A FICCI delegation led by Mr. Harsh Mariwala, Past President, FICCI and Chairman of the FICCI’s Task Force on GST, met the Empowered Committee of State Finance Ministers today morning to discuss GST related matters. The delegation included Mr. S. Madhavan, Co-Chair of the FICCI’s Task Force on GST and Mr. Rajeev Dimri, Co-Chair of the FICCI’s Taxation Committee. Some of the important submissions made by FICCI before the Committee are summarised as follows:-
1) Approach to Classification of Goods for Applying Rates of GST
As per current indications and newspaper reports, goods will be categorised as being subject to merit rates (12%), standard rates (18%) and de-merit rates (40%). Certain goods will be exempt from GST while bullion and jewellery would be charged to 1% / 2%.
FICCI has recommended that the following objective criteria be adopted by which goods can be covered in different rate categories:-
As regards the rates to be adopted, these will depend upon the size of the baskets comprising the exempted goods and the merit goods. However, with a view to check inflation, ensure compliance and check the tendency to evade taxes, FICCI suggests that the merit rate should be lower and the standard rate should be reasonable. It has been further recommended that the rate of GST applied to services should be the same as the standard rate. Moreover, the rates for nationwide services such as telecom, banking and ecommerce sectors should be uniform across all states.
2) Continuation of Certain Existing Exemptions
Clarity on the current exemption schemes (area based exemptions, incentives under State policies) is required because the transition provisions prescribed under the draft law do not provide for the treatment of the said exemptions / incentives. The existing model of tax exemption and other fiscal and financial incentives allows such units to compete with the other units situated in developed areas. FICCI has requested that certain existing exemptions such as the area based exemptions under the excise legislation and incentives under the State Industrial policies should be converted into an effective, non-discretionary tax refund mechanism. Such a tax refund scheme should not disrupt the input credit chain either.
3) Implementation Schedule
In order to provide adequate time to the trade and industry to prepare itself for a hassle free roll out of the GST regime, FICCI has proposed that a minimum of 6 months’ time from the date of the adoption of the GST Law by the GST Council should be permitted. Additional time would be required in case the GST Law as passed by the Parliament or the State legislatures is significantly different from the one adopted by the GST Council.
4) Administration of the GST
As per present indications, there will be two separate authorities for administering the GST, one of the Central Government for the CGST / IGST and the other of the States for the SGST. Further, the draft Model GST Law contains separate and disparate provisions relating to administering the above levies by these authorities. FICCI has made the point that the GST is a path breaking tax reform and the opportunity it therefore provides for a thorough overhaul of the tax administration should not be missed. Consequently, FICCI strongly recommends that the GST be administered by one authority alone and not by two. This would mean that the assessment / audit / adjudication related processes should be administered by one designated authority. Should this suggestion be not deemed feasible for implementation for the time being, FICCI would strongly urge that at the very least, the provisions related to assessments, adjudication orders, appellate and review processes and similar administrative matters be uniform across the CGST / IGST / SGST laws and that on no account should an assessee be subject to differentiated and variable administrative processes across these taxes. Further, the laws should provide mechanisms for ensuring a uniform and consistent interpretation of all relevant provisions across these taxes, including on classification of goods and services and, consequently on the applicable GST rates themselves.
5) Non-Adversarial Tax Regime
Given the stated intent of the Government to bring about a taxpayer friendly tax administration, with a non-adversarial relationship between the taxpayer and the tax authorities, it was hoped that the draft Model GST Law would contain path breaking provisions to bring about this desired outcome, couched in language which would further this objective. Instead, the Model Law has incorporated the extant provisions of the present Central Excise law at the Centre as also the present VAT laws of the States besides also containing several provisions which are even more rigorous than at present and worded in stringent language, such as the presumption of guilt and wrongdoing on the part of the taxpayer, in various situations which are enumerated in the Model Law. The Model Law has also conspicuously failed to incorporate a tax payer rights charter. FICCI has urged that a comprehensive redrafting of the Model Law be done in order that the GST law that will come into force with the advent of the tax is indeed a model one, in ushering in a more equitable and balanced tax administration and regime.
6) Centralized Registration for Nationwide Service Providers
The proposed legislation requires a service provider operating in various states to obtain registration in each state. This will increase the compliance burden of taxpayers manifold considering that each taxpayer will have to file three returns per month and an annual return for each registration. Business entities will be engaged only in filing returns rather than concentrating on their business. FICCI has requested that given the robust automation backbone of the GST Network, centralised single registration be introduced for service companies (such as banking, telecom, insurance). They should be permitted to file a single return covering all their transactions in their state of incorporation. The return will contain all data necessary to segregate value of services and state-wise payment of taxes for each state. The scrutiny and audit of their accounts should be carried out by a single designated authority. This recommendation does not however imply a break in tax credit chain.
