Enquiry would not be initiated against an assessee if any document of IDS declaration found during search or survey: CBDT [Read Circular]

In a recent Circular (No. 32 of 2016) of Central Board of Direct Taxes (CBDT), has clarified that wherever in the course of search under section 132 or survey operation under section 133A of Income-tax Act, 1961, any document is found as a proof for having already filed a declaration under the Scheme, including acknowledgement issued by the Income-tax Department for having filed a declaration, no enquiry would be made by the Income-tax Department in respect of sources of undisclosed income or investment in movable or immovable property declared in a valid declaration made in accordance with the provisions of the Scheme.

The Income Declaration Scheme, 2016 came into effect on 1st June, 2016.

The CBDT has already issued five sets of FAQs vide Circular Nos. 17, 24, 25,27 & 29 of 2016 addressing the doubts and concerns raised by the stakeholders.

Read the full text of the circular below.

No Jurisdiction to Dy. Director of Income Tax to file complaint for Contempt against Income Tax Officers: SC [Read Judgment]

In a recent ruling, the Supreme Court of India has held that, the Deputy Director of Income Tax (Investigation) is not competent to file criminal complaint for the contempt against the Income Tax Officers under section 195 of the Criminal Procedure Code.

The Supreme Court bench comprising of Justice P C Ghose and Justice Amitava Roy while quashing the complaint held that a complaint of above nature is illegal since the Deputy Director is not authorized by law.

In consequent to a search conducted in the residents of the appellants, their statements were recorded on oath under section 131 of the Act. Subsequently, the Deputy Director of Income Tax (Investigation)-I, Bhopal registered a complaint before the Chief Judicial Magistrate, Bhopal alleging that the statements given by the appellants before the ITOs were false and misleading, which constitutes offence under sections 109, 191, 193,196, 200, 420, 120B read with section 34 of the Indian Penal Code.

The Trial Court found that the proceedings initiated against the assessee are sufficient since the search proceedings undertaken by the authorities under Section 132 of the Act were deemed to be judicial proceedings in terms of Section 136 and it is apparent that the assessees had made false statements before the authorities.Against the said order, the appellants failed to secure relief from the High Court. Further, the matter was brought before the Supreme Court.

Referring to the various judicial pronouncements, the Court opined that, “there is thus no escape from the proposition that for a valid complaint under Section 195 of the Code, the mandate thereof has to be essentially abided and as is easily perceivable this is to prevent frivolous, speculative and unscrupulous allegations relating to judicial proceedings in any court, lest the process of law is abused and public time is wasted in avoidable litigation”.

While admitting the fact that the search proceedings are ‘judicial proceedings’ within the meaning of sections 193 and 196 and all the income tax authorities would be deemed to be a ‘civil court’for the purpose of section 195, the Court found that the main issue is regarding the competency of the Deputy Director of Income Tax (Investigation)-I, Bhopal, who is, according to the appellants, not an appellate authority who is empowered todecide appeals against the decisions of the ITO’s who conducted search in the instant case.

While accepting the contention of the appellants, the Court observed that “Section 195 of the Code read as a whole unambiguously impose restrictions in the matter of lodgement of complaint qua the offences as mentioned in sub-section (1)(b) thereof in particular and therefore as a corollary, any interpretation for identifying the court/authority/forum contemplated thereby to be competent has to be in furtherance of the restraint and not in casual relaxation thereof. Consequently, therefore the exposition of the provisions of the corresponding substantive law which designs the forums or authorities and confers original and appellant jurisdiction has also to be in aid of the underlying objectives of the restrictions stipulated. Any postulation incompatible with the restrictive connotations would be of mutilative bearing thereon and thus frustrate the purpose thereof, a consequence not approvable in law. To reiterate, Section 195 of the Code clearly carves out an exception to the otherwise conferred jurisdiction on a court under Section 190 to take cognizance of an offence on the basis of the complaints/information from the sources as enumerated therein.”

It is in this context, the Court also opined that, “the notification issued under Section 118 of the Act cannot be conceded an overriding effect over the scheme of the statute designating the appellate forums more particularly in absence of any order, circular, notification of any authority thereunder to that effect. The Deputy Director of Income Tax for that matter, as the framework of the Act would reveal, has not been acknowledged to be the appellate forum from any order or the decisionof the assessing officer/I.T.O., notwithstanding several other provisions with regard to conferment of various powers and assignments of duties on the said office. In the teeth of such mindful and unequivocal module of the Act, recognition of the Deputy Director of Income Tax to be a forum to whom an appeal would ordinarily lie from any decision or action of the assessing officer/income tax officer would not only be inferential but would also amount to unwarranted judicial legislation by extrinsic additions and doing violence to the language of the law framed. On the contrary, acceptance of the Deputy Commissioner (Appeals) as the forum to which an appeal would ordinarily lie from an order/decision of the assessing officer/I.T.O., would neither be inconsistent with nor repugnant to any other provision of the Act and certainly not incompatible with the legislative scheme thereof. Mere silence in Section 246 of the Act about any decision or order other than those enumerated in sub-section (1) thereof as appealable /decision to the Deputy Commissioner (Appeals), does not ipso fact spell legislative prohibition in that regard and in our comprehension instead signifies an affirmative dispensation.”

