Any transfer by way of conversion of bonds or debentures, debenture-stock or deposit certificates in any form, of a company into shares or debentures of that company is not regarded as transfer u/s 47(x). As per Rule 8AA inserted vide Notification dated 17-03-2016 , In the case of a capital asset, being a share or debenture of a company, which becomes the property of the assessee in the circumstances mentioned in clause (x) of section 47 of the Act, there shall be included the period for which the bond, debenture, debenture-stock or deposit certificate, as the case may be, was held by the assessee prior to the conversion.

Scheme of Taxation for Provident Funds, Approved Super Annuation Funds and New Pension Fund revisited after amendments proposed in Finance Bill 2016

Feb 2016 witnessed a few important changes for salaried class assessee enjoying their provident fund bounties. While vide Government Notification dated 10-02-2016   withdrawl of employer contributions till 58 years of age was prohibited,  Finance Bill 2016 created mayhem over taxability on withdrawl of entire provident fund accumulations. The amendment  was made to move to the regime of EET (i.e. Exempt, Exempt, Tax) from present regime of (Exempt, Exempt and Exempt). Although Finance Minister has announced the retraction of its proposal to tax provident fund withdrawl, there are other large number of other amendments also with regard to employee benefits, which have gone unnoticed in this buzz.

Whether reimbursement of actual expenditure on which the payer has deducted TDS ought to be considered by the assessee as a gross receipts or the assessee was under a bona fide impression that reimbursement of expenditure does not involve element of income and not required to be considered as a part of gross turnover. After perusing various invoices raised by the assessee on its clients which are placed in the paper-book, we are of the view that the assessee remained under a bona fide impression that the expenditure incurred on behalf of its clients regarding payment of customs duty, transportation/freight charges, forklift charges, etc. were not required to be retained by the assesse [Aasita International-ITAT Pune 19-011-2015]

Out of Pocket expenses seperately received in advance or otherwise shall not form part of turnover for audit purpose . Hence no penalty held levialble u/s 271B- Shashank Rakesh Aggarwal [ITAT Mumbai]

Powers regarding discovery, and production of evidence given to the IT authority under s. 131 are the same powers as vested in a Court under CPC while trying a suit—Existence of a suit or a proceeding is a sine qua non for exercise of such power under CPC—Therefore, power mentioned in sub-s. (1) of s. 131 can be exercised only if a proceeding is pending before the concerned officer and not otherwise—This interpretation is consistent with the scheme of the sub-s. (1A) of s. 131 according to which it is competent for Asstt. Director of Inspection to exercise powers under s. 131(1) under certain circumstances even in absence of any pending proceedings [JAMNADAS MADHAVJI & CO. & ANR. vs. J.B. PANCHAL, INCOME TAX OFFICER & ANR ) 162 ITR 0331 HIGH COURT OF BOMBAY]

Supreme Court in Kathiroor Service Cooperative Bank Ltd.[August 27, 2013.] on Scope of 133(6)