7) Intra entity transfer of services
FICCI has requested that supply of service within the same legal entity from one vertical or division or office to another for use / consumption in the same legal entity should not be made liable to GST. Collective performance of services by multiple branches/ offices cannot be treated as supplies between branches inter-se. It will result in taxing artificial transactions and not economic transactions. Legally and economically there cannot be any transaction with oneself and moreover taxing such transactions would impose huge administrative burden on the entities by way of identifying such transactions and determining their value on notional basis.
8) Doing away with requirement of way bills/documents for movement of goods
In the draft GST law, wide powers have been given to Central/State Governments to prescribe transport documents for transportation of goods. Standardization in requirement of transport documents (such as consignment note, lorry receipt, delivery challan, GRN etc.) should be aimed under GST across all the States. No specific document should be required for inter-state movement of goods. Since transaction level details are provided in the GST returns, there should be no further requirement for entry/ exit documentation.
9) Valuation principles should not go beyond transaction value
Valuation provisions under the draft GST laws are reflection of valuation laws of a single point tax like excise duty. Wide powers have been given under the draft GST laws to authorities to reject declared transaction value. The valuation provisions under GST (a transaction based tax) should give primacy to actual transaction value. Extending the scope of valuation rules would go beyond the concept of ‘tax on consideration’. FICCI has accordingly requested for reconsideration of the valuation provisions under the model GST laws. It is to be noted that unlike the single point excise duty where there was no set off, input tax credit will be available in the GST regime.
10) Mismatch of Input Tax Credit
The manner of resolving the mismatch between the details of outward and inward supplies uploaded on the GST Network (GSTN) is unfair to the recipients of such supplies. The draft provides that a buyer shall not be entitled to claim an input tax credit (ITC) unless the tax charged in respect of such supply has been paid by the seller. Shifting the onus on the buyer to check whether the seller has paid goods and service tax (GST) is the most onerous provisions in the draft Model GST Law. FICCI has represented that the recipient of goods and supplies should be eligible to take credit on the strength of supplier’s valid invoices and if there is any default relating to such supplies, the consequences / onus should be on the supplier and not on the recipient of goods and services. As a principle, once non-compliance is detected, it is the responsibility of the Tax Administration to proceed against non-compliant entities. This responsibility should not be fastened on the recipients.
FICCI’s submissions to the Central Government and the Empowered Committee of State Finance Ministers can be accessed here.
According to recent ‘FICCI Survey on Inverted Duty Structure in Indian Manufacturing Sector’, a number of manufacturing sub-sectors continue to face inverted customs duty structure that is eroding their competitiveness against lower-duty finished product imports and discouraging domestic value addition.
In its report, FICCI said that various products spread across six manufacturing sectors have reported duty inversion, i.e. the import duty applicable on the finished product is lower than the import duty on the raw material or intermediate product. These sectors include capital goods (like boilers, pressure vessels, etc.), cement, electronics and electricals, rubber products (including tyres), minerals and textiles.
The Report, has been submitted to the concerned authorities, including Tariff Commission and Department of Industrial Policy and Promotion (DIPP) for necessary action, said FICCI. FICCI delegation of industry members has had several meetings with Tariff Commission and submitted detailed data required for carrying out valuation studies for different sectors.
Read the full text of the report below.
The Union Finance Minister, Shri Arun Jaitley said that Indo-US trade will get a boost due to business to business, business to Government and Government to Government interaction between the two countries. The Finance Minister said that foreign investment is important for India in order to have larger investment in infrastructure sector. Shri Jaitley said that the Government will now focus on increasing the banks’ ability to support growth. The Finance Minister was speaking when the members of the visiting US CEOs Forum called on him in his office here today. The Finance Minister further said that enabling Constitution Amendment Bill relating to Goods and Service Tax (GST) has been recently approved unanimously by both the Houses of Parliament. Besides it, the Bankruptcy Code has also been approved. The Finance Minister said that all these legislations along with different structural reforms made by the Government in the last two years will help in boosting the growth and the overall development of the country.
The members of the US CEOs Forum included Mr. Jim Taiclet, Chairman, President and CEO, American Tower Corporation (ATC), Mr. Douglas L. Peterson, Chief Executive Officer and President of S&P Global Inc. (formerly McGraw Hill Financial, Inc.), Dr. Paul E. Jacobs, Executive Chairman and Chairman, Qualcomm Incorporated, Mr. Eric Alexander, Head of Business, Uber APAC, Dr. Mukesh Aghi, President, US-India Business Council (USIBC) and Ms. Nivedita Mehra, Country Director – India-USIBC Mr. Sanjay Bhatnagar, President and CEO, Water Health International, Mr. Dinesh Paliwal, Chairman, President and CEO, Harman International, Mr. Amit Agarwal, Vice President and Country Head, Amazon India, among others.
The Central Board of Direct Taxes (CBDT) entered into twenty (20) Unilateral Advance Pricing Agreements (APAs) yesterday and today, i.e., 29th August, 2016 and 30th August, 2016, with Indian taxpayers. Many of these agreements also have a “Rollback” provision in them.
