A meeting was held today under the Chairmanship of Revenue Secretary Dr Hasmukh Adhia to review the IT preparedness of the various stakeholders for smooth roll-out of Goods and Services Tax (GST). In the said meeting representatives of Reserve Bank of India (RBI), Principal CCA, Central Board of Excise & Customs (CBEC), Heads of Government Business and IT Heads of 29 Banks and Goods and Services Tax Network (GSTN) took part.
Realizing the criticality of IT preparedness of various stakeholders, the Department of Revenue has been regularly monitoring the progress of IT preparedness of various stakeholders. In the meeting, the status of preparation of software by the Banks, RBI, Principal CCA Office, CBEC and GSTN were discussed along with details of protocol of information interchange between the various stakeholders. All authorized banks were directed to ensure that their IT systems are in place for networking with RBI, GSTN and the accounting authorities of Central and State Government authorities, latest by 30th September, 2016.
The Supreme Court, today stayed the Income Tax Department’s decision to levy 20% Tax on Hotel room tariffs as per 1995 and 2002 circulars. The circular in 1995 was amended by the Department in the year 2002 to include clarifications regarding the applicability of TDS provisions on hotel rent paid by the customers. The action was taken by the Apex Court in an appeal preferred by the Federation of Hotel and Restaurant Association of India.
Earlier, the Delhi High Court and the Madras High Court dismissed the petition filed by different hotel associations on the same issue. The Delhi High Court, in a petition filed by the by Federation of Indian Hotel, observed that the services provided by the hotliers including room charges, are subject to TDS provisions since the same falls within the definition of the term “rent” under section 194-I of the Income Tax Act, 1961. As pointed out by the Court, TDS provisions are applicable to every hotliers and the burden to prove that they are outside the ambit of section 194-I, will be on the concerned hotel. The present appeal is against the same order contending that the room charges paid by the Customers are not subject to TDS since it is not covered under section 194-I of the Act.
While granting the stay, the Court issued notices to the Income Tax Department restricting them to take any further action till any further orders from the Court.
The order can be accessed below.
The Delhi bench of the Income Tax Appellate Tribunal, in a recent ruling, held that section 2(22)(e) of the Income Tax Act, 1961 is not applicable to pure business transactions. While quashing the order of the assessing authority and the adjudicating authority, the Tribunal observed that the advances made by the assessee company based on an unregistered MOU, cannot be treated as “deemed dividend” for the reason that section 2(22)(e) cannot be invoked in case of normal business transactions.
The assessee, in the instant case, has entered into a Memorandum of Understanding with M/s Landmark Apartments Pvt. Ltd to establish I.T. Park/call centre. For this purpose, the assessee had to arrange funds under the aid MOU. Subsequently, the Assessee entered into a Joint Investment with another Company to invest into M/s Landmark Apartments Pvt. Ltd on a condition that the profit arising out of the said joint investment will be shared equally among them. The assessing officer observed that the MOU has no legal value and even the MOU is neither registered nor notorised. Accordingly, the sum advanced by such companies should be treated as deemed dividend and not business transaction under section 2(22)(e) of the Income Tax Act, 1961.
The Commissioner of Income Tax (Appeals) confirmed the said order on appeal filed by the assessee. Therefore, the assessee approached the ITAT by filing a second appeal challenging the impugned order.
The Tribunal observed that the impugned order is not justified by holding that “from the terms of the MOU it was clear that such companies have joined hands with the assessee for making investment in M/s Landmark Apartments Pvt. Ltd and it has also been agreed that profit arising from the investmentwould be shared in the proportion of the investment. That merely because the MOU was not registered or not notarised or transaction did not fructify, does not mean that advance was not for the purpose of business. AO also went wrong in holding that MOU has no legal value as it is settled law that even the oral contract are binding. In the instant case, terms of the understanding are clearly stipulated and under such terms sums have been advanced to the assessee. This understanding cannot be ignored. In fact it is not in dispute that under the MOU dated 20.01.2007 with M/s Landmark Apartments Pvt. Ltd., assessee has made investment with such company and since the venture did not materialize as such, such invested by the assessee has finally been returned. Hence in such circumstances, we hold that the such advanced by such companies were clearly for the purpose of the business and purely on commercial consideration and hence such sums cannot be termed as deemed dividend.”
The Tribunal noticedthe decision of Delhi High Court in CIT vs. Ambassador Travels (P.) Ltd. reported in [2009] 318 ITR 376 (Delhi), in which it was held that if the transactions are normal business transactions, which were carried out during the course of the relevant previous year, they cannot be described as advances or loans, which form a distinct category of financial transactions and therefore the provisions of section 2(22)( e) of the Act were not at all applicable.
In another similar case, the same Court observed that “Trade advance which are in the nature of money transacted to give effect to a commercial transactions would not, fall within the ambit of the provisions of section 2(22)( e) of the Act.”
Following the above and various other judicial pronouncements, the Tribunal held that “That since in the instant case, sum advanced to the assessee by the aforesaid three companies were purely on commercial consideration and was business advance as such, same cannot be treated as deemed dividend u/s2(22)(e) of the Act, hence we hold that authorities below are not right intreating the aforesaid sums as deemed dividend. The AO isaccordingly directed to delete the addition.”
Read the full text of the order below.