The appellant-assessee is a Service Co-operative Rural Bank. The Income Tax Officer to the assessee under Section 133(6) of the Act calling for general information regarding details of all persons (whether resident or non-resident) who have made (a) cash transactions (remittance, transfer, etc.) of Rs. 1,00,000/- and above in any account and/or (b) time deposits (FDs, RDs, TDs, etc.) of Rs. 1,00,000/- or above for the period of three years between 01.04.2005 and 31.03.2008, dated 02.02.2009. It was expressly stated therein that failure to furnish the aforesaid information would attract penal consequences. The assessee objected to the said notice on grounds, inter alia, that such notice seeking for information which is unrelated to any existing or pending proceeding against the assessee could not be issued under the provisions of the Act and requested for withdrawal of the said notice Section 133 provides for the power of authorities under the Act to call for information for the purposes prescribed therein. Sub Section (6) of Section 133 of the Act, as it stood originally, had provided for calling for information in relation to such points or matters which would be useful for or relevant to any proceeding under the Act from any person including a banking company or any officer thereof. It was settled law that unless a proceeding is pending, the powers under Section 133(6) could not be exercised by the Assessing Authorities. In such circumstances, an amendment was made by the Finance Act, 1995 (Act 22 of 1995), with effect from 01.07.1995, inserting the words “enquiry or” before “proceeding” in Section 133(6) and the second proviso to the said provision The addition of the word “enquiry” expanded the ambit of exercise of powers by the authorities under Section 133(6) to seek for information which would be useful for or relevant to any enquiry besides proceeding under the Act. The second proviso to Section 133(6), specified that the power in respect of an enquiry, in case where no proceeding is pending, shall not be exercised by any income tax authority below the rank of Director or Commissioner without the prior approval of the said authorities. The effect of the amendments made by the Finance Act (Act 22 of 1995) was explained by the CBDT in the Circular No. 717, dated 14th Aug., 1995 (See Taxmann ’s Direct Taxes Circulars, Vol. 4, 2002 Ed., p. 2.1759, 2.1782) as follows : At present the provisions of sub-section (6) of section 133 empower income-tax authorities to call for information which is useful for, or relevant to, any proceeding under the Act which means that these provisions can be invoked only in cases where the proceedings are pending and not otherwise. This acts as a limitation or a restraint on the capability of the Department to tackle evasion effectively. It is, therefore, thought necessary to have the power to gather information which after proper enquiry, will result in initiation of proceedings under the Act. 41.3 With a view to having a clear legal sanction, the existing provisions to call for information have been amended. Now the income-tax authorities have been empowered to requisition information which will be useful for or relevant to any enquiry or proceedings under the Income-tax Act in the case of any person. The Assessing Officer would, however, continue to have the power to requisition information in specific cases in respect of which any proceeding is pending as at present. However, an income-tax authority below the rank of Director or Commissioner can exercise this power in respect of an inquiry in a case where no proceeding is pending, only with the prior approval of the Director or the Commissioner. Since the language of the Section 133(6) is wholly unambiguous and clear, reliance on interpretation of statutes would not be necessary. Before the introduction of amendment to Section 133(6) in 1995, the Act only provided for issuance of notice in case of pending proceedings. As a consequence of the said amendment, the scope of Section 133(6) was expanded to include issuance of notice for the purposes of enquiry. The object of the amendment of section 133(6) by the Finance Act, 1995 (Act 22 of 1995) as explained by the CBDT in its circular shows that the legislative intention was to give wide powers to the officers, of course with the permission of the CIT or the Director of Investigation to gather general particulars in the nature of survey and store those details in the computer so that the data so collected can be made use of for checking evasion of tax effectively. The assessing authorities are now empowered to issue such notice calling for general information for the purposes of any enquiry in both cases: (a) where a proceeding is pending and (b) where proceeding is not pending against the assessee. However in the latter case, the assessing authority must obtain the prior approval of the Director or Commissioner, as the case maybe before issuance of such notice. The word “enquiry” would thus connote a request for information or questions to gather information either before the initiation of proceedings or during the pendency of proceedings; such information being useful for or relevant to the proceeding under the Act

Section 11(6) inserted by Finance Act 2014 wef AY 2015-16 disallowing deduction of depreciation of asset , the acquisition of which has been claimed as application is not retrospective in nature. Al- Ameen Charitable Fund Trust[2016] 67 taxmann.com 160 (Karnataka) FEBRUARY 22, 2016