The APA Scheme was introduced in the Income-tax Act in 2012 and the Rollback provisions were introduced in 2014. The scheme endeavours to provide certainty to taxpayers in the domain of transfer pricing by specifying the methods of pricing and determining the arm’s length price of international transactions in advance for the maximum of five future years. Further, the taxpayer has the option to rollback the APA for four preceding years. Since its inception, the APA scheme has attracted tremendous interest among Multi National Enterprises (MNEs) and that has resulted in more than 700 applications (both unilateral and bilateral) having been filed in just four years.
The 20 APAs signed in these two days pertain to various sectors of the economy like Information Technology, Banking & Finance, Insurance, Human Resources, Pharmaceutical, Solar Energy, Oil & Gas, Foods & Beverages, Telecommunications and NGO. The international transactions covered in these agreements include Software Development Services, IT enabled services, Investment Advisory Services, KPO services, Contract manufacture, Contract R&D services, Import of components, Support services, Export of goods, Management services, Brand Royalty, Technical services, Engineering design services, Selling & Marketing services, Network operation & maintenance services, General & Administration services, HR consultancy services, etc.
With these signings, the total number of APAs entered into by the CBDT has reached 98. This includes 4 bilateral APAs and 94 unilateral APAs. A total of 33 unilateral APAs and 1 bilateral APA have already been concluded in five months of the current Financial Year as against 55 in Financial Year 2015-16. The CBDT expects more APAs to be concluded and signed in the near future.
The progress of the APA Scheme strengthens the Government’s commitment to foster a non-adversarial tax regime. The approach and functioning of the officers in the APA teams have been appreciated and acknowledged by the industry in India and abroad.
The division bench of the Supreme Court in a recent decision observed that a manufacturer/dealer, in order to claim refund under section 11B of the Excise Act, 1942 has to prove that the incidence of duty has not been passed to another person.
The Court further opined that in case of any difficulty in identifying the person who actually borne the burden, the amount of refund claimed shall be given to the Consumer Welfare Fund as per the provisions of section 12D of the Act. The Court was considering a number of appeals challenging the orders of the various High Courts on deciding the claim of refund of excise duty by various manufactures/dealers under the Excise Act.
Coming to the relevant facts of the case, the assesse filed a refund application under section 11B of the Excise Act, which was subsequently rejected by the Department. On appeal, the Customs Excise and Service Tax Appellate Tribunal held that the assessee is entitled to refund under section 11B of the Central Excise Act only if he had not passed on the duty burden to his buyers. It was also held that the buyer in turn, would be entitled to claim refund only if he has not passed on the incidence of duty to any other person. The Tribunal clarified that the event which gives rise to cause of action for refund is payment of duty made in respect of goods cleared from the factory and once the duty burden has been passed on to the buyer at the time of clearance, issuance of credit note at a later point of time would not entitle the Assessee to claim any refund.
In an appeal filed against the above order of the CESTAT, the Madras High Court held that the refund towards deduction of turnover discount cannot be denied on the ground that there was no evidence to show who is the ultimate consumer of the product and as to whether the ultimate consumer had borne the burden of the duty. According to the High Court, Section 11-B of the Act cannot be construed as having reference to the ultimate Consumer and it would be sufficient for the claimant to show that he did not pass on the burden of duty to any other person. It was further held by the High Court that the claim for refund made by the manufacturer is not dependent on the identification of the ultimate consumer. The word ‘buyer’used in Section 12-B of the Excise Act does not refer to ultimate consumer and has reference only to the person who buys the goods from the person who has paid duty i.e. the manufacturer. Aggrieved by the High Court order, the Revenue approached the Supreme Court for relief.
The sine qua non for a claim for refund as contemplated in Section 11-B of the Act is that the claimant has to establish that the amount of duty of excise in relation to which such refund is claimed was paid by him and that the incidence of such duty has not been passed on by him to any other person.
The division bench comprising of Justices Anil R Dave, Amitava Roy and L Nageswara Rao found that “A plain reading of Clauses (d), (e) and (f) of the proviso to Section 11-B (2) shows that refund to be made to an applicant should be relatable only to the duty of excise paid by the three categories of persons mentioned therein i.e. the manufacturer, the buyer and a class of applicants notified by the Central Government.”
The Court noticed the decision of the larger bench of the same Court in Mafatlal Industries Vs. Union of India, in which it was that a consumer can make an application for refund.Relying on the above judgment, the Court held that The word ‘Section 11-B (2)(e) of the Act cannot be restricted to the first buyer from the manufacturer.
Regarding the question that upon whom the ultimate burden of excise duty lies, the Court observed that “It might be difficult to identify who had actually borne the burden but such verification would definitely assist the Revenue in finding out whether the manufacturer or buyer who makes an application for refund are being unjustly enriched.If it is not possible to identify the person/persons who have borne the duty, the amount of excise duty collected in excess will remain in the fund which will be utilized for the benefit of the consumers as provided in Section 12-D.”