Based on the above findings, the two-judge bench set aside the impugned orders.

Read the full text of the Judgment below.

No exemption to ‘Cleaning Materials’ u/s 6(7)(b) of KVAT Act: Kerala HC [Read Judgment]

In a recent decision, the Kerala High Court observed that the exemption under section 6(7)(b) of the KVAT Act, 2003 is not available to ‘cleaning materials’ since they are not ‘consumables’ as per the provisions of the said section.The single bench held that, as per the said section, the exemption is available only to the consumable used by the developer or industrial unit or establishments situated in the Special Economic Zone for the purpose of setting up of the unit or use in the manufacture of other goods. Therefore, cleaning material used for the purpose of cleaning the building and other facilities, furniture etc cannot be treated for the above purpose. Hence no exemption is available to such products.

The petitioners are dealers in cleaning material, had claimed exemption from payment of tax on the turnover based on Form No.43 issued by the purchaser.The Department rejected the claim by holding that the said product is not covered under section 6(7)(b) of the KVAT Act.Consequently, the Department initiated penalty and assessment proceedings against the assessee. Being aggrieved, the assessee approached the High Court through Writ petition contending that penalty proceedings are not sustainable since there is no deliberate attempt to evade tax.

Before the High Court, the assessee submitted that the goods in question are exempted under section 6(7)(b) of the Act. Further, the purchasers who issued Form 43 to the assesse are from Special Economic Zoneand therefore, penalty proceedings cannot be initiated against the assessee even if the products are taxable.

Justice A.M Shaffique clarified that, the above products are not entitled to exemption since it is not covered under section 6(7)(b) of the Act.It was observed that “a close reading of the Statute would show that the consumable used by the developer or industrial unit or establishments situated in the Special Economic Zone should be for setting up of the unit or use in the manufacture of other goods. The cleaning material used for the purpose of cleaning the building and other facilities, furniture etc cannot be treated as a consumable used in relation to setting up of the unit or in the manufacture of other goods. Therefore, it is apparent from the Statute itself that the petitioner is not liable for any exemption. The Intelligence Officer had issued notice clearly indicating that the petitioner is not entitled for the exemption. The only ground taken by the petitioner is that Form No.43 has been submitted by the purchaser. It is stated in the impugned order at Exhibit P6 that even in Form No.43 submitted by the dealerit is clearly mentioned as house-keeping materials and house-keeping consumables. Therefore, the Officer had no doubt about the fact that exemption will not apply.”

Regarding the validiity of the penalty proceedings, it was observed that “Referring to the judgments cited by the petitioner would show that penalty was not directed to be imposed in such cases where there is any doubt regarding the liability to pay tax. That is not the situation here. This is an instance where a bare reading of Section 6(7)(b) would clearly indicate that the product supplied by the petitioner is liable to be taxed and no exemption can be claimed at all. That apart, as rightly contended by the learned Government Pleader, the petitioner did not raise any invoice showing the taxable component. If the petitioner had clearly indicated that it is taxable and the purchaser had issued Form No.43 it would have been a different situation. Therefore, this is an instance where the petitioner had acted deliberately in avoiding payment of tax knowing fully well that there is an obligation to pay tax on the said consumables. Under such circumstances, I do not think that any error had been committed by the Intelligence Officer in imposing penalty on the petitioner.”In view of the above findings, the impugned orders were sustained.

Read the full text of the Judgment below.

CBEC notifies exchange rate of Foreign Currency relating to Imported & Export Goods

In exercise of the powers conferred by Section 14 of the Customs Act, 1962 (52 of 1962), and in supersession of the notification of the Central Board of Excise and Customs No.112/2016-CUSTOMS (N.T.), dated 18^th August, 2016, except as respects things done or omitted to be done before such supersession, the Central Board of Excise and  Customs(CBEC)  hereby determines that the rate of exchange of conversion of each of the foreign currencies specified in Column (2) of each of Schedule I and  Schedule II annexed hereto, into Indian currency or vice versa, shall, with effect from 02^nd  September 2016, be the rate mentioned against it in the corresponding entry in Column (3) thereof, for the purpose of the said section, relating to imported and export goods.

SCHEDULE-I                            

 SCHEDULE-II 

Income from Development Right is not Taxable on Accrual basis: Delhi HC [Read Order]

While quashing the assessment order passed by the Commissioner of Income Tax, as per which the income from development rights were assessed to tax on accrual basis, the division bench of the Delhi High Court held that such income is not taxable on accrual basis.