In a recent gazette notification, Ministry of Finance through 21st amendment of Income Tax rules, has exempted Tax Collected at Source (TCS) on cash purchase of goods or services by Government, embassies, Consulates, High Commissions, Legation or Commission and trade representation, of a foreign State and also institutions notified under United Nations (Privileges and Immunities) Act, 1947.
Text of the Amendment as follows;
“Class or classes of buyers to whom provisions of sub-section (1D) of section 206C shall not apply
37CB. (1) The provisions of sub- section (1D) of section 206C in relation to sale of any goods (other than bullion or jewellery) or providing any service shall not apply to the following class or classes of buyers , namely:— (i) Government; (ii) embassies, Consulates, High Commissions, Legation or Commission and trade representation, of a foreign State; (iii) institutions notified under United Nations (Privileges and Immunities) Act, 1947”.
The amendment came into force on 19th August 2016.
Read the full text of the notification below.
The Ahmedabad division of Income Tax Appellate Tribunal recently allowed the entire amount of expenses in respect of Non-convertible debentures in the year in which they were incurred by the assessee. The ITAT, while allowing deduction held that under section 37 of the Income Tax Act, 1961, the assessee is entitled to get the deduction in the relevant assessment year even if they are redeemable after five years.
Coming to the facts of the case, the assessee, Gruh Finance Ltd claimed deduction in respect of expenses incurred on Non-Convertible Debentures. However, the Assessing Officer, rejected the same by holding that the same was not claimed in the Profit & Loss Account, while the it was claimed in the statement of income.He further observed that the entire amount of NCD expenses cannot be allowed in the current year since they are redeemable after five years.The assessee maintained that the expenditure in respect of NCD is incurred during the relevant previous year and these are relating to borrowing by way of issue of NCD and the same is allowable deduction u/s 37 of the Income Tax Act. According to them, these expenses was reduced from the share premium account in the books of accounts and not debited to profit and loss account but separately claimed as deduction while computing the income.They further relied on the decision of Supreme Court in Tuticorn Alkali Chemicals & Fertilizers Ltd vs. CIT, 227 ITR 172 (SC).
While rejecting the contentions of the assessee, the Assessing Officer took a stand that when the benefit of a particular expenditure has been accruing over a period of five years, the entire expenditure cannot be allowed in one year and it is also against the matching principles of income and expenditure.The decision of the Supreme Court in Madras Industrial Investment Corporation Ltd vs. CIT, 225 ITR 802 (SC) was cited in their favour. On this basis the AO held that total NCD expenses was required to be allowed in equal installments in five years. Accordingly, he allowed 20% of the expenses as deduction in FY 2004-05 and the balance expenses of NCD was not allowed to the assessee.
Though the assessee has approached the Commissioner of Income Tax(Appeals) through first appeal, the order was sustained. Being aggrieved, the assessee approached the Appellate Tribunal on second appeal.
The Tribunal noticed that in Taparia Tools Ltd (372 ITR 605), the Supreme Court has held that where assessee-company issued debenture for 5 years and the assessee did not want to spread over the interest expenditure over a period of 5 years, it claimed entire deductible expenditure in the same year in the return filed byit, in such a situation it was permissible in law to the assessee in consonance with the provisions of the Act to claim the expenditure in the year in which it was incurred.
Following the above decision, the Tribunal held that the assessee is entitled to claim the entire expenses incurred by them in respect of the Non-Convertible Debentures.
Read the full text of the order below.
The Federation of Chandigarh Region Automobile Dealers has challenged the decision of the UT excise and taxation department directing to pay Value Added Tax (VAT) on the amount of discount offered to customers.
While receiving the petition, the Punjab and Haryana High Court has issued notice to the Chandigarh Administration asked to file their response before August 24th.
The Court also issued notice why their order directing the automobile agencies to pay value added tax (VAT) on the amount of discount offered to customers not be stayed.
The petitioners reportedly contended that the impugned order issued by assistant excise and taxation commissioner (AETC) is not only illegal but has also been issued without taking into consideration the provisions of the Punjab VAT Act as applicable to Chandigarh.
Learned counsel Sandeep Goyal for the petitioner inter alia submits that under Rule 15 of the Punjab VAT Rules, 2005, as applicable to UT, Chandigarh, while determining the taxable turnover of a person under sub-clause (e) of clause (1) thereof, amount, allowed as cash discount and trade discount is to be excluded, provided such discount is in accordance with the regular trade practice. On the aforesaid premises, it was urged that thus, contrary to it and is legally unsustainable.
The petitioners pleaded that they sell the automobiles at the price as agreed between the buyers and the sellers for which the necessary invoice is issued. The automobile agencies are charging VAT on the sale price of goods as is agreed between the parties and the discount, if any, given to the buyer is deducted from the invoice amount as it is permissible to deduct as per laid down norms. The discounts offered to the customers are part of the sale promotion schemes which are launched by the automobile companies from time to time. Such benefit is passed on to the customer and, therefore, the discount does not form part of the consideration between automobile dealer and buyer thereof.
The case is posted on 24th August 2016 for further hearing.
Read the text of the order below.
The Bangalore bench of Income Tax Appellate Tribunal recently ruled that transaction of extending credit period to Associate Enterprises can be regarded as “international transaction” for the purpose of determination of Arm’s Length Price. While rejecting the submissions made by the assessee, the Tribunal observed that the observations made by the Bombay High Court in Vodafone Case is not applicable to such cases.