In view of the above findings, the Court set aside the order of the High Court and held that the Assessee is not entitled to refund as it would result in unjust enrichment.
Read the full text of the Judgment below.
The Protocol for amendment of the Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains between India and Mauritius was signed by both countries on 10th May, 2016. After completion of internal procedures by both countries, the Protocol entered into force in India on 19th July, 2016 and has been notified in the Official Gazette on 11th August, 2016.
The Protocol provides for source-based taxation of capital gains arising from alienation of shares acquired on or after 1st April, 2017 in a company resident in India with effect from financial year 2017-18. Simultaneously, investments made before 1st April, 2017 have been grandfathered and will not be subject to capital gains taxation in India. Where such capital gains arise during the transition period from 1st April, 2017 to 31st March, 2019, the tax rate will be limited to 50% of the domestic tax rate of India. Taxation in India at full domestic tax rate will take place from financial year 2019-20 onwards.
The benefit of 50% reduction in tax rate during the transition period shall be subject to the Limitation of Benefits Article, whereby a resident of Mauritius (including a shell / conduit company) will not be entitled to benefit of 50% reduction in tax rate, if it fails the main purpose test and bonafide business test. A resident is deemed to be a shell / conduit company, if its total expenditure on operations in Mauritius is less than Rs. 2,700,000 (Mauritian Rupees 1,500,000) in the immediately preceding 12 months.
The Protocol further provides for source-based taxation of interest income of banks, whereby interest arising in India to Mauritian resident banks will be subject to withholding tax in India at the rate of 7.5% in respect of debt claims or loans made after 31st March, 2017. However, interest income of Mauritian resident banks in respect of debt-claims existing on or before 31st March, 2017 shall be exempt from tax in India as per existing provisions in the Convention.
The Protocol also provides for updating of the Exchange of Information Article as per the international standard, provision for assistance in collection of taxes, source-based taxation of other income, amongst other changes.
The Protocol will tackle treaty abuse and round tripping of funds attributed to the India-Mauritius treaty, curb revenue loss, prevent double non-taxation, streamline the flow of investment and stimulate the flow of exchange of information between the two Contracting Parties. It will improve transparency in tax matters and will help curb tax evasion and tax avoidance.
The Central Board of Excise and Customs has recently issued guidelines prescribing distance to be maintained between hazardous cargo including explosives and general cargo or administrative building in a customs area. As per the circular, the explosive goods must be considered separately among the various hazardous goods imported or exported.
Earlier, the Board has issued Circular No. 4/2011-Cus dt. 10.01.2011 which contains detailed guidelines regarding safety and security of premises where imported/exported goods are loaded, uloaded, handled or stored.
The Circular provided that the goods of hazardous nature must be stored in approved premises of the customs cargo service provider subject to the conditions mentioned in the said circular and relevant rules. The Circular further provided guidelines for construction of the space allocated for hazardous goods.
The above circular was challenged before the High Court of Bombay in a writ petition filed by M/s CFS Association of India, in which the Court refused to verify the legality of the circular issued by the Board.
Following the High Court decision, a Joint Technical committee was constituted comprising of members from the Ministry of Environment and Forest, Ministry of Shipping, CBEC, port Trust etc. with an object to give recommendations distance to be maintained between hazardous cargo including explosives and general cargo or administrative building in a customs area. the recommendations have been accepted by the CBEC and had decided to bring necessary amendments to the Circular No. 4/2011-Cus dt. 10.01.2011. The said circular is issued by the Board in pursuance to the recommendations of the said committee to amend the earlier circular.
Read the full text of the circular here.
The Mumbai bench of the Income Tax Appellate Tribunal, in a recent case ruled that, the registration u/s 12A cannot be denied to a Trust with both charitable and religious objects under section 12AA(1)(b)(ii) read with section 12A of the Income Tax Act, 1961.
The assessee-trust, in the instant case has filed an application for registration under section 12A of the Income Tax. The DIT(E) rejected the application on various grounds. One of the ground pointed out by the DIT(E) was that the trust deed of the applicant has religious objects amoung its charitable objects. The matter was brought before the Appellate Tribunal on appeal.
The Appellate Tribunal noted that in the case of CIT vs. Dawoodi Bohra Jamat, it was held that when the objects of the assessee are not indicating of a wholly religious purpose but are collectively indicative of both charitable and religious purposes, exemption cannot be denied. Therefore, registration cannot be denied to the trust on the above ground.
The Tribunal further noted the decision in Seervi Samaj Tambaram Trust, in which the Madras High Court observed that registration under section 12AA can be granted to the trust with both charitable and religious objects and that the trust is entitled for registration under section 12AA when activities were not started by the trust. The Tribunal opined the above decision is squarely applicable to the instant case.