The assessee-company, in the instant case, is engaged in the business of real estate development, entered into a development agreement with another company. Initially, the assessee received an interest free deposit. The Development agreement stipulates a condition that development rights of the land had to be given to the developer on a consideration of 2.10 crore per acre. The consideration, in terms with the said agreement, must be paid to the assessee within two years from the ‘effective date’ i.e, the date of completion of purchase of property including mutation in the name of the assesseein the revenue’s record.The Assessing Officer, completed assessment by assessing the income from development rightson accrual basis.

On appeal, both the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal set aside the order. Therefore, the matter was brought before the High Court to decide the legality of the order imposing tax onthe income from development rights.

The Court noticed the decision in Commissioner of Income Tax-XI vs. M/s DLF Commercial Project Corporation ITA, in which it was held that “the method adopted by the assessee of treating income as having accrued at the point of sale of development rights, upon acquisition of license described the transaction and that treating the amount received prior to that event could not be brought to tax as income.”

Following the above decision, the Court dismissed the appeals finding that no question of law arises for consideration.

Read the full text of the order below.

Arrest by DGCEI without SCN is unconstitutional; Delhi HC directs Tax dept to refund the Service Tax deposited by Makemytrip, Ibibo etc. [Read Judgment]

The division bench of Delhi High Court has quashed arrest of senior official of MakeMyTrip, Ibibo group and Ebiz for alleged service tax evasion and held that, Arrest by Directorate General of Central Excise Intelligence (DGCEI) without show cause notice is unconstitutional and legally unsustainable.

The Court also directed that, DGCEI to refund Rs. 70 crore to each of the Petitioners forthwith the respective amounts deposited by them towards alleged dues and in any event not later than four weeks from today. Any delay in refund beyond the said period will make the DGCEI liable to pay simple interest at 6 % per annum on the respective amounts from the date on which they became due in terms of this order till the date of payment.

The writ petitions was filed by MakemyTrip and Ibibi group operating on-line platforms/web portals raise important questions involving the powers of the Directorate General of Central Excise Intelligence (DGCEI) of arrest, investigation and assessment of service tax under the provisions of the Finance Act, 1994.

The bench comprising of Justice S Muralidhar and Justice Vibhu Bakhru held that, “the scheme of the provisions of the Finance Act 1994, do not permit the DGCEI or for that matter the Service Tax Department to by-pass the procedure as set out in Section 73A (3) and (4) of the Finane Act before going ahead with the arrest of a person under Sections 90 and 91 of the FA”.

“The power of arrest is to be used with great circumspection and not casually. It is not to be straightway presumed by the DGCEI, without following the procedure under Section 73A (3) and (4) of the Finance Act, that a person has collected service tax and retained such amount without depositing it to the credit of the Central Government”, the bench observed.

“Where an assessee has been regularly filing service tax returns which have been accepted by the Service Tax Department or which in any event have been examined by it, as in the case of the two Petitioners, without commencement of the process of adjudication of penalty under Section 83 A of the Finane Act, another agency like the DGCEI cannot without an Show Cause Notice (SCN) or enquiry straightway go ahead to make an arrest merely on the suspicion of evasion of service tax or failure to deposit service tax that has been collected”. Section 83 A of the FA which provides for adjudication of penalty provision mandates that there must be in the first place a determination that a person is “liable to a penalty”, which cannot happen till there is in the first place a determination in terms of Section 72 or 73 or 73 A of the FA”.

“The decision to arrest a person must not be taken on whimsical grounds; it must be based on credible material‘. The constitutional safeguards laid out in D K. Basu’s case (supra) in the context of the powers of police officers under the Cr PC and of officers of central excise, customs and enforcement directorates, are applicable to the exercise of powers under the FA in equal measure. An officer whether of the Central Excise department or another agency like the DGCEI, authorised to exercise powers under the CE Act and/or the FA will have to be conscious of the constitutional limitations on the exercise of such power”, the bench added.

“In terms of CBEC’s own procedures, for the launch of prosecution there has to be a determination that a person is a habitual offender. There is no such determination in any of these cases. There cannot be a habitual offender if there is no discussion by the DGCEI with the ST Department regarding the history of such Assessee. Assuming that, for whatever reasons, if the DGCEI does not talk to ST Department, certainly it needs to access the service tax record of such Assessee. Without even requisitioning that record, it could not have been possible for the DGCEI to arrive at a reasonable conclusion whether there was a deliberate attempt of evading payment of service tax. In the case of MMT, the decision to go in for the extreme step of arrest without issuing an SCN under Section 73 or 73A (3) of the FA, appears to be totally unwarranted”.

The Court has slammed and observed that, The DGCEI acted with undue haste and in a reckless manner. None of the safeguards were observed in the present case.

The Court also granted Liberty to the officials of MMT and IBIBO to institute appropriate proceedings in accordance with law against the officers of the DGCEI in which the supplementary affidavits filed in these proceedings and the replies thereto can be relied on.