The assessee in the instant case, M/s. Tally Solutions Pvt. Ltd. is engaged in the business of rendering software research and development services and other related services to its AE, Tally Solutions FZ LLC, Dubai, UAE. The assesse produced all its financial results as well as international transactions before the Transfer Pricing Officer, who has initiated proceedings against the assessee by applying the provisions of Chapter X by treating the outstanding due with the AE as international transaction on ground that they have extended credit facility similar to a working capital loan to its AE without charging any interest. According to him, such transactions is not at arm’s length price within the meaning of Section 92C(3)(a)(b)(c) of the Income Tax Act r.w. Rule 10B(1)(a) of the Income Tax Rules.
The First Appellate Authority rejected the contentions of the assessee and upheld the impugned order. Therefore, the assessee approached the Appellate Tribunal for relief.
Before the Tribunal, the assessee relied upon the decision in Vodafone India Services Pvt. Ltd. Vs. UOI (2014) 368 ITR 1(Bom) in which, the Bombay High Court has held that income as understood in the Act must arises from an international transactionthen only the measure is to be found on application of arm’s length so far Chapter X of the Act is concerned. The computation of ALP does not convert non-income into income. The tax can be charged only on income and in the absence of any income arising the issue of completing the measure of ALP tothe value for consideration of itself does not arise. There must be an international value which is chargeable to tax for invoking the provisions of Chapter X.
The assessee further contended that no separate adjustment can be made by treating the extension of the credit period to the AE as a separate international transaction since the assessee is not an independent international transaction when the TPO has accepted the international transactions provided to the AE at arm’s length.
First of all, the Tribunal rejected the contention raised by the assessee that the extending credit period cannot be regarded as international transaction in the absence of any income arises from the said transaction. Regarding this, the Tribunal observed that “It is pertinent to note that if the argument advanced by the ld. counsel for the assessee is accepted then it would result to render the provisions of Chapter X redundant. The proposition advanced by the ld. counsel for the assessee would lead to the situation where in a case the assessee is charging less price in comparison to the arm’s length price from its AE then the said transaction would be decided as per the provisions of ChapterX by comparing the same with uncontrolled comparable prices. On the contrary if the assessee does not charge any price for any international transaction with the AE then the provisions of Chapter X cannot be applied as claimed by the ld. counsel for the assessee. Thus such a proposition would be inconsistent with the object and scheme of the Chapter X of I T Act and hence cannot be accepted. Even otherwise if the intent of the legislature was to introduce the provisions of Chapter X was to compute income from international transaction only in the case where the assessee is charging or receiving the price under the international transaction then there cannot be any computation of income having regard to the ALP where the related parties decided not to charge any price of the international transaction and consequently the said provision of Chapter X would be conveniently circumvented by each and every assessee having international transaction with the AE by not charging any price or receiving any price from the international transaction.”
On the basis of the above findings, the Tribunal found that the ratio of Vodafone case cited above is not applicable to the facts of the instant case. It was observed that “The transaction is otherwise capable of generating income but due to the related parties decided not to charge or pay to each other the basic character and nature of transaction would not change.”
Regarding the alternative plea raised by the assessee that separate adjustment cannot be made by treating the extension of the credit period to the AE as a separate international transaction, the Tribunal applied the ration of Information System Resource Centre P. Ltd. and M/s. Avnet India P. Ltd. and held that“extending credit period for realization of sales to the AE is a closely linked transaction with the transaction of providing services to the AE and therefore cannot be treated as an individual and separate transaction of advance or loan. Accordingly, we direct the A.O/TPO to redo the exercise of determination of ALP by considering the credit period allowed in realization of sales proceeds as closely linked transaction with the transaction of providing services to the AE and thereforeboth has to be clubbed and aggregated for the purpose of determination of ALP.
Read the full text of the order below.
The Mumbai bench of Income Tax Appellate Tribunal, in a recent ruling held that a Firm of Advocates and Solicitors engaged in the business of exporting legal services to their foreign clients, based on legal data base is entitled to get the benefit of section 10B of the Income Tax Act, 1961. The Tribunal found that such activities are duly covered under section 10B.
The assessee, M/s. Majmudar & Co, is a Firm of Advocate & Solicitors engaged in production and export of customized electronic data or legal database. They provide legal services through legal database held by it, to various banks, companies and financial institutions both in India and abroad. The Assessing Officer, while completing assessment, observed that the assessee is not eligible for deduction under section 10(B) of the Income Tax Act,1961for amount received on account of rendering of legal service to overseas clients and the money brought in convertible foreign exchange in India.The assessee maintained that transferred the customized electronic data to its client therefore it forms part of computer software which is duly covered under explanation 2 of section 10B. Further, the unit of the firm was recognized as a 100% EOU by the Development Commissioner SEZ, SEEPZ and its entire sale proceeds from export of such legal services was brought in India in convertible foreign exchange.However, the Assessing officer rejected these conditions and passed an order against the assessee on ground that rendering of legal services by the assessee firm to the foreign clients cannot be termed as export of legal database from India and the assessee do not fulfilled the conditions specified in section 10B of the Act since the assessee was engaged in providing legal services to its foreign clients and not engaged in exporting legal database which was one of the items notified by the CBDT for the purpose of “Computer Software.”