Issue of deduction of Housing Loan Interest in case of co-owners decided by Punjab and Haryana High Court in Priya Mahajan [ITA 384/2015 dtd 26-11-2015] Facts: Plot purchased in the name of four cowners. Also they were co-borrowers of housing loan for construction of house. The assessee solely repaid entire interest and principal since the date of borrowing. While assessee claimed 100% deduction on housing loan interest, the AO restricted it to 25% having regard to assessee’s share of ownership Section 45 of Transfer of Property Act 1882 on Joint transfer for consideration.— Where immoveable property is transferred for consideration to two or more persons and such consideration is paid out of a fund belonging to them in common, they are, in the absence of a contract to the contrary, respectively entitled to interests in such property identical, as nearly as may be, with the interests to which they were respectively entitled in the fund; and, where such consideration is paid out of separate funds belonging to them respectively, they are, in the absence of a contract to the contrary, respectively entitled to interests in such property in proportion to the shares of the consideration which they respectively advanced. In the absence of evidence as to the interests in the fund to which they were respectively entitled, or as to the shares which they respectively advanced, such persons shall be presumed to be equally interested in the property. Held that : In present case though assessee has claimed to have paid entire consideration for purchase of plot/construction, no evidence has been produced. In the sale deed since shares of individuals are not specified. Section 45 of Transfer of Property Act shall apply. In the case of Saiyed Abdullah v. Ahmad AIR 1929 All. 817, the Hon'ble Allahabad High Court held that 'in the absence of specification of the shares purchased by two persons in the sale deed, it must be held that both purchased equal shares. In present case, since the individual shares were not specified in the sale deed, the logical conclusion is that everyone had equal share in the property. Hence allowance of 25% of Housing Loan to assessee borrower is correct even if the assessee solely repaid entire interest and principal since the date of borrowing.

The issue of deductibility of Subsidies as profits derived from undertaking stands resolved by Supreme Court in its Landmark Judgment in Meghalya Steels on 09-03-2016

Exemption available under Chapter VI-A in respect of profits of industrial undertakings is available only in respect of income qualifying the litmus test of “profits or gain derived from undertaking”. The revenue and assessees have been locking their horns over the issue of Subsidies for years together as to whether or not they are covered by term ““profits or gain derived from undertaking”

                             In this article while an attempt has been made to construe real meaning of words “profit derived from”, it also deals with purpose test of subsidy and its relevance after recent amendments in Finance Act 2015 and Finance Bill 2016.

CBDT vide letter dated 08-03-2016 has clarified that the monetary limit of Rs. 10 lakhs imposed vide Circular No. 21/2015 dated 10-12-2015 for filing appeals before the ITAT would apply equally to cross objections under section 253(4) of the Act. Cross objections below this monetary limit, already filed, should be pursued for dismissal as withdrawn/not pressed. Filing of cross objections below the monetary limit may not be considered henceforth i.e. wef 08-03-2016

CBDT vide letter dated 11-03-2016 has reiterated that cases where tax has been deducted but not deposited by deductor, deductee assessee shall not be called upon to pay the demand because section 205 puts a bar on direct demand against the assessee in such cases. CBDT has issued similar instructions on 01-06-2015 also.

CBDT instructs officers to verify cases of agriculture Income more than one crore in resposne a PIL matter pending before Hon'ble Patna High Court wherein concerns have been raised that a few assesses may be engaged in routing their unaccounted/illegal money in the garb of agricultural income thereby not only claiming exemptions on such income but also engaged in the money laundering activities. Also CBDT has advised that there may be data entry errors also resulting in income being reflected more than one crores. List of cases where agiculture income is more than one crore has been made available to officers. In Amritsar 26 cases have been reported [CBDT Letter dated 10-03-2016]

Analysis of Amendment relating to Presumptive Taxation of Business

Section 44AD widely affects the businesses in small sector. It was brought in its present shape by Finance Act 2009 wef AY 2011-12. It implies that legislature at that time thought it fit to take a year extra to have impact study of the section. However section 44AD has been amended by Finance Bill 2016, wef Financial year commencing from 01-04-2016, without providing enough time and space to thinks about its implications. This article is a humble attempt to look into and look through amendments proposed in section 44AD  as amended by Finance Bill 2016

CBDT circular favoring the assessee is binding on the department even if it is not as per legislative intent [Para 25] Vodafone Essar Mobile Services Ltd [2016] 67 taxmann.com 124 (Delhi) MARCH 9, 2016 As per section 201(3) before amendment by Finance Act 2014 it was provided wef AY 2010-11 that order for default in payment of TDS for financial years commencing on or before 01-04-2007 could be passed till 31-03-2011. However as per Circular 5/2010 of CBDT “…………….. To provide sufficient time for pending cases, it is proposed to provide that such proceedings for a financial year beginning from 1st April, 2007 and earlier years can be completed by the 31st March, 2011………………” . Held by Delhi High Court that since extended limitation period as per CBDT circular is applicable only to pending cases, hence for period before AY 2010-11, limitation period of 4 years as pronounced by Delhi High Court in NHK Japan following supreme court in Bhatinda District Co-op Mil Producers Union [2007] 9 RC 637; 11 SCC 363 is reasonable and shall apply accordingly