The division bench also imposed costs of Rs. 1 lakh in each petition which will be paid by the DGCEI to each Petitioner within four weeks.

Read the full text of the Judgment below.

Odisha State Assembly ratifies GST Constitution Amendment Bill

Alleged threat by an assessee cannot justify denial of the benefit for waiver or reduction of interest: Kerala High Court [Read Judgment]

The single bench of the Kerala High Court, in a recent decision held that an application under section 220(2A) should be considered in a judicious manner and the allegation that there is a threat by assssee is not valid justification for denying the benefit for waiver or reduction of interest.

The petitioner, submitted an application under s.220(2A) of the Income Tax Act stating that he is entitled for the benefit of waiver or reduction of interest since he has fulfilled all the conditions specified in the said section.According to the petitioner, he had all along co-operated with all the proceedings of the Department and he is having genuine hardship to pay the amount due to the Department. It was also stated that the Department has attached the only property belong to the petitioner and therefore, he is not in a position to pay the principal amount unless the property attachedis sold.However, the petition has been rejected by the Commissioner alleging that the petitioner has not fulfilled the conditions prescribed in the said section.Being aggrieved, the petitioner challenged the notice issued to him on ground that the Commissioner has omitted to judiciously consider the reasons stated by the petitioner in the application.

It was submitted on behalf of the petitioner that the Commissioner has not considered the matter in accordance with law. The decision f the Apex Court in B.M.Malani vs. Commissioner of Income Tax and Another, was cited in support of their contentions.

While accepting the contentions of the petitioner, the single bench observed that “Having heard the learned counsel on either sides, I am of the view that, when the statutory authority has been given the discretion to consider whether any of the conditions specified under Section 220 (2A) has been complied with, it is for the said authority to take into consideration all the necessary materialswhich had been placed before it in the form of a representation aswell as documents and either to allow the same or to reject the same. On the basis of the facts made available, it has to be verified whether the imposition of interest causes genuine hardship to the assessee. It has also to be verified whether the default in payment of the amount was due to the circumstances beyond the control of the assessee and the assessee has cooperated with the enquiry. In Ext.P6, the Commissioner has observed that the petitioner had not complied with any of those conditions but apparently no reasons have been stated. As rightly contended by the learned counsel on behalf of the petitioner, the Hon’ble Supreme Court had clearly indicated that when an application is considered under Section 220(2A) it has to be considered in a judicious manner. The Commissioner in Ext.P6 stated that there is a threat by the assessee and waiver of interest cannot be done by threat. I do not think that the said reason alone would justify denial of the benefit of waiver or reduction of interest. The denial of reduction or waiver of interest has to be considered in the light of the statutory provisions as enumerated in Section 220(2A).”

In view of the above findings, the Court remanded the matter to the Commissioner with a direction to reconsider the matter afresh by complying with the provisions of the said section.

Read the full text of the Judgment below.

10% exemption granted for Air Passengers terminating in a Regional Connectivity Scheme Airport [Read Notification]

The Central Board of Excise and Customs (CBEC) has recently issued a notification granting 10% exemption to the services of transport of passengers, with or without accompanied belongings, by air, embarking from or terminating in a Regional Connectivity Scheme Airport. The present notification introduces an amendment in the earlier notification by introducing serial number 5A to the principal notification dated 20.06.2012.

As per the Notification, such exemption is subject to a condition that the service provider has not availed CENVAT credit on inputs, capital goods and input services used for providing the taxable services under the relevant provisions of the CENVAT Rules.

Earlier, the services of transport of passengers, with or without accompanied belongings, by air were given exemption through the Notification No. 26/2012 dated 20.06.2012. The quantum of exemption to such services was 40%.

Read the full text of the notification below.

CBDT extends due date for quarterly furnishing of Form 15G & 15H declarations [Read Notification]

The Central Board of Direct Taxes (CBDT) has extended the due date for quarterly furnishing of Form 15G and 15H declarations. Earlier, the Board has issued Notification dated 9.06.2016 prescribing the due date for quarterly furnishing of 15G and 15H received by payer.Various representations were received by the Board requesting extension of due date.

The due date as per the earlier notification with regard to Form 15G/H received during 1.10.2015 to 31.03.2016 was 30.06.2016, which is now extended to 31.10.2016.Accordingly, the due date for the declarations received from 1.04.2016 to 30.06.2016 and 1.07.2016 to 30.09.2016 is also extended to 31.10.2016 and 31.12.2016 respectively.

The Notification further clarifies that the due date for furnishing the 15G/H declarations for the 3^rd and 4^th quarter of financial year 2016-17 will remain the same as prescribed in the notification dated 9.06.2016.

Read the full text of the notification below.

CBDT issues circular streamlining the process of No Objection Certificate, Port Clearance Certificate etc.