On appeal, the Commissioner of Income Tax (Appeals) decided in favour of the assessee-firm. Aggrieved with the same, the Revenue preferred an appeal before the ITAT.
The Tribunal found that the services provided by the assessee i.e. legal services are recognized by the Government of India for the various benefits under the scheme of EOU as per EXIM Policy 2002-2007. According to the Tribunal, s.10(B) was introduced in the Act with an object to provide benefit to such EOU under the Income Tax Act, reflecting the intention of law to provide encouragement to the genuine exporters of services to enhance their capacity for provision of services and in turn earn valuable foreign exchange for our country. The Tribunal opined that “The assessee has, by use of the legal database compiled by it over a period of more than 60 years (firm is in practice of law since 1943), earned reasonable amount of valuable foreign exchange for our country, thereby fulfilling the most core intention of the law for introduction of EOU Scheme under EXIM Policy and Section 10B of the Act. The assessee has also fulfilled the specific requirements of Section 10B of the Act, by providing Legal Services using Legal database. Legal database being recognized by the Board vide its notification No. S.O.890(E) dated September 26, 2000 as one of the eligible information technology enabled services”.
“Explanation 2(i) (b) defines computer software to include inter alia a “Customized Electronic Service as notified by the Board”. As legal database is notified by the Board for this purpose and the assessee has provided services by using such legal database via electronic media i.e. via emails and internet facilities, the claim of the assessee for deduction under section 10B of the Act in the light of Explanation 2(i) (b) is fully justified.”
The Tribunal noticed the decision in Kiran Kapoor v. ITO, 150 ITD 237 (2014) (Delhi ITAT), cited by the Assessee in which it was held that “the nature of activity done in the EOU was that of producing designs, drawings, layouts and scanning for the projects of foreign clients on the basis of specifications. The activity was done by taking into consideration the data collected by the assessee itself or from clients. Thus, “ready to print books” exported by the assessee in the form of CDs or e-mails are customized electronic data eligible for claiming deduction under section 10B of the Act.”
The Tribunal further noticed the decision in DCIT v. Tecnimont ICB (P) Ltd, 19 ITD 151 (2009) (Mumbai), in which it was held that services provided by an assessee by use of emails and FTP sites are eligible for deduction as computer programs as defined under Section 10A of the Act.
While concluding the decision in favour of the assessee, the Tribunal held that “Before us, no contrary decision was pointed out by the Revenue and respectfully following the decision of the Hon‟ble Delhi Court in the case of KiranKapoor (Supra), we confirm the order of the CIT (A) by holding that the expression “Computer Software” is wide enough to embrace diverse activities and to eliminate any doubt the reference can be made to “Customized Electronic Data” as mentioned in Second Explanation to Section 10B (2) of the Act. Further, CBDT issued notification and the notification relied on in the present case uses the expressions “(iii) content development or animation (iv) data processing …. (vii) human resources services” and (ix) legal data-bases”.
Read the full text of the order below.
The High Court of Bombay in a recent decision held that the foreign exchange loss is not a “notional” or “speculation” loss and is allowable as a deduction. According to the division bench, the same is eligible for deduction under section 37 of the Income Tax Act. While upholding the order of the ITAT, the Court observed that the CBDT’s instruction which deals with foreign exchange derivative transactions is not applicable to cases of losses in dealings with foreign exchange.
In the instant case, the assessee-company, M/s Vinergy International Pvt. Ltd, while filing return for the relevant previous year,claimed deduction in respect of expenditure / loss of Rs.62.62 lakhs and Rs. 34.37 lakhs as gain on account of foreign exchange fluctuation related to purchase and sales transactions outstanding.The Assessing officer completed the assessment by disallowing the above claim for the reason that it is a contingent liability.
Being aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) in which the said order was sustained. However, the Appellate Tribunal, on second appeal, allowed the claim of the assessee by holding that it is covered under section 37 of the Income Tax Act. Against the said order, the Revenue approached the High Court.
The division bench comprising of Justice M S Sanklecha and Justice A K Meon found that, the impugned order was passed by the Tribunal following te decision in Commissioner of Income Tax Vs. Woodward Governor India (P) Ltd. 312 ITR 254, in which it was held that where the loss suffered by an assessee due to fluctuation of foreign exchange as on the date of balance sheet in respect of purchase and sales of goods (payment have to be made / received) is allowable as expenditure under Section 37(1) of the Act.
Before the High Court the Revenue contended that, subsequent to the above decision the CBDT passed Instruction no. 3 of 2010 dated 31.03.2010 in respect of loss on account of foreign exchange derivatives as per which, the claim of the assessee cannot be accepted.
The Court also opined that the said circular is not applicable to the instant case since the loss was not on account of derivatives but are in fact losses and gains in foreign exchange relating to the purchase and sales transactions i.e. creditors and debtors outstanding as on 31st March, 2010.
Read the full text of the order below.
The High Court of Gujarat while refusing to interfere with the transfer pricing proceedings initiated against a Company, observed that there is prima facie material to show that the directors of the petitioner company held more than 20% of the shares in voting power in the Associate Enterprise and the aggregate of expenditure incurred by the petitioner to such company exceeded Rs. 5 crores. On this ground, there is nothing wrong in initiating transfer pricing proceedings against the assessee-company. The Court was considering a Special Leave Petion filed by the assessee company in the instant case.