Issue of allowing TDS to assesses following cash system of accounting: As per section 198, sum deducted is deemed to be income received. Further Rule 37BA(3)(ii) allowing tds credit in the proportion of income assessable is applicable where income is received over number of years. However, if income is not received at all, Rule 37BA(3)(ii) shall not apply. Again Rule 37BA(i) allowing credit of TDS in the assessment year for which tax is assessable shall have effect of not at all allowing the credit of TDS if no amount is received. Hence Rule 37BA (3) is not applicable to cash system of accounting. Hence where assessee following cash system of accounting had reflected tds as income u/s 198 is entitled to claim full credit of tds in the year of deduction itself although corresponding income not reflected in the year of deduction. Held by ITAT Delhi in Chander Shekhar Aggarwal [2016] 67 taxmann.com 62 (Delhi - Trib.) pronounced on 11-01-2016 following Sadhbhav Engineering (Ahd Trib) and Vishakhapatnam Trib in Peddu Srinivasa Rao

Whether registration fee, processing fee and other fee charged by Vat department from vat dealers shall become exigible to service tax w.e.f. 01-04-2016:

As per NN 6/2016 dated 18-02-2016 read NN 7/2016, all services by government to business entities having turnover more than 10 lacs shall become taxable under service tax law w.e.f. 01-04-2016. As per Rule 40A of Punjab Vat Rules w.e.f 01-10-2013, every taxable person is required to pay annual processing fee in the month of October. Further registration fee of Rs. 2000 u/R3 (2); duplicate RC fee Rs. 100/-u/R 6; Amendment and other purpose fee u/R 87; Fee of Rs. 2500/- for disputed questions u/R 89 rws S.85, might also get covered.  Held by Supreme Court in Om Parkash Aggarwal v. Giri Raj Kishori (164 ITR 376) that fee is a charge for a special service rendered to individuals or a class by some governmental agency. A fee is a sort of return or consideration for services rendered, though it may not be based upon expenses or costs incurred by Government. At present as per NN30/2012, service tax on reverse charge shall be payable by service recipient’s only if support service is provided by government. This means at present if at all service tax is levied on annual processing fee, it shall be collected from the state government and not dealer. However  NN 30/2012 is most likely to be amended to be aligned with amended provisions of S.66D(a) and then service tax liability might fall back on dealers. Other services that might get covered are MCA filing fee, motor vehicle registration fee, other fee for obtaining licenses, registration, permissions etc.

The Notice itself does not indicate the approximate amount of income, which the Assessing Officer has reason to believe has escaped assessment- Bombay High Court in Khubchandani Healthparks

It is settled position in law that the decision of the Court has to be read in the context of the facts involved therein and not on the basis of what logically flows therefrom as held by the Supreme Court in Ambica Quarry Works Vs. State of Gujarat, 1987(1) SCC 213. The Apex Court in Zuari Estate Development and Investment Co. Ltd. (Supra)not having dealt with the issue of reason to believe that income chargeable to tax has escaped assessment on the part of the Assessing Officer in cases where regular assessment was completed by Intimation under Section 143(1) of the Act, it would not be wise for us to infer that the Supreme Court in Zuari Estate Development and Investment Co. Ltd. (Supra) has held that the condition precedent for the issue of reopening notice namely, reason to believe that income chargeable to tax has escaped assessment, has no application where the assessment has been completed by Intimation under Section 143(1) of the Act. The law on this point has been expressly laid down by the Apex Court in the case of Rajesh Jhaveri Stock Brokers P. Ltd. (Supra) and the same would continue to apply and be binding-Bombay High Court in Khubchandani Healthparks

It is settled position in law that the decision of the Court has to be read in the context of the facts involved therein and not on the basis of what logically flows therefrom as held by the Supreme Court in Ambica Quarry Works Vs. State of Gujarat, 1987(1) SCC 213

Supreme Court has affirmed the decision of Allhabad High Court in Society for The Promotion of Education Adventure Sports on 16-02-2016 allowing deemed registration of trust after six months where registration not granted in six months. Earlier Allahabad High Court full bench in Muzafarnagar Development Authority on 05-02-2015 had reversed division bench decision in Society for The Promotion of Education Adventure Sports which now stands restored back . Earlier CBDT vide Instruction dated 06-11-2015 had also directed to follow the time limit of six months strictly.