The Central Board of Direct Taxes (CBDT) has issued a Circular bearing number 30/2016 on 26th August, 2016 for the purpose of streamlining the process of issue of No Objection Certificate (NOC), Port Clearance Certificate (PCC), Voyage Return and Voyage Assessment in case of Foreign Shipping Companies (FSCs). This prescribes guidelines for assessing officers to be followed for issue of said NOC leading to Port Clearance of ships belonging to foreign shipping companies. The assessment of voyage returns subsequently filed by the FSCs shall also be governed by the same.

The Circular has done away with the administrative requirement of obtaining a voyage NOC for foreign shipping companies entitled to 100% relief from payment of taxes in India on account of a Double Taxation Avoidance Agreement (DTAA) between India and the country to which the foreign shipping company belongs.

This Circular is another step by the CBDT towards further improving the ease of doing business in India for the foreign shipping companies.

President awards Tenzing Norgay National Award for Adventure 2015 to Debasish Biswas, Assistant Commissioner of Income Tax

Sri Debasish Biswas, Assistant Commissioner of Income Tax presently posted at Patna, was awarded the prestigious Tenzing Norgay National Award for Adventure – 2015 by the Honourable President of India Shri Pranab Mukherjee, at the Khel Ratna Awards Ceremony at Rashtrapati Bhavan on Monday, 29th August, 2016. The Tenzing Norgay National Adventure Award instituted by the Ministry of Youth Affairs & Sports is the highest award in the field of Adventure Sports given by the Indian Government.

Sri Biswas is the only Indian civilian to have climbed five of the nine peaks with height more than 8000 metres located in India & Nepal successfully. He has scaled the Mt. Everest in 2010, Mt. Kanchenjunga in 2011, Mt. Annapurna in 2012, Mt. Makalu in 2014 and Mt. Manaslu in 2015. He is also an active member of the West Bengal Mountain Rescue team and member of the Governing Body of the W.B. Mountaineering and Adventure Sports Foundation.

Sri Biswas is also a recipient of the Radanath Sikdar – Tenzing Norgey award – the highest honour in Adventure Sports by West Bengal Government; the Indian Mountaineering Foundation (IMF) Gold Medal 2015 and a Special Award from Central Revenue Sports and Cultural Board, New Delhi in 2016. He is also Director & Photographer of many films on mountaineering expeditions and has authored many books in Bengali on the subject. He has formed a group “Aarohan Wanderlust” to promote adventure among general people including aged persons and students and is a regular guest lecturer in various Schools, Colleges, Engineering Institutions, Clubs & Public gatherings in West Bengal, Assam, Bihar and Bangladesh.

The Income Tax Department congratulates Shri Debasish Biswas on the honour conferred on him and wishes him many more successful peaks.

Single Tax ID greatly facilitate the entrepreneurs with greater transparency & compliance: ASSOCHAM to UP Govt.

Improving ease of doing biz to positively impact employment generation even beyond UP’s borders.

Apex industry body ASSOCHAM has suggested the Uttar Pradesh (UP) government to improve the level and extent of digitisation of processes to ensure smooth operations in shorter timeframes which will minimise contact with government agencies and reduce scope for corruption.

“The UP government should conduct a detailed study using primary research methodologies to quantify total results of government initiatives in improving ease of doing business in the state,” suggested an ASSOCHAM-Thought Arbitrage Research Institute (TARI) study titled ‘Ease of doing business in Uttar Pradesh.’

“The administration should constantly monitor systems and processes of state machinery, revamp or discard outdated processes and set up new ones in keeping with modern business ethos,” recommended the study that was jointly released by ASSOCHAM secretary general, Mr D.S. Rawat and Ms Kshama Kaushik, director, TARI at a press conference in Lucknow today.

“UP being India’s most populous state, improving ease of doing business in the state will have a positive impact on employment even beyond its borders,” said Mr Rawat.

“Regulatory reforms and initiatives taken by UP government like setting up a single window system of Nivesh Mitra, online industrial grievance redressal mechanism, issuance of VAT registration certificate in a single day, e-stamping facility, self-certification for compliance with labour laws, e-sancharan system and others are steps in the right direction,” said Mr Rawat.

Uttar Pradesh holds enormous industrial potential, which is yet to be fully realised and considering that the state has set an average growth rate of 10 per cent in the gross state domestic product (GSDP) in the 12th Plan (2012-17), it needs to attract large scale investment in manufacturing, infrastructure and services sectors to generate more employment opportunities for its large working population.

“Improving regulatory framework for business is a key pre-requisite for increasing investment and thereby creating jobs, as such the role of state in ensuring ‘ease of doing business’ holds utmost importance for growth of manufacturing and services sector and generate employment,” suggested the ASSOCHAM-TARI study.

Though various industrial policies of the UP government provide concessions and incentives like stamp duty, entry tax exemptions, interest free loan, capital interest subsidy and others, however availing the same is often cumbersome and time taking involving many administrative processes and checks.

