)

Subject: Search & Seizure - matters relating thereto

Sir,

With a view to focus on high revenue yielding cases and to make the optimum use of manpower, the Board has decided that officers deployed in the Investigation Wing should restructure their activities. They should henceforth strictly adhere to the following guidelines :

(i) Searches should be carried out only in cases where there is credible evidence to indicate substantial unaccounted income/assets in relation to the tax normally paid by the assessee or where the expected concealment is more than Rs. 1 crore.

(ii) Search operation will also be mounted when there is evidence of hidden

unaccounted assets arising out of a conspiracy to cause public harm, terrorism, smuggling, narcotics, fraud, gangsterism, fake currency, fake stamp papers and such other manifestations;

(iii) Tax payers who are professionals of excellence should not be searched without there being compelling evidence and confirmation of substantial tax evasion.

2. Henceforth, search operations shall be authorized only by the concerned DGIT(Inv.) who will be accountable for the action initiated by the officers working under him. He should also ensure that all the work relating to search & seizure, like post-search enquires, preparation of appraisal report and handing over of seized books of accounts. Etc. should be completed by the Investigation Wing within a period of 60 days from the date on which the last of the authorisations for search was executed.

3. DGsIT(Inv.) are requested to ensure that officers of competence and proven integrity are taken in the Investigation Wing. The officers posted in the Investigation Wing will be trained at NADT in a special course for which arrangements will be separately made.

4. DGsIT(Inv.) are required to ensure strict compliance of the above guidelines/ instructions.

Yours faithfully,
Sd/-
Sharat Chandra
Director (Inv. II & III)

The person searched is not entitled to copy of reasons recorded by the department as it is privileged document And can not be shared with person searched. Only High Court and Supreme Court have that powers Dr. Pratap Singh 155 ITR 166 (SC)

Without referring to any incriminating material found during the course of search, no addition could be made in an assessment under section 153A of the Act in relation to an assessment year for which the assessment did not abate. Smt. Zeenat P. Sanghvi in ITA No. 8026/Mum/2010 dated 19/12/2014, All Cargo Global Logistics Ltd. v. Dy. CIT [2012] 137 ITD 287/23 taxmann.com 103/(Mum) (SB), Gurinder Singh Bawa v. Dy. CIT [2012] 28 taxmann.com 328/[2014] 150 ITD 40 (Mum. - Trib.), CIT (Central) v. Murli Agro Products Ltd. [2014] 49 taxmann.com 172 (Bom.), Hon'ble Bombay High Court in the case of CIT v. Continental Warehousing Corpn. (Nhava - Sheva) [2015] 58 taxmann.com 78 followed in Parag M. Sanghvi [2015] 63 taxmann.com 118 (Mumbai - Trib.) SEPTEMBER 30, 2015

Additional evidence, to further support assessee’s stand taken before the assessing officer that the valuation of its property is adversely affected as a result of restrictive use of its property for industrial purpose only for reflecting capital gain at lesser than stamp duty value for the purpose of S. 50C in Janakiram [2015] 63 taxmann.com 139 (Hyderabad - Trib.) JULY 8, 2015

SC decision on 05-11-2015 on 36(1)(iii) in the case of Hero Cycles (P) Ltd. The apex court observed that interest free advance to sister concern under margin money stipulation by bank for granting of loan to sister concern qualifies the test of commercial expediency. Further loan to director from bank account out of credit balance available on the day of advance can not be said to be advance from borrowed capital. Hence no disallowance u/s 36(1)(iii). Further SC reprimanded P&H High Court for disallowance by mentioning Abhishek Industries only without mentioning facts of the case. SC followed its own judgement in SA Builders 288ITR1 for test of commercial expediency and includes expenditure incurred otherwise than by legal obligation. SC also quoted Malyalam Plantation 53 ITR 140 which held that “for the purpose of business” is wider than “for the purpose of earning profits” SC further quoted Delhi High Court in Dalmia Cement 254 ITR 377 which held that for the purpose of business need not necessarily mean the business of assesee itself. SC also held that the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. It further held that no businessman can be compelled to maximize his profit and that the income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman.

Tuesday, 24 November 2015

An appeal is a continuation of assessment proceedings. Assessment proceedings complete when appeal against order of assessment is decided by Tribunal CIT vs. Mayur Foundation (2005) 274 ITR 562(Guj.)

Delhi High Court on conversion of stock in trade to capital asset has held that “The conversion of stock-in-trade into investments would not immediately yield any business income/loss as an Assessee cannot be held to trade with itself [Kikabhai Premchand v. CIT: [1953] 24 ITR 506 (SC)]. In the year in which the asset is sold, difference between the value at which the asset was held as stock-in-trade and the market value on the date of its conversion as investment would have to be treated as business income/loss and the difference between the market value of the asset as on the date of conversion and the value at which it is sold would be in the nature of capital gains.[Para 29] Further the period during which asset held as stock in trade not to be included for computing period of holding u/s 2(42A) Abhinandan Investment Ltd. [2015] 63 taxmann.com 263 (Delhi) NOVEMBER 19, 2015

Recovery—Garnishee proceedings—In order to institute garnishee proceedings there should be a subsisting relationship between the garnishee and the assessee of which the ITO gets information and which could reasonably lead to recovery of arrears—Where the garnishee, in response to garnishee order dt. 18th June, 1959, replied that there was no subsisting contract with the assessee, later on entered into contract with the assessee in March, 1960, and made payment of Rs. 20,000 to the assessee and again on second garnishee notice dt. 27th March, 1961, nothing was due from garnishee to the assessee, the ITO was not justified in demanding the payment of Rs. 20,000 on the ground that the same was made in contravention of earlier order dt. 18th June, 1959-BUDHA PICTURES(Supreme Court)(1967) 65 ITR 0620

Guidelines for seizure of jewellery and ornaments in course of search

Instances of seizure of jewellery of small quantity in course of operations under section 132 have come to the notice of the Board. The question of a common approach to situations where search parties come across items ofjewellery, has been examined by the Board and following guidelines are issued for strict compliance.