In view of the above findings, the Appellate Tribunal directed the DIT(E) to grant exemption to the applicant.
Read the full text of the order below.
The Mumbai bench of the Income Tax Appellate tribunal, in a recent ruling, held that under section 251(2) of the Income Tax Act, 1961, the First Appellate Authority is empowered to enhance the income of the assessee while concluding the appellate proceedings.The Tribunal opined that such an action does not require a formal notice under the said section. Therefore, the order enhancing the income of the assessee by the FAA without a formal notice is valid under the said section.
The assessee is a company engaged in the business of share-broking, filed its return of Income declaring total at Nil. However, the Assessing Officer, completed assessment by disallowing the claim of the assessee towards Long Term Capital Losson ground that the claim is not genuine since the assessee has not submitted the required documents in time.
On appeal, the Commissioner of Income Tax (Appeals), enhanced the income of the assessee by observing that “the assessee had failed to establish the genuineness of the loss claimed in respect of the shares of TCLL,that it was not only the question of cost of shares,that the genuineness of the loss claimed was also in question, that income of the assessee had been under-assessed to the extent of Rs. 1.82 lakhs.”The assessee preferred appeal before the Appellate Tribunal challenging the order of the Commissioner of Income Tax (Appeals) contending that the enhancement of income is erroneous and unsustainable.
While verifying the legality of the impugned order, the Tribunal observed that “We find that the FAA had enhanced the income after intimating the AR of the assessee about the proposed action. Thus,he had followed the mandate of section 251(2)of the Income Tax Act, though a formal notice under the said section was not issued.In our opinion, the FAA had rightly enhance the income, because the AO had erroneously allowed the deduction to the tune of Rs.1.82 lakhs.As an appellate authority,the FAA has power to enhance the income of the assessee. So,we do not find any legal infirmity in his order.”
Read the full text of the order below.
The Income Tax Appellate Tribunal, Mumbai in a recent decision, held that ‘non-consideration of a binding precedent’ can be a valid ground for filing a rectification application under the provisions of the Income Tax Act, 1961.
The Tribunal, in the light of the decision of the Supreme Court in Saurashtra Kutch Stock Exchangecase, observed that the same can be treated as a “mistake found apparent on the face of record” which is the most essential requirement for filing a rectification application.
The assessee, in the instant case is a company,engaged in the business of stock broking is a member of the Stock Exchange, Mumbai, who has filed its return of income for the relevant assessment year. The Assessing Officer, while completing assessment disallowed the assessee’s claim of depreciation on Bombay Stock Exchange Card.When the order was challenged before the First Appellate Authority, it was confirmed on ground that the same is duly covered by the decision of the Bombay High Court in the case Techno Shares and Stores Ltd.
Against the said order, the assessee preferred a rectification application under section 154 of the Income Tax Act by contending that the above decision of the Bombay High court was reversed by the Supreme Court in appeal. However, the FAA dismissed the application on ground that “the assessee was a member of BSE and NSE to provide electronic transfer of securities, that it had raised the issue of disallowance of depreciation on BSE card in the original appeal, thathis predecessor had discussed the issue in detail and had concluded that the actual cost of trading rights was neither nil or not ascertainable, that he had not allowed depreciation on the BSE card, that the assessee had accepted the decision of his predecessor, that it did not file any appeal before the tribunal, there was no mistake apron from the record, that the mistake should be obvious and Peyton, that the decision not debatable point of law was not a mistake apparent from the record.”Being aggrieved, the assessee preferred an appeal before the ITAT.
The Tribunal found that the FAA had adjudicated the issue of BSE card against the assessee by relying upon the judgment of the Bombay High Court, which was subsequently reversed by the Supreme Court.The Tribunal further noticed that after the decision of the Supreme Court in Saurashtra Kutch Stock Exchange, it is a well-settled legal position that non-consideration of a decision of jurisdictional court or of the Supreme Court can be said to be a “mistake apparent from the record” for the purpose of filing a rectification application.
Following the above decisions, the Tribunal accepted the contentions of the assessee and held that the First Appellate Authority’s order is not justified.
Read the full text of the order below.
The Mumbai bench of the Income Tax Tribunal, has recently ruled that the employer is not liable to pay Fringe Benefit Tax if the employer has no tax liability under the provisions of the Income Tax Act, 1961.
The Tribunal was considering an appeal filed by the assessee challenging the assessment order in which the Department imposed Fringe Benefit Tax on them. The highlights of the judgment are below.