“The UP government may consider developing a standard checklist of documents and standard operating procedures (SOP) for entrepreneurs availing these incentives and publicise them through website and other channels to bring transparency and efficiency in processes,” recommended the study.

Besides, a clear timeframe may be established for completion of various process and granting approvals for availing these incentives.

ASSOCHAM has also suggested to integrate the system of providing incentives under industrial policies with single window system of Nivesh Mitra, where an entrepreneur can check application, make payments, track status of approvals and refunds/credits under schemes.

Considering that Nivesh Mitra does not facilitate entrepreneurs with a composite application form for all departments, the study has suggested the UP government to implement a composite application form.

Besides it should ensure that all no objection certificates (NOCs) required for setting up an industry in the state is received online and there is minimal manual intervention. It should also facilitate payment of fees of various departments online to get clearances.

The study has further suggested that single tax identification (ID) for an entrepreneur may be generated through the single window system of Nivesh Mitra for paying all taxes.

“Single tax ID will greatly facilitate the entrepreneurs with greater transparency and compliance who are subject to various taxes at a state level, including value added tax (VAT), central sales tax (CST), entry tax, entertainment tax and luxury tax,” it said.

Tax exempted income earned through Bank Advertisement cannot attribute expenditure: Delhi HC [Read Order]

On an appeal against the order of the ITAT, the Delhi High Court opined that the question of attributing any expenditure cannot arise if the tax exempted income was earned without the interference of any employee but rather through the solicitation and advertisement of the bank.

The assessee, in the instant case has filed return reporting exempt dividend income without claiming deduction towards the expenditure for earning that income. The assessing officer, as per section 14A read with Rule 8D of the Income Tax Rules added a sum of 1,21,805/- towards the taxable income on account of statutory disallowance. The assessee claimed that the methodology adopted and entire approach of the revenue is foul since the bulk of the tax exempted income was earned interest which was credited to the bank account and also with respect to the dividends earned went straight into the personal bank account without the interaction of any special personnel. The Revenue, on the other hand, defended the above contentions by stating that the assessee during the course of its business, engaged an accountant for the purpose of looking after the accounts and investments which yielded a sum of `10,87,898/-.

The Court noticed the decision in Taikisha Engineering Private Limited’s case, in which it was held that “section 14A (2) of the Act and rule 8D (1) in unison and affirmatively record that the computation or disallowance made by the assessee or claim that no expenditure was incurred toearn exempt income must be examined with reference to the accounts, and only and when the explanation/claim of the assessee is not satisfactory, computation under subrule (2) to rule 8D of the Rules is to be made.”

Following the above decision, the Court observed that “In the present case, we notice that the AO has not analysed objectively in terms of the decision in Shah. It was firstly incumbent upon him to in fact examine the accounts closely and determine if at all any expenditure could be ascribed to the tax exempt dividend/interest earned by the assessee. If indeed the tax exempted income was earned without the interference of any employee but rather through the solicitation and advertisement of the bank the question of attributing any expenditure cannot arise at all.”

While concluding the Court opted to remand the matter to Assessing Officer with a direction to consider the matter afresh The Court further directed the AO to reconsider the matter according to the decision in Taikisha Engineering Private Limited’s case.

Read the full text of the order below.

Goa assembly ratifies GST Constitutional Amendment Bill

CBDT issues closure of financial accounts under Rule 114H (8) of the Income-Tax Rules

The Inter-Governmental Agreement (IGA) with USA for implementation of FATCA entered into force on 31st August, 2015. Under the alternative procedure provided in Rule 114H(8) of the Income-tax Rules, 1962, the financial institutions need to obtain the self-certification and carry-out due diligence procedure to determine the reasonableness of the self-certification in respect of all individual and entity accounts opened from 1st July, 2014 to 31st August, 2015. Such self-certification and documentation is required to be obtained by the financial institutions by 31st August, 2016, otherwise they are required to close the accounts and report the same if found to be a “reportable account” as per the prescribed due diligence procedure for pre-existing account.

Stakeholders have highlighted several difficulties in following the provision for “closure” of financial accounts. In view of the same, India and the United States are discussing the alternative procedures under paragraph G of Section VI of Annex I with a view towards adjusting them to permit a few month extension of time for completing the due diligence and not requiring account closure within one year of entry into force of the agreement (i.e., August 31, 2016).

For providing immediate relief to the account holders and in wider public interest, it has been decided that, the financial institutions may not close the accounts by 31st August 2016 in respect of which self-certifications have not been obtained under the alternative procedure. The revised timelines for completing due diligence in respect of such accounts shall be notified in due course. In the interim, the financial institutions should continue to work on completing the required due diligence, including obtaining self-certifications.

Cabinet approves grant of Permanent Residency Status to Foreign Investors

The Union Cabinet under the Chairmanship of Prime Minister Shri Narendra Modi has approved the scheme for grant of Permanent Residency Status (PRS) to foreign investors subject to the relevant conditions as specified in the FDI Policy notified by the Government from time to time.