The Petitioners in the instant case, M/s D.B. Corporation Ltd, is a company filed return and revised return for the relevant assessment year.During the course of scrutiny of assessment, the Assessing Officer referred the matter to the TPO. The assessee opposed to the same by alleging that there were no international transactions nor were there any specified domestic transaction within the meaning of Section 92BA of the Act during the relevant assessment year.
The Principal Commissioner has rejected the objections raised by the assessee by holding that “the assessee has entered into transactions which has exceed the limit of Rs. 5 crore and as such the assessee was required to obtain a report from an accountant as required u/s. 92E of the Act which the assessee failed to do. In view of the above and keeping in view the CBDT instruction No. 15/2015 dated 16/10/2015, the assessment referred to the TPO, Ahmedabad is inconformity with the provisions of Section 92BA of the Income Tax Act and 92E of the Income Tax Act and the objection raised by the assessee has no locus standi and the same is required to be rejected.”
The assessee approached the High Court against the notices and orders issue in connection with the above proceedings. While confirming the impugned notices and orders, the Court concluded that “As noted, in the present case, there is prima facie material suggesting that the directors of the petitioner company, in the aggregate, held more than 20% of the shares in voting power in Writers & Publishers Pvt. Ltd. The aggregate of expenditure incurred by the petitioner to such company exceeded Rs. 5 crores. Under the circumstances, we would allow the transfer pricing procedure to carry on further without interjecting at this intermediary stage. The legal contention of the petitioner that in the report of the Assessing Officer dated 08.03.2016, the basis of Section 40A(2)(b) was not taken and therefore, now cannot be raised versus the Revenue’s contention, that if on admitted facts on the strength of correct statutory provisions the exercise of powers can be saved the order should not be quashed, are kept open.”
Read the full text of the Judgment below.
The Supreme Court of India, in a recent decision held that in order to determine the liability under section 120(1)(C) of the Delhi Municipal Corporation Act, 1957, the status of the assessee as a lessor or licensee. The division bench comprising of Justice L Nageswara Rao and Justice Anil R Dave, was considering a Special Leave Petition filed by the North Delhi Power Limited against the order of the division bench of the High Court of Delhi.
The sole question before the Court was to decide whether the land in dispute is subject to property tax?. The highlights of the decision are discussed below.
In the year 2003, the Assessment and Collection Department of the Delhi Municipal Corporation passed an order determining the rateable value of the land in dispute. Aggrieved by the same, the appellant moved an appeal before the District Judge in which the impugned order was set aside on ground that the land in dispute stood transferred to the Delhi Government and hence it was entitled for exemption from payment of property tax in view of Section 119 (1) of Delhi Municipal Corporation Act, 1957. It was further held that the appellant was a licensee of the Government.On an appeal preferred by the Delhi Municipal Corporation before the High Court, the Single bench held that the assessee is liable to pay tax by observing that the assessee were entitled to let out the properties on which basis it became liable to pay taxes as per section 120(1)(C)of the Delhi Municipal Corporation Act, 1957.
Reference to the Delhi Electricity Reforms (Transfer Scheme) Rules, 200, the Single Judge held that North Delhi Power Limited is an effective and full successor in respect to all matters relating to all liabilities and assets and further held that there is no material to establish that the Delhi Electricity Reforms(Transfer Scheme), 2001 ruled out liability of North Delhi Power Limited from municipal taxation. Subsequently, the division bench of the High Court observed that the Holding Company was not a party to the case and in view of the findings recorded in the judgment that the Holding Company is the owner of the land, the matter has to be decided by the Assessing Authority after giving an opportunity to the Holding Company. Aggrieved with the same, the appellant company approached the Supreme Court seeking relief.
On the point of exigibility of tax over the land in dispute, the Court entertained a doubt about treating the properties of Union Territories as the properties of the Central Government. On this point, the Court observed that “The administration of Union Territories is by the Central Government but that does not mean that Union Territories become merged with the Central Government. They are centrally administered but retain their independent entity.” The Court further refused to comment on this point since it involves certain constitutional questions.
Regarding the incidence of tax, the Apex Court observed that “According to Section 120 (1) (c), the person who has a right to let would be liable to pay tax for un-let land. Admittedly, this land is un-let. Incidence of tax has to be decided by the Authority after taking into consideration the provisions of the Act, rules and the licences, including the distribution licence. The High Court held that the licence pertaining to land as per the Transfer Scheme would show that the Distribution Company is only a licensee and not a lessee. The High Court further held that the distribution licence under Section 20 of the Delhi Electricity Reforms Act, 2000 is distinct and separate from the licence for land. It was further held by the High Court that the distribution licence can neither govern nor be used as a tool to interpret the licence for land. We do not agree with the said findings of the High Court. Section 120 (1) (c) contemplates that a person who has the right to let out un-let land is liable to pay tax. His status as a lessor or licensee is irrelevant. If the distribution licence empowers the Distribution Company to let out the land, notwithstanding the fact that the Distribution Company is a licensee as per Schedule ‘F’ of the Transfer Scheme Rules, it would still have to pay the tax.”In view of the above findings, the Court confirmed the order of the High Court.
Read the full text of the Judgment below.