The assessee-company is engaged in farming and agriculture. The assessee, for the AYs 2006-07 and 2007-08 has furnished return of Fringe Benefits at Nil. However, the assessing Officer initiated re-assessment proceedings against the assessee on ground that the assessee had paid wages and salary to its employees and certain other expenditure incurred by the assessee on business promotions, conveyance, staff welfare, telephone and travelling expenses, which constitute fringe benefits provided to the employees as per section 115WA(2) of the Income Tax Act and the same is exigible to fringe benefit tax. According to him, though the assessee had only agricultural income which was exempt from income-tax, even then the assessee is liable to FBT for fringe benefits provided by the assessee to its employees for the reason that fringe benefits shall be deemed to have been provided by the employer to his employees in the course of his business irrespective of the fact that whether such activity was carried on with the object of deriving income and that FBT shall be payable by the employer even if no income tax is payable by him/it on his total income computed in accordance with the provisions of the Act. Accordingly, the officer completed assessment against the assessee by imposing FBT.
Though the assessment order was challenged by the assessee through appeal before the Commissioner of Income Tax (Appeals), the same was dismissed. Hence, the assessee preferred a second appeal before the ITAT challenging these orders. The question raised before the Appellate Tribunal was that whether the assessee employer is liable to be charged with FBT, notwithstanding the fact that the assessee’s income derived only from agriculture was exempt from income tax under section 10(1) of the Income Tax Act.
The Tribunal noticed the decision of the Calcutta High Court in Apeejay Tea Ltd, in which the Court has reversed the order of the ITAT, Kolkata by holding that an employer is not liable to pay fringe benefit tax when no income-tax is payable by an employer on his total income computed in accordance with the provisions of the Income-tax Act.
In the light of the above decision, the Tribunal arrived at a conclusion that the instant case squarely covered by this decision. Accordingly, the matter was concluded by accepting the contentions of the assessee.
Read the full text of the order below.
The Mumbai bench of the Income Tax Appellate Tribunal, has recently observed that while disallowing interest expenditure under section 14A of the Income Tax Act, 1961, the Assessing Officer shall record a sufficient reason for such disallowance. The Appellate Tribunal further opined that this is a mandatory requirement and the condition is applicable even in respect of assessment years before 2007.
The assessee-company had made an investment in shares of another company by raising a loan from its Directors and shareholders. While filing return of income for the relevant assessment year, the Assessee claimed deduction in respect of interest expenditure under section u/s 40A(2)(b) of the Income Tax Act. However, the Assessing Officer disallowed the claim by holding that the amount of loan raised from the Directors and shareholders were utilized to purchase the shares of a Company in which the Directors had substantial interest.
On appeal, the Commissioner of Income Tax(Appeals) confirmed the said order by finding that the assessee had borrowed funds from the banks on security of stocks and debtors @ 13.5%. It had borrowed Rs. 55,00,000/- from its Directors and paid interest thereon@ 16%. The borrowings made from the Directors were utilized for making investment in shares of Bharat Bijlee Ltd. wherein the assessee’s Directors had substantial interest. Therefore, the disallowance is justifiable. The CIT(A) further opined that interest of Rs. 8,54,836/- was otherwise disallowable u/s 14A.
The Tribunal, on second appeal preferred by the assessee noticed that in S.A. Builders vs. CIT, the Supreme Court has held that, “that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair 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. No businessman can be compelled to maximize his profit. The IT 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 viewpoint but that of a prudent businessman.”
The Tribunal found that the present case is duly covered by the above decision since the assessee is in the business of manufacturing and trading in electrical and industrial chemicals. Further, the “Articles of Agreement”clearly specifies that “the assessee shall manufacture and sell to Bharat Bijlee Ltd. electrical/electronic and industrial products for distribution in India.” The Tribunal opined that “one has to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency”.
Regarding the finding of the learned CIT(A) for A.Y. 2004-05 that interest of Rs. 8,54,836/- was otherwise disallowable u/s 14A, the Tribunal observed that “ We have gone through the assessment for the above year and find that the AO has not mentioned anything about disallowance of interest under section 14A. Before applying the provisions of sec.14A of the Act, the AO has to record a satisfaction that having regard to the accounts of the assessee, the claim is not correct. Though the aforesaid conditions enshrined in sec. 14A(2) was brought into the statute by Finance Act, 2006 w.e.f. 1st April 2007, however , it has been held in judicial precedents, such condition will apply even in respect of earlier assessment years. Thus, recording of satisfaction by the AO is a mandatory requirement. This is absent in present case. Therefore the issue of disallowance u/s 14A in A.Y. 2004-05 does not arise”.
Read the full text of the order below.
The Central Board of Excise & Customs, recently issued a circular regarding instructions to its officials with respect to disposal of confiscated goods through NCCF/ Kendriya Bhandar and other Consumer Co-operative Societies.
As per the circular, the sale of any confiscated/ seized consumer goods which is ripe for disposal and whose value does not exceed Rs. 5 Lakhs shall be offered to NCCF/KB/ and other Consumer Co-operative societies at a uniform rebate or discount of 10% subject to the conditions laid down in the circular.
The Circularalso modified the rate of rebate/discount applicable to NCCF/KB/ and other Consumer Co-operative societies.