Changes made in service tax relating to service by Government to business entity : As per section 66D on negative list of service while service provided by government and local authority are generally not taxable, support services services provided by Government to business entity have been kept in taxable category. Further in respect of support services to business entity , tax is payable on reverse charge by business entity and not government except for renting of immovable property. It included services like advertisement, construction, works contract, security and other infrastructural, administrative, operational,logistic, marketing services. However Clause 109 of Finance Act 2015 increased the ambit of taxable service from support service to any service provided by government to business entity from date to be notified later. Now by NN 6/2016 dtd 18-02-2016, the date has been notified as 01-04-2016. Furtherby NN 7/2016 dated 18-02-2016, exemption has been provided for service to business entity with a turnover up to ten lacs in preceding year.

Exports to Nepal' would be treated at par with other exports from 1-3-2012 and would not form part of turnover limit of Rs. 400 lakhs or Rs. 150 lakhs for SSI-exemption purposes accordingly, words 'and Nepal' in Explanation (G) to SSI Notification No. 8/2003-CE to treat exports to Nepal as clearance for home consumption, were struck down-Ketan Pottery Works [2016] 66 taxmann.com 259 (Gujarat)

in Swadeshi Polytex Ltd. (44) ELT 794 (SC) it has been held by the Apex Court that any unintended byproduct during the course of manufacturing of a particular goods could not be said to be an intended one

Assessee took credit of CVD/Special CVD paid on imported materials based on 'endorsed bill of entry' - Department denied credit on ground that endorsed bill of entry is not an eligible document under rule 9(1) - Assessee argued that bill of entry (even if endorsed) continues to be an eligible document under rule 9(1)(c) - HELD : There is no dispute about receipt of material and payment of duty thereon - Hence, credit taken based on endorsed bill of entry is valid, as endorsed bill of entry is also a valid document for availing credit- Suyash Chemicals [2016] 66 taxmann.com 241 (Mumbai - CESTAT)

Contribution received by assessee-trust towards corpus fund even if misused could not be treated as income for purpose of levying tax-Sri Durga Nimishamba Trust [2012] 18 taxmann.com 173 (Kar.)

Where entire cost of property (both land and building) was taken by the assesssee as building only and depreciation was claimed there on. On Sale of the property AO took 1/6 th of the consideration towards building and balance towards land. AO reduced sale allo cated towards building from block and took cost of land at NIL value. Hence entire sale consideration allocated towards land was taken as capital gain. CIT A allocated WDV of property in the same ratio as sale consideration and applied cost of indexation on such deemed value of land. Held by ITAT that stand taken by CIT A is reasoned one and has rightly apportioned the WDV between land and building. [Para 22 Construction Engineers pronounced by ITAT Asr on 18-02-2016]

In Construction Engineers pronounced by ITAT Asr on 19-02-2016, delay of 168 days condoned by ITAT where order of CITA was misplaced by one of the employees of the assessee

ITAT Delhi Bench in the case of Maharashtra Seamless Ltd., held that where in the case of mixed funds, it is not possible to ascertain as to whether investment in tax free bonds is from borrowed funds on assessee’s own funds no disallowance was warranted.

ITAT Delhi in the case of Dy. CIT vs. Jindal Photo Ltd. The burden is on the Assessing Officer to establish nexus of expenses incurred with the earning of exempt income before making any disallowance u/s 14A of the Act.