The Income Tax Appellate Tribunal, Delhi in a recent decision held that the assessee-company is entitled to deduction in respect of expenses incurred by him in respect of upgradation of Software since the same is revenue in nature. The Tribunal was considering an appeal filed by the NDTV, a leading News channel in India.
Coming to the facts of the case, the assessee-company NDTV, engaged in the business of Television, News Broadcasting etc. the Assessing Officer rejected the return filed by the assessee-company for the relevant previous year by disallowing claim of software expenditure along with various other claims. The Assessing Officer observed that the amount spent on software expenditure is capital in nature.
On appeal, preferred by the assessee-company, the Commissioner of Income Tax (Appeals) accepted the submissions of the assessee-Company and held that the expense on upgradation of accounting software constitutes revenue receipt and therefore, should be allowed as deduction. Other claims were disallowed by the CIT(A) and therefore, both the assessee-company and the Revenue approached the Appellate Tribunal.
The Appellate Tribunal while remanding the matter to the Assessing Authority by directing to consider the matter a fresh, decided the issue of disallowance of software expenses. While confirming the order of the Commissioner of Income Tax (Appeals), the Tribunal observed that” Ld.CIT(A) has allowed this expenditure as revenue in nature. While doing so he observed that the assessee itself has characterised certain software purchase on its own as capital assets. He observed that certain software needs regular upgradation or change as per the requirement of fast changing broadcasting industry and that his predecessor has allowed similar expenditure on upgradation of software as revenue in nature. We find no infirmity in this finding of the Ld.CIT(A).”
Read the full text of the order below.
The Mumbai bench of Income Tax Appellate Tribunal, in a recent ruling held that the income earned by the assessee from sale of shares held by him for a period not more than one year should not be treated as his “Business Income”. The Tribunal while following CIT v. Gopal Purohit and the Apex Court’s decision in Radhasoami Satsang v. CIT, held that the said income must be considered as income from “Short Term Capital Gain.”
The assessee, Mr. Atul A. Shah is a partner in various Firms. The assessee disclosed his income from securities transaction as capital gains, while filing returns for the relevant previous years. However, the Assessing Officer, while completing assessment, observed that the said income has to be categorized under the head “business income, and not as “capital gain”. He observed that while considering thevolume, frequency, continuity and regularity of the share transactions, it can be inferred that these transactions made by the assessee with a profit motive.The assessee maintained that the Assessing Authorities has accepted the similar income as capital gains during the earlier assessment years.While for the assessment year 2006-07 the same was treated as business income.
On appeal, the Commissioner of Income Tax (Appeals) sustained the impugned order. Being dissatisfied with the order, the assessee preferred an appeal before the Appellate Tribunal.
The Appellate Tribunal observed that the assessee is a working partner in partnership firms from where he is deriving income from share from partnership firm(exempt), interest on capital and remuneration. Further, has purchased and sold the shares through recognized stock exchanges through brokers or IPO and the payments were made through cheque. The shares /Mutual Funds have been shown as investment in the books of account and valued at cost. There were no borrowings by the assessee and no interest was paid.
While quashing the impugned order, the Tribunal held that “Keeping in view of the above facts and circumstances of the case , we are of the considered opinion that principle of consistency has to be maintained and followed in this year as facts are almost similar to that of preceding years and hence we direct that the income earned by the assessee from purchase and sale of shares with respect to shares held for not more than one year be held as short term capital gains chargeable to tax under the head ‘Capital Gains’ and not as business income chargeable to tax under the head ‘Profits and Gains from Business or Profession’ as held by the authorities below . The reliance is placed upon the decision of Hon’ble Bombay High Court in the case of CIT v. Gopal Purohit (2011) 336 ITR 287(Bom.) and decision of Hon’ble Supreme Court in the case of Radhasoami Satsang v. CIT reported in (1992) 193 ITR 321(SC).The assessee succeeds in this appeal as per our discussions and reasoning as set out above.”
Read the full text of the order below.
Central Board of Direct Taxes (CBDT) had proactively released data relating to direct tax collections, PAN allocation and distribution of income in the returns for AY 2012-13 earlier in April, 2016.
Version 2.0 of the tax return data includes additional tables containing distribution of gross total income in respect of different types of taxpayers e.g. individuals, HUF, firms, companies, association of persons, etc.
In addition to the additional information provided in respect of gross total income, the new version also takes care of internal inconsistencies in the data set released earlier which had crept in due to data quality issues in some of the returns of income received from the taxpayers.
CBDT hopes that Version 2.0 will be found much more consistent and relevant for study and analysis by all the stakeholders.
Read the full text of the report below.
Section 35AC of the Income Tax Act 1961, inter alia provides for a deduction in computing the business income of an assessee, of the amount paid by him to a Public Sector company or a local authority or to an association or institution approved by the National Committee for carrying-out any eligible project or scheme.
Section 35AC of the Income Tax Act, as amended by the Finance Act, 2016, provides that no deduction under this Section shall be allowed in respect of any assessment year commencing on or after 1st April, 2018. Accordingly, the benefit of deduction under Section 35AC of the I.T. Act is available only up to previous year ending 31-03-2017 (Assessment Year 2017-18) in respect of the payments made to association or institution already approved by the National Committee for carrying-out any eligible project or scheme.