The Circular further directs that any sale of confiscated/ seized consumer goods which is ripe for disposal and whose value exceeds Rs. 5 Lakhs to the NCCF/KB/ and other Consumer Co-operative societies shall be made through e-auction or auction-cum-tender. This sale is subject to the conditions specified by the Board in its Circular No. 50/2005-Customs dated 1.12.2005 and other connected circulars. As per the present Circular, no rebate/discount is available for such sale through e-auction or auction-cum-tender.
It is stated in the Circular that “CVC has been emphasizing on e-commerce/e-procurement/e-sales for enhancing transparency, giving equal opportunity to all. Accordingly, CVC vide Office Order No. 46/09/03 dated 11 September 2003(No.98/ORD/1)has stated that the departments/organizations may themselves decide on e-procurements/reverse auction for purchase and sales for workout the detail procedure in this regard. It has, however, to be ensured that the entire process is conducted in a fair and transparent manner.”
Read the full text of the circular below.
The two-judge bench of the Supreme Court, has recently opined that the jurisdiction of the division bench in a Writ Appeal is limited to adjudication of questions of law. Findings of fact recorded concurrently by the authorities under the Income Tax Act, 1961 including the single bench of the High Court cannot be disturbed.
The Court was considering an appeal preferred by the Revenue against the order of the division bench of the High Court in a Writ Appeal.
In the impugned judgment, the division bench of the High Court has set aside the order of the single bench in which the single bench dismissed the writ petition filed by the assessee against the revisional order passed against him. the case of the assessee was that the Commissioner of Income Tax, through his order upheld the disallowance of amount claimed by him as deduction in respect of trade creditors for the reason that the records establish that the assessee has shown sudden in trade creditors without any significant transactions of purchases during the year.Since the claim was found by the authorities as bogus, the amount claimed was added to the total income of the assessee.
However, the division bench reversed the above orders since both are adverse to the assessee and therefore, reversed the orders by holding that the 37 persons who had advanced the loan to the Assessee ought to have been given notice.The order was again challenged before the Supreme Court by the Revenue.
The Court observed that “The jurisdiction of the Division Bench in a Writ Appeal is primarily one of adjudication of questions of law. Findings of fact recorded concurrently by the authorities under the Act and also in the first round of the writ proceedings by the learned single judge are not to be lightly disturbed. In the present case, in the face of the clear findings that the loan applications were processed by the Officers of the Assessee and the loan transactions in question of the aforesaid 37 persons were also handled really by the Assessee and further in view of the categorical finding that the loan amounts were not reflected in the returns of the 37 persons in question, we do not see how the High Court could have taken the above view and remanded the matter to the Assessing Officer. It has been pointed out before us that pursuant to the impugned order passed by the Division Bench of the High Court fresh assessment proceedings have been finalized by the Assessing Officer. The said exercise has been done in the absence of any interim order of this Court. However, merely because fresh assessment proceedings has been carried out in the meantime it would certainly not preclude the Court from judging the validity and correctness of the order of the Division Bench of the High Court.”
Read the full text of the order below.
The Mumbai bench of the Income Tax Appellate Tribunal has recently ruled that the section 195 of the Income Tax Act, 1961 requiring deduction of Tax at Source does not applicable to payments made to non-residents as commission for the services rendered by them outside the territory of India.
The assessee, is a Firm engaged in the business of export of meat and seafood, filed its return of income for the relevant assessment year claiming deduction in respect of various expenses including export commission. The assessing Officer asked for the details of TDS paid on such amount as the payments were made to non-resident entities. The assessee maintained that no tax was required to deduct u/s 195 of Act since the non-resident agents were operating from their respective countries and procured export orders for the assessee firm outside India, and further, the commission was also paid outside India. However, the AO rejected these contentions and passed an order to the effect that the commission payable to agents abroad was deemed to arise in the group in India and therefore, provisions of section 40 were applicable to the payments in question.
On appeal, the Commissioner of Income Tax (Appeals) deleted the addition made by the Assessing Officer by accepting the contentions of the assessee. The CIT(A) observed that the AO had disallowed the payment made to foreign agents only on the ground that no tax was deducted at source as per the provisions of section 195 of the Income Tax Act, that there was no other ground for disallowance of such payments, that the foreign agents procured export orders, that the entire services were rendered outside India, that the commission agents did not have any Permanent Establishment in India, that the amounts paid by it to the agents for rendering services did not accrue in India. Being aggrieved, the Revenue preferred an appeal before the ITAT.
The Tribunal noticed that in Faizan Shoes Pvt. Ltd., the Madras High court held that “commission paid by the assessee to the non-resident agents would not come under the term “fees for technical services” and therefore, the assessee was not liable to deduct tax at source on payment of commission.”
Following the above decision, the Tribunal confirmed the decision of the Commissioner of Income Tax (Appeals) by holding that no interference is needed in the impugned Order.