Income Tax on security refund of company which has already been wound up, received and encashed by Managing Director

Mere knowledge of a notice is not equivalent to proper service under the Act. B. Johar Forest Works vs. CIT [1977] 107 ITR 409 (J&K)

Concept of AIR Information now introduced for Excise and Service tax also. AIR Information to be filed by RBI to CBEC in respect of foreign remittances of entities for receipt of services whose aggregate remittances during financial year exceed Rs. 50 lacs. Also in respect of identified electricity consumers and intimated by 30th June of next year, who are manufacturers, using an induction furnace or rolling mill and whose aggregate clearances during financial year exceed Rs. 150 lacs , state electricity boards and RBI shall file AIR Information till 31st December of subsequent year –Notification 04/2016 dated 15-02-2016

Vide Instruction No. 2/2016, dated 15-02-2016 CBDT has directed officers to pass rectification order in writing being mandatory requirement u/s 154(4) and be duly served on the assessee and not merely make rectification on AST system. Vide Instruction No. 1/2016 dated 15-02-2016, supervisory officers have been instructed to monitor adherence of time limit of six months u/s 154(8) and initiate suitable administrative action where time limit of six months is not adhered.

Auditors’ Qualifications: Whether a death Knell for assessee

What is apparent is not always real. To reach out to the real story, one has to undertake the scavenging exercise.  This daunting  task undertaken by ITAT Amritsar in a recent case  pronounced on 05-02-2016 [ITA 486/ASR/2013] to resolve the mayhem  when survey documents along with auditors qualifications had apparently almost  maimed the assessee.

Vide Instruction dated 10-02-2016, it has been clarified by the DGIT Systems that earlier while notices to non filers were being sent on their PAN addresses, thence forth notices shall be sent on addresses provide in last filed return and AIR Return

Cross objection before ITAT may be filed on the issues decided against the assessee or to support the order passed by CIT A. Where Cross objection is in support of CIT A order, it shall stand dismissed along with revenue’s appeal due to low tax effect circular because it has no independent existence. However if cross objection is filed against some part of the order of CITA, it can not be dismissed along with dismissal of appeal of revenue due to low tax effect circular. Contention that appeal stands dismissed in limine is illogical in such situation. Ajay Kalia[2016] 66 taxmann.com 99 (Delhi - Trib.) JANUARY 7, 2016

There can be one possibility when the cross objection is filed by the other side in support of the order passed by the CIT(A) and the other possibility can be of filing CO against the issues decided against it in the impugned order. There can be still one more possibility when the other side, apart from supporting the impugned order appealed against, may also assail certain other issues decided against it. This divulges that the CO can be filed by the other side, on receipt of notice of appeal having been filed by the appealing party, on any issue de hors the issued raised by the appealing party.

Scope of AO to reopen an assessment on the basis of intimation u/s 143(1) is much wider that scope of reopening on the basis of 143(3) because no opinion is formed by accepting return u/s 143(1) without scrutiny. This is in sum and substance held by the Supreme Court in the case Rajesh Jhaveri Stock Brokers P. Ltd. And Zuari Estate Development and Investment Company . However, even in the case of assessment previously framed without scrutiny which is sought to be reopened by issuance of notice under section 148 of the Act, the principle requirement that the Assessing Officer has reason to believe that the income chargeable to tax had escaped assessment would still survive. Of course, this formation of belief by the Assessing Officer must be prima facie and at the stage when the Court is testing validity of such a notice; it would not be necessary for the Assessing Officer to conclusively establish that the income chargeable to tax had escaped assessment. [Para 7] Prakriya Pharmacem [2016] 66 taxmann.com 149 (Gujarat) JANUARY 18, 2016

In the reasons provided it is stated that the assessee has transferred shares during year under consideration whose market value on the date of transfer was Rs. 7.63 crores (rounded off). This transfer had taken place in favour of sister concern without consideration under transfer deed dated 26.02.2010. In view of such facts, the Assessing Officer has reason to believe that the income chargeable to tax in excess of Rs.1,00,000/- had escaped assessment. Held that reasons themselves record merely the transaction and nothing more. There is no live link between the first portion of the reasons recorded, namely, by merely duplicating the recording of transaction of transfer of sizable number of shares having considerable market value without consideration and second portion of the reasons where he concluded that the income chargeable to tax had escaped assessment. Hence reopening u/s 148 can not be made. [Para 9 and 10 of the Judgement] Comments: This judgement can be helpful where cases are reopened u/s 148 merely on the basis of AIR information Prakriya Pharmacem [2016] 66 taxmann.com 149 (Gujarat) JANUARY 18, 2016