The scheme is expected to encourage foreign investment in India and facilitate Make in India Programme. Under the Scheme, suitable provisions will be incorporated in the Visa Manual to provide for the grant of PRS to foreign investors.

The PRS will be granted for a period of 10 years with multiple entry. This can be reviewed for another 10 years if the PRS holder has not come to adverse notice. The scheme will be applicable only to foreign investors fulfilling the prescribed eligibility conditions, his/her spouse and dependents. In order to avail this scheme, the foreign investor will have to invest a minimum of Rs. 10 crores to be brought within 18 months or Rs.25 crores to be brought within 36 months. Further, the foreign investment should result in generating employment to at least 20 resident Indians every financial year.

Permanent Residency Status will be granted for a period of 10 years initially with multiple entry facility, which can be renewed for another 10 years. PRS will serve as a multiple entry visa without any stay stipulation and PRS holders will be exempted from the registration requirements. PRS holders will be allowed to purchase one residential property for dwelling purpose. The spouse/ dependents of the PRS holder will be allowed to take up employment in private sector (in relaxation to salary stipulations for Employment Visa) and undertake studies in India.

Benefit of Deduction u/s 80HHC not applicable to Loss/Negative profits: Gujarat High Court [Read Judgment]

The division bench of the Gujarat High Court, recently held that the benefit of deduction under section 80HHC of the Income Tax Act cannot be allowed in case of loss or negative profits.

The Court has relied upon the decision laid by the Apex Court while holding so. The highlights of the judgment are below.

In the instant case, the Revenue raised the following substantial questions before the High Court against the order of the Appellate Tribunal in which it was held that the deduction under section 80HHC of the Income Tax Act is allowable though there was negative profit.

According to the Tribunal, the net interest or gross interest should be considered while computing deduction under Section 80 HHC of the Income Tax Act. The Tribunal, also held that the interest income must be included in the eligible profits for computing the deduction u/S.80HH & 80IA of the Income Tax Act of 1961 is justifiable though there is no immediate and direct nexus with the industrial activities of the assessee.

The bench comprising Justice K S Jhaveri and Justice G R Udhwani, regarding the first question of law held that, the deduction u/S.80HHC of the Income Tax Act, cannot be permitted in case of loss or negative profit. The Court relied upon the decision of the Supreme Court in IPCA Laboratory Ltd. case and decided in favour of the Revenue.

Regarding the second question, i.e., whether the net interest or gross interest should be considered while computing deduction under Section 80 HHC of the Act, the Court opined that, the question is squarely covered by the decision in ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income-Tax,. Following the said decision, the Court confirmed the order of the ITAT by observing that the Tribunal was right in law and on facts in holding that net interest should be considered instead of gross interest while computing the deduction u/s.80HHC of the Act.

The third issue was in connection with the inclusion of the interest income in the eligible profits for computing the deduction u/S.80HH & 80IA of the Act. The Court found that the said issue resolved by the Supreme Court in Pandian Chemicals Ltd. v. Commissioner of Income Tax and the Gujarat High Court inCommissioner of Income Tax v. Gaskets and Radiators Distributors. In view of these decisions, the Court held that the order of ITAT is not justifiable since the same has no immediate and direct nexus with the industrial activities of the assessee.

Read the full text of the Judgment below.

Definition of the term ‘Permanent Establishment’ under DTAA need not be read with the provisions of Income Tax Act: SC

The Term ‘Permanent Establishment” as per the India-US DTAA does not include installations and structures ‘ready to use’: says Supreme Court.

The two-judge bench of the Supreme Court in a recent decision held that, as per the definition of the term “permanent establishment” under the Double Taxation Avoidance Agreement (DTAA) between India and US do not require any further explanation.

The bench comprising of Justice Anil R Dave and Justice L Nageswara Rao, while confirming the order of the Uttarakhand High Court and the ITAT in which it was held that the term “permanent establishment” as defined in the said DTAA does not include installations and structures for exploration or exploitation of natural resources ‘ready to use’.

Coming to the facts of the case, the assessee brought in a rig which was operated on account of its clients in India. According to the assessee, the same were remained unused during the dates as furnished by the assessee on account of maintenance and repair. The Assessing Officer held that the income arising out of the contract is taxable in the hands of the assessee as per the relevant provisions of the Double Taxation Avoidance Agreement between India and US. He observed that, as per Article 5(2) (j) of the DTAA, the term ‘permanent establishment’ is defined as “an installation or structure used for the exploration or exploitation of natural resources, but only if so used for a period of more than 120 days in any twelve calendar month period;”. According to him, the meaning of the term “used” can be culled out from the Income Tax Act, 1961, which includes ‘ready for use’ and felt that even during the time of repair and maintenance, the rig was lying ready for use and the said rig was having been used for more than 120 days during the relevant assessment years. Accordingly, he passed an order stating that the assessee has a PE in India and therefore, its income is taxable.