Read the full text of the order below.
In an order issued yesterday, the Central Board of Direct Taxes has again extended deadline of filing Income Tax returns in the state of Jammu & Kashmir to 30th September 2016.
The CBDT issued the order on consideration of reports of dislocation of general life in certain areas of the state of Jammu & Kashmir.
Earlier, CBDT had extended the due date for filing Income Tax returns for Jammu and Kashmir to August 31 from the earlier deadline of July 31. The extension pertains to the tax returns for Assessment Year 2016-17.
Read the full text of the order below.
The two-judge bench of the Supreme Court comprising of Justices A.K Sikri and R.F. Nariman, in a recent order observed that the provisions of sections 271-D and 271-E of the Income Tax Act, 1961 cannot be invoked after 6 months of limitation period.
The Apex Court was upholding the decision of the High Court in which it was found that the limitation period prescribed u/s 275(1)(c) applies to penalty proceedings u/ss 269SS & 269T of the Income Tax Act, 1961.
The Court was considering an appeal filed by the Revenue against the order of the Rajasthan High Court as per which the penalty imposed on the assessee was set aside by the Court on ground that the provisions of Section 271-D and 271-E of the Income Tax Act were invoked after six months of limitation and, therefore, such penalty could not have been imposed.
The High court took a view that the appellate proceedings arising out of the assessment or other proceedings has no relevance in sustaining the penalty proceedings parallelly initiated under sections 271D and 271Eof the Act . Accordingly, the penalty proceedings initiated against the assessee for violation of sections 269SS and 269T are independent from the assessment proceedings.
While confirming the above view of the High Court, the Supreme Court held that, “On perusing the judgment of the High Court, it is found that penalty imposed on the respondent herein was also set aside on the ground that the provisions of Section 271-D and 271-E of the Income Tax Act were invoked after six months of limitation and, therefore, such penalty could not have been imposed. Since the outcome of the judgment of the High Court can be sustained on this aspect alone, it is not even necessary to go into other aspects. Leaving the other questions of law open, the appeal is dismissed. There shall be no order as to costs.”
Read the full text of the order below.
ASSOCHAM will bring forth before the Empowered Committee (EC) of State Finance Ministers certain concerns and areas of uncertainties while pleading for waiver of any penalties on unintentional compliance errors which may occur during the transition period of Goods and Services Tax (GST) said at an ASSOCHAM Managing Committee meeting held in New Delhi today.
Seeking adequate time for preparation of the required compliance systems for the industry, the ASSOCHAM memorandum to the empowered panel on GST, has listed issues for the state finance ministers’ meeting on August 30.
“While the industry wants the GST to be introduced at the earliest in view of its benefits to all stake holders, the Government and Empowered Committee (EC) should give adequate time for preparation for its smooth transition. Considering significant increase in documentary requirement and digitisation of the entire GST process, industry has to gear up and change their accounting and computer system after the GST Rules are released,” said Mr. Sunil Kanoria President ASSOCHAM after discussing the issue at its Managing Committee, the top policy making and governing body of the chamber.
It said in such a mega tax reform, there will be requirement to issue clarification on various GST provisions and hence the Governments at Centre and States should gear up for such facility. “Moreover, the penal provisions for unintended mistake during the transition phase should not be applied as was done in the case of service tax for few years”.
The chamber also highlighted concerns over the administrative machinery for implementation of the GST. While the tax base is same for Central GST and SGST, the administration by two authorities may lead to harassment if there is difference of opinion. It is recommended that there should be only one administrative authority. Centre and state can form joint team for such purpose.
There is also concern about the multiple audits and investigations provided in the draft GST Bill spanning over a long period of 3 to 5 years whereas the entire GST process will be fully computerised and each transaction is required to be recorded in the monthly return. These excessive administrative provisions need to critically examine to avoid inspector raj which may be counter-productive to the objective of GST to provide ease of doing business.
There are issues regarding the construction industry as well. Input Tax Credit is not available for inputs/ input services utilised in the construction of immovable property. Tax paid on inputs/ input services would become a cost for the builders/ developers. Services like fees, user charge or rent or any other manner from use of such buildings or infrastructure would be subject to GST. This will make huge investment required in infrastructure development unattractive. The Draft Legislation does not provide for the abatement of the value of land for levy of GST. “Need clarity on the taxability of the development rights under the Draft GST Legislation”.
As regards banking and financial issues, there is no clarity on exclusion of interest from levy of GST. Interest is excluded from the taxable value the world over including in India under the service tax. It is suggested that draft GST law should make it clear. The recipient of service is not clearly defined for taxation of banking and insurance services. This may lead to tax dispute on jurisdiction for SGST purpose. Likewise, the valuation of services like currency conversion which forms part of pricing is not provided in draft GST Bill or Valuation Rules.
The chamber would seek clarifications on all these issues from the Empowered Committee (EC) of State Finance Ministers.