On latest version of S. 263, held by Karnatka High Court in Saravana Developers ITA 68/2014 dtd 21-01-2016 that explanation to section 263 inserted by Finance Act 2015 authorizing exercise of powers u/s 263 where in the opinion of CIT the order is passed without making inquiries or verification which should have been made is applicable only from 01-06-2015 and can not be applied to the cases of inadequate inquiry before 01-06-2015. [Para 8 and 22 of the Judgement]

Section 70 and section 74 were amended by Finance Act 2002 wef AY 2003-04, to rectify an anamoly where by long term capital loss although subject to lower tax @20% was adjusted against normal tax rate income of short term capital gain of 30%, resulting lower payment of taxes by assesses. Hence by amendment brought by Finance Act 2002, long term capital loss was mandated to be allowed against long term capital gain only. However e losses from transfer of short-term capital assets were mandated to be set off against any capital gains, whether short term or long-term. GSB Capital Markets Ltd. [2016] 65 taxmann.com 178 (Mumbai - Trib.) DECEMBER 16, 2015

SLP granted against order of High Court wherein it was held that since dominant objective of ICAI was to regulate profession of Chartered Accountancy in India, it was a charitable institution and conduction of coaching classes and campus placements for a fee by it could not be held to be business, trade or commerce Institute of Chartered Accountants of India[2016] 65 taxmann.com 63 (SC) MAY 1, 2015

Section 206AA providing to apply 20% tax where PAN not furnished can not be applied on gross Salary payment. For computing income on which deduction to be made, exemption limit and deduction towards savings etc . to be reduced u/s 192 unlike other sections on TDS. Further, tax rate after deducting exemption limit and deductions may be 10% or 30% also in some cases. Hence 20% rate can not be applied in situations where 30% rate is applicable. Further tax can not be collected in cases where tax has been deposited by the employee. Rashtriya Ispat Nigam Ltd. JANUARY 22, 2016 [2016] 65 taxmann.com 292 (Visakhapatnam - Trib.)

Whether Trusts to provide information of previous accumulations older than five years also ?

New Rule 17 Inserted for Trust replacing old rule 17. As per New Rule 17, option form to apply trust income in the year of receipt or subsequent year without accumulating the income to filled in form 9A. Notice of accumulation u/s 11(2) for maximum five years in old Form 10 replaced by new Form 10. Both Form 9A and Form 10 to be filed electronically by Trust before due date u/s 139(1), either through digital signature or electronic verification code compulsorily. Form 10 to be used for 11(2) as well as for 10(21) i.e. research association.  Accumulation by educational institutions and medical institutions u/s 10(23C)(vi) though also limited to five years does not require any notice. It may further be noted that assessee trust is required in Form 9A to supply reasons for non application of income in cases where income derived has also actually been received but not applied. No such connotation is apparent from the provisions of the law. The law simply requires it to be applied next year in cases of actual receipt of income which is neither applied nor accumulated. Further new Form 10 allows one to provide different time limits of income accumulated for different purposes. Further while old Form 10 allowed period of six months from the end of previous year to invest in modes specified in 11(5), new form 10 requires investement/deposit in modes specified in 11(5) by the date of furnishing Form 10. However it may also be noted that as per clause (iia) to proviso to section 13(1)(d) period of one year from the end of previous year in which asset is acquired  is allowed for investment/ deposit in modes specified in 11(5). Further old Form 10 point no.3 required furnishing of accounts to provide information regarding utilization of accumulated funds, no such information required in new Form 10. However new Form10 also requires furnishing of information regarding all previous accumulations. Whether information older than five years also required is not clear ?. If so, it might prove a very onerous obligation cast especially on old trusts. – Notification dated 14-01-2016

Applicability of surcharge and cess to rates under DTAA

1.       Education Cess as per Finance Act 2004 is additional surcharge. Hence there is no difference between cess and surcharge

2.       Where DTAA specifically provides that taxes in India shall include surcharge, no separate cess or sucrcharge to be added to DTAA Rate like in case of UK.