(i) In the case of a wealth-tax assessee, gold jewellery and ornaments found in excess of the gross weight declared in the wealth-tax return only need be seized.

(ii) In the case of a person not assessed to wealth-tax gold jewellery and ornaments to the extent of 500 gms. permarried lady, 250 gms. per unmarried lady and 100 gms per male member of the family need not be seized.

(iii) The authorised officer may, having regard to the status of the family, and the custom and practices of the community to which the family belongs and other circumstances of the case, decide to exclude a larger quantity of jewellery and ornaments from seizure. This should be reported to the Director of Income-tax/Commissioner authorising the search at the time of furnishing the search report.

(iv) In all cases, a detailed inventory of the jewellery and ornaments found must be prepared to be used for assessment purposes.

These guidelines may please be brought to the notice of the officers in your region.

Instruction : No. 1916, dated 11-5-1994.

JUDICIAL ANALYSIS

EXPLAINED IN - The above instructions are explained in Harakchand N. Jain v. Asstt. CIT [1998] 61 TTJ (Mum.) 223, with the following observations :

“(ii) A perusal of the above circular shows that in case of person not assessed to wealth-tax gold jewellery and ornaments to the extent of 500 gms.per married lady, 250 gms. per unmarried lady and 100 gms. per male member of the family need not be seized. It further provides that having regard to the status of the family and custom and practice of the community to which the family belongs, the officer may exclude a large quantity of jewellery and ornaments and seizure. In the present case, there are four male members in the family, the assessee and his three sons. Similarly, there are two married ladies and one unmarried lady. The learned counsel for the assessee submitted that the jewellery of the assessee and his wife was low and was received by various occasions, like marriage delivery, birth, etc. and the jewellery belonged to the children was also received in similar occasions. On the other hand, the learned Departmental Representative argued that the assessee has not provided any evidence to explain the source of the investment in the jewellery.

(iii) On careful consideration of the rival submission we find that the assessee has not placed on record any evidence to prove that the jewellery has been received as gift by him by producing the GT return or any other evidence. However, we are conscious of the fact that in Indian society everyone receives gifts at the time of marriage and other occasions. Therefore, keeping in view the number of family members we are of the view that further rebate of 500 gms. out of the entire jewellery may be treated as explained. The balance 426 gms. of jewellery may be treated as addition under section 69A of the Income-tax Act.”

Monday, 23 November 2015

Where credit note is not issued post sale by the seller in respect of discounts allowed by him and entire tax collected on sale has been paid , the buyer need not reverse input tax credit for discounts allowed but for which no credit note reversing the tax is issued by the seller. The department’s contention that ITC is allowed only on proportionate purchases net of discount held not tenable. Held by Delhi High Court in Challenger Computers Ltd. On 21-08-2015 [52 PHT 171] [63 taxmann.com 120]

As per Notification No. 02/2015 dated 04-11-2015, by CESTAT Reigonal Bench Chandigarh shall hear the appeals arising on Service tax, Excise and Customs issues from Union territory of Chandigarh, states of Punjab and Haryana, J&K and Himachal Pradesh w.e.f. 01-12-2015

Held by SC in Woodward Governor India (P.) Ltd.312 ITR 254 that an enterprise has to report outstanding liability relating to import of raw material using closing rate of foreign exchange and any difference, loss or gain, arising on conversion of said liability at closing rate should be recognized in profit and loss account for reporting period . Bombay High Court in Vassantram Mehta & Co. (P.) Ltd. [2015] 63 taxmann.com 102 (Bombay) 17-04-2015 has followed the same

Held by Kerala High Court in Thomas George Muthoot on 03-07-2015 that disallowance shall be attracted even on payments not payable on 31st March. High Court has approved Calcutta High Court in Crescent Exports and Gujrat High Court in Sikandarkhan N Tunvar. Allahabad High Court in Vector Shipping Services disapproved by Kerala High Court.

Held by Kerala High Court in Thomas George Muthoot on 03-07-2015, that 40(a)(ia) 2nd Proviso inserted w.e.f AY 2013-14 shall not operate retrospectively. 40(a) (ia) 2nd Proviso says that if assessee furnished a certificate from CA that deductee has paid tax on payment escaping TDS, no disallowance shall be made. Held by High Court that provisions are not curative in nature. Hence Allied Motors (SC) 224 ITR 677 and Alom Extrusion (SC) 317 ITR 306 is not applicable. However subsequent Delhi High Court Judgement in Ansal Land Mark Township dated 26-08-2015 has held the amendmend to be curative and hence held applicable prospectively. It may further be noted that SC in Vegetable Products 88 ITR 192 has held that view favourable to assess should be adopted in case of ambiguity.

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Tuesday, 22 December 2015

The assessee is an AOP but department wrongly issued PAN as Firm. Held by Gujrat High Court in Tulsi Mall AOP Vs CIT 2015 (12) TMI 1077 that Merely because PAN was issued by the Department erroneously, there cannot be any insistence that return should be filed in the same capacity

Punjab and Haryana High Court on deduction to LIC Employees u/s 10(14)

Monday, 21 December 2015

Decades long Controversy over defining “Month “ whether Calender Month or Lunar Month

Sunday, 20 December 2015