On appeal, the Appellate Tribunal set aside the orders of the assessing authority and the First Appellate Authority by holding that the term “used” as defined in the Agreement do not require further explanation. The Tribunal clarified that the DTAA meant user of installation and structure for exploration or exploitation of natural resources and not merely being ready for use.

The matter was brought before the High Court raising an issue that whether the assessee had a permanent establishment in India during the relevant assessment years.While concluding, the High Court confirmed the order of the Appellate Tribunal.

The Revenue challenged the above order in a Special Leave Petition, in which the Apex Court also dismissed the same by holding that the Court do not find any merit in the appeal.

Read the full text of order below.

Failure to serve Reference upon the respondent implies the non-interest of applicant in persuing the same: Bombay HC [Read Order]

The division bench of the Bombay High Court has recently refused to entertain a Reference by holding that the failure on part of the applicant to serve Reference upon the respondent as required under Rule 658 of the Bombay High Court Rules, means that the applicant is not interested in persuing the same.

The Rule 658 of the Bombay High Court (Original Side) Rules states that the party at whose instance a Reference has been made to this Court is required to take all such steps as are necessary to have a notice issued and served upon the opposite party within two months from the receipt of notice of the Reference from the High Court.In the instant case, the Reference was made before the High Court under Section 256(1)of the Income Tax Act, 1961 by the Income Tax Appellate Tribunal, seeking the opinion of the Court on the questions of law framed by it.The assessee maintained that he is not in a possession of evidence to show that the Reference has been served upon the Revenue.

While rejecting the same, the Court observed that “In view of the fact that the applicant-assessee has no evidence of having served the Reference upon the Respondent-Revenue, we are not inclined to examine the questions of law as raised for our opinion at the instance of the applicant-assessee. Mr. Ravi Rattesar states that he has now served the Respondent-Revenue and would request that the Reference be taken up for disposal. This Reference pertains to the year 2000 relating to A.Y. 198586. This non-compliance with the requirement of service for over sixteen years is itself an indication of the applicant not being serious about pursuing this Reference. Thus we decline to extend time. In the above view, the Reference is returned unanswered.”

Read the order here.

Service Tax billed on rendering of Service is not ‘trading receipts’, not subject to Income Tax: Bombay HC [Read Judgment]

The division bench of the Bombay High Court, in a recent decision held that the income earned from service tax billed on rendering of service is not subject to income tax since the same does not constitute “trading receipts” within the meaning of section 145A(a)(ii) of the Income Tax Act, 1961.

Earlier, the Income Tax Appellate Tribunal had held that the same is not “trading receipt” as per the said section.

The assessee, in the instant case is engaged in the business of real estate consultancy / agency and property management services, filed its return for the relevant assessment years. The Assessing Officer completed assessment by including the service tax billed by the assessee for rendering services to the service receivers. According the Assessing Officer, the same amounts to trading receipts as per the provisions of Section 145A(ii) of the Act. The Assessing officer also invoked Section 43B of the Income Tax Act on the ground that the billed amount of service tax had not been paid over to the Government till the due date of filing the return. Further, the officer treated the receivable service tax as a part of the consideration for the services rendered.

On appeal, the Commissioner of Income Tax (Appeals) confirmed the said order by holding that Section 145A(a)(ii) of the Act would apply in the instant case as it is not restricted only to manufacturing and trading companies. It was further held that the service tax stands on the same footing as excise duties, sales tax and other taxes, which are collected to be paid over to the Government and therefore, invoking section 43B of the Income Tax Act was also held as sustainable.

The Tribunal, on appeal, set aside the orders by observing that Section 145A(a)(ii) of the Act would have no application in respect of the service tax billed on rendering of services since it deals with goods, not services. The Tribunal also rejected the application of section 43B on ground that, in the instant case, no liability to pay the same to the Government arose before the last date of filing of the Returns and further, the assessee had not claimed deduction in respect of the said amount while filing returns. Being aggrieved by the said order, the Revenue preferred an appeal before the High Court.

Regarding the issue of applicability of section 145A, the Court observed that “it is very clear from the reading of Section 145A(a)(ii) of the Act that it only covers cases where the amount of tax, duty, cess or fee is actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation.In this case, the respondent-assessee is rendering services. Thus, on the plain reading of Section145A(a)(ii) of the Act, it is self evident that the same would not apply to the service tax billed on rendering of services. This is so as the service tax billed has no relation to any goods nor does it have anything to do with bringing the goods to a particular location”.

The division bench comprising of Justice M S Sanklecha and Justice A K Menon while confirming the orders of the Appellate Tribunal, the Court further held that section 43B is not applicable to the instant case since the assessee had not claimed any deduction on account of the service tax payable in order to determine its taxable income.

Read the full text of the Judgment below.