3.       If provisions of DTAA are silent about cess and sucrcharge, still cess  and surcahrges not to be imposed over DTAA rates . Held by Cochin Tribunal in M Far Hotels [2013] 58 SOT 261

4.       Uttrakhand High Court decision in Arthusa Offshore Co.169 Taxman 484 [Uttrakhand] applicable to Indo US treaty where in it was provided that rate of tax to foreign companies shall not exceed by 15% from the tax rate applicable to domestic companies at the time of signing treaty. Since tax rate at the time of signing treaty was 50% and surcharge was 15%, AO Computed rate at 50%+15%= 57.5%+15= 72.5% but limited it to maximum rate of 65% under treaty. Assessee however computed rate by adding 15% to rate applicable for relevant assessment year thus computed it at 60%. In this context High Court held that surcharge shall be added to rate of tax.

5.       Sunil V. Motiani v. ITO (International Taxation) [2013] 59 SOT 37/33 taxmann.com 252 (Mum. - Trib. And Parke Davis & Co. LLC v. Asstt CIT [2014] 162 SOT 282/41 taxmann.com 193 (Mum. - Trib.) have also decided the issue in favor of assessee after considering Uttrakhand High Court

6.       As per DIC Asia Pacific Pte Ltd v. Asstt. DIT (International Taxation)[2012] 52 SOT 447/22 taxmann.com 310. Also surcharge and cess not to be added to DTAA rate

BOC Group Ltd[2015] 64 taxmann.com 386 (Kolkata - Trib.) NOVEMBER  30, 2015

Section 14A: Consolidating latest Judicial Developments

Ever since the advent of section 14A in the statute, it has evoked squall of controversy. While the purpose of the section was to compute taxable income by whisking away the expenses attributable to exempt income, the tax department always tried to use it for fetching some more fortunes. In this article attempt has been made to look into real objective of statutory provisions through latest judicial pronouncements.

The Tribunal held that capital gains from transfer of asset by Holding Company to its Wholly Owned Subsidiary which is exempt from tax under section 47(iv) of the Act is not ‘income’ as per section 2(24)(vi) of the Act and therefore cannot be included in computation of book profit for MAT purposes. Shivalik Venture Pvt Ltd v DCIT – 60 taxmann.com 314 (Mumbai – Trib)

The Tribunal held that surplus arising out of issue and subsequent repurchase and extinguishment of debentures at a lower price would not be taxable under section 41(1) of the Act as it was not on account of trading liability and also that it could not be considered as income under section 2(24) of the Act. Reliance Industries Ltd v ACIT – (2015) 45 CCH 0055 Mum Trib.

The Court held that Additional Finance Charges collected by the assessee on borrowers default in payment of EMIs was to be taxed on receipt basis and not accrual basis. It held that the test of real income is the chance or probability of realization and when there was uncertainty in the recovery of EMIs the recovery of the additional finance charge which was an additional burden was equally uncertain and to be taxed on receipt basis. CIT v Shriram Investments Ltd [Tax Case (Appeal) Nos 1222 & 1225 to 1228 of 2007] – TS-538-HC-2015 (MAD)

The Tribunal held that where the assessee was an ‘ESOP Trust’ created by settler-company for implementing its ESOP scheme the assessee was merely acting as ‘Special Purpose Vehicle’. Shares held by the assessee were in fiduciary capacity and assessee did not have absolute rights over those, so these shares could not be categorised as business assets. Thus, gain arising to assessee on transfer of shares to employees of settlor-company was to be treated as capital gain and not as business profits Mahindra & Mahindra Employees Stock Option Trust v Add CIT – [2015] 62 taxmann.com 390 (Mum – Trib)

The Apex Court held that ponds specially designed for rearing of prawns were to be treated as tools of the aqua culture business of the assessee and that depreciation was admissible on the ponds at the rate applicable to plant and machinery. ACIT v Victory Aqua Farm Ltd – (2015) 61 taxmann.com 166 (SC)