In view of the above, it may be noted that requests received after 31st December, 2016 for the grant/modification/extension of approval beyond 31st March,2017 under Section 35AC of the Income-Tax Act shall not be considered/entertained by the National Committee.
Fifth Set of Frequently Asked Questions (FAQs) was issued yesterday clarifying certain issues relating to Income Declaration Scheme,2016 (the Scheme). Clarification has been sought as to whether the answer number 4 of the said FAQ shall apply to all assets declared under the Scheme or it is limited to only immovable property. As explained in the said answer, the clarification was issued considering the fact that investment in an immovable property may be funded partially from undisclosed and partially from disclosed sources. In such cases, if the property is sold in near future, gains from part of the property may be long term and the balance may be short term. This shall cause undue hardship to the declarant. Therefore, the clarification issued relates only for determination of holding period of immovable property.
In view of the above, it is again clarified that answer number 4 of the said FAQ shall only be applicable for determining holding period of an immovable property for which the date of acquisition is evidenced by a deed registered with any authority of the State Government. However, for assets other than immovable property declared under the Scheme, the holding period shall start from 01.06.2016 for purpose of computation of capital gains.
The Central Board of Excise and Customs (CBEC) yesterday issued Circular to its officials regarding service tax liability in case of hiring of goods without the transfer of right to use goods.
The Circular states that representations have been received in respect of section 66E(F) of the Finance Act, 1994 which provides for transfer of any goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods is a ”declared service”and hence, liable to service tax.
The transactions involving the right to use of goods are covered under the Sales Tax/ Value Added Tax. As per Article 366(29A)(d) of the Constitution, the transfer of the right to use any goods for any purpose (whether or not for a specific period), for each, deferred payment or other valuable consideration is deemed to be a sale of those goods by the person making the transfer, delivery or supply is made.
The Board directs all the officials to follow the criteria laid down by the Supreme Court in the case of Bharat Sanchar Nigam Limited’s Case, if it is essential to determine whether there is transfer of use, in terms of the contracts, in matters involving hiring, leasing or licensing of goods.
It is stated that “it is not possible to either give an exhaustive list of illustration or judgments on this issue. Cases decided under the Sales Tax/ Value added Tax legislations have to be considered against the background of those particular legislative provisions and terms of contract in the case.”
The Board further instructed to refer the judgments in Commissioner VAT v. International Travel House Ltd., State Bank of India v. State of Andhra Pradesh, Ahuja Goods Agency v. State of Uttar Pradesh, Lakshmi A.V Inc. v.. Asst Commercial tax Officer, Karnataka and G.S Lamba & Sons v. state of Andhra Pradesh in the above matters. In connection with this, it was stated that “these should not be applied mechanically but their applicability to the facts of a given case, the terms of the Contract in the given case and the criteria laid down by the Supreme Court should be examined carefully.”
Recently, the Bombay High Court in Mahyco Monsanto Biotech (India) Pvt. Ltd and Others Case, held that sub-licensing of technology is a ‘transfer of right to use’ which attracts ‘Service Tax’ which was reported by the Tax Scan. The Court reached to this conclusion by applying the ration of G.S Lamba & Sons case.
Read the full text of the circular below.
While dismissing an appeal filed by Principal Commissioner of Income Tax against the order of Income Tax Appellate Tribunal, Ahmedabad, the division bench of Gujarat High Court held that, Interest on non performing assets (NPS) is not taxable on accrual basis looking to the guidelines of the Reserve Bank of India.
The assessee Mahila Sewa Sahakari Bank filed return of income for assessment year 2010-11 on 30.09.2010 declaring total income of Rs.1,55,66,430/- wherein it did not show interest income on non-performing assets. The assessment was picked up for scrutiny and notice came to be issued to the assessee under section 142(2) of the Act inter alia calling upon the assessee to furnish details of interest accrued on non-performing assets.
The assessee furnished such details and stated that such interest was not charged as mandatorily stipulated under Income Recognition and Assets Classification Norms of the Reserve Bank of India. The assessee placed strong reliance upon the Master Circular issued by the RBI on income recognition, assets classification, provisioning and other related matters up to 30.06.2008 and stated that in compliance of the circular no interest had been charged by it on NPA.
The assessee also submitted that the interest if charged on NPA would further enhance the NPAs as recovery of the NPA amount is itself not certain. It was also stated that even under the Income Tax Act, 1961 such amount cannot be taxed since no interest has ever accrued nor has been charged.
The division bench comprising of Justice Harsha Devani and Justice A.G Uraizee observed that, while determining the tax liability of an assessee, two factors would come into play. Firstly, the recognition of income in terms of the recognised accounting principles and after such income is recognised, the computation thereof, in terms of the provisions of the Income Tax Act, 1961. Insofar as the computation of taxability is concerned, the same is solely governed by the provisions of the Income Tax Act and the accounting principles have no role to play. However, recognition of income stands on a different footing. Insofar as income recognition is concerned, it would be the RBI Directions which would prevail in view of the provisions of section 45Q of the RBI Act and section 145 would have no role to play. Hence, the Assessing Officer has to follow the RBI Directions.
The distinction drawn by the Delhi High Court in Commissioner of Income-tax v. Vasisth Chay Vyapar Ltd., is that, while the accounting policies of adopted by the NBFC cannot determine the taxable income. However, insofar as income recognition is concerned, the Assessing Officer has to follow the RBI Directions, 1998 in view of section 45Q of the RBI Act. That insofar as income recognition is concerned, section 145 of the Income Tax Act, 1961 has not role to play.
Read the full text of the Judgment below.
The division bench of the Bombay High Court comprising of Justice S C Dharmadhikari and Justice G.S Patel, in a path-breaking judgment, held that sub-licensing of technology is a ‘transfer of right to use’ which attracts “Service Tax”. In another petition, the Court expressed that Maharashtra Value Added Tax (MVAT) is Applicable in case of “franchising agreements” since they provides only a permissive use. The relevant portions of the decision are stated below.
M/s, Monsanto India, One of the petitioners, which is a joint venture company of Monsanto Investment India Private Limited and the Maharashtra Hybrid Seeds Co. Monsanto India. The petitioners are engaged in the business of developing and commercializing insect-resistant hybrid cottonseeds using a proprietary “Bollgard technology”, one that is licensed to Monsanto India by Monsanto USA through its wholly-owned subsidiary, Monsanto Holdings Private Limited. This is further sub-licensed by Monsanto India to around 40 seed companies on a non-exclusive and nontransferable basis to use, test, produce and sell genetically modified hybrid cotton planting seeds. The fees received by the Petitioners for the above transaction is based on the number of packets of seeds sold by the sub-licensees.
The petitioners submitted that these agreements whereby the ‘Monsanto technology’ is granted by the Petitioner to the seed companies amounts to mere permissive useand, therefore, a service under Section 65(B)(44) of the Finance Act, 1994. The Revenue, on the other hand maintained that it is a “deemed sale” in the nature of “transfer of right to use goods” under clause (b)(iv) of the Explanation to Section 2(24) of the MVAT Act read with Article 366(29A)(d) and Entry 54 List II of the Constitution.
Regarding the applicability of the ratio of BSNL case in the instance case, the Court observed that “We must note that Mr. Venkatraman’s submission that the BSNL test must always be present in each and every case for a transaction to be considered a transfer of the right to use goods is overbroad. We do not think that in BSNL the Supreme Court intended to prescribe a test of global or universal application without regard to individual circumstances. The judgment of the Supreme Court (in paragraph 90) notes the factual aspects. There, the entire infrastructure, instruments, appliances and exchange remained in the physical control and possession of the petitioner at all times and there was neither any physical transfer of such goods nor any transfer of the right to use such equipment or apparatuses. One of the issues that arose for consideration was whether there was any transfer of the right to use goods by providing access or a telephone connection by the telephone service provider to a subscriber. This BSNL test, was, therefore, set out in these circumstances. The Court had no occasion to consider its applicability to intangible property like intellectual property. This is how BSNL has been interpreted by us in Tata Sons. We think that this interpretation is correct. In any case, it binds us. The Kerala High Court in MalabarGold, in paragraph 35, took a contrary view. It took the BSNL twin test to be applicable as a general proposition, i.e., one that admits of no variance. As discussed above, we do not think this can ever be a correct reading of BSNL.”
On the basis of the above findings, the Court held that the above transfer is a clear case of a transfer of the right to use goods. It was further opined that “In our opinion, the most fundamental aspect of permissive use of goods is that at the end of the period for which the use is granted, the goods must be returned to the transferor. Let us consider this in the context of a car hire service, a book library service, Amazon Kindle Unlimited and ITunes Radio. When a car is taken on hire, a fee is paid and the car can be used for a certain period of time. During this time, the person renting the car can only use it. He cannot part with it and certainly cannot destroy it. Once the period of hire comes to an end, the car must be returned to the transferor. Therefore, the effective control over the car remains with the transferor. Likewise, in the case of a book library, the books must be returned to the library. With the Kindle Unlimited, one must pay a subscription fee to gain access to an unlimited number of books in the proprietory AZW format. When the subscription expires, all the books are repossessed. ITunes Radio too is a similar concept. A subscription fee is paid, which allows access to music. Once this expires, access to the music is denied. These, in our opinion, are cases of permissive use. The Monsanto India sub-licensing transaction could only be a service in one circumstance, i.e., if the seed companies gave Monsanto India a bag of seeds to mutate and improve with the Bollgard Technology which would, thereafter, be returned to the seed companies. That might perhaps be a service.”
In the second petition, the petitioner, Subway contended that the service tax is applicable on them since the franchise agreement is not one for sale or transfer of right to use but merely permits the franchisee to display certain marks and to use certain technologies and methods in preparing the salads and sandwiches for sale. The petitioners relies on the cases of Tata Sons to urge that in Subway’s case, all that is granted is a permissive use. The franchisee under the agreement obtains a mere permission to display the name ‘Subway’ in a particular fashion, along with other services.
On behalf of the Revenue, it was argued that the franchise agreements are covered under the MVAT Act since “franchises” and “trademarks”, are expressly covered under the MVAT Act since 2005. The Government of Maharashtra, under the powers conferred by Entry 39 of Schedule C of the MVAT Act, issued a Notification (No. VAT- 1505/CR-114/Taxation-1), dated 1st June 2005, in which trademarks and franchises were included as “goods” for the purpose of Entry 39.
The division bench observed that “We believe that Mr. Shroff is correct when he says that the agreement between Subway and its franchisees is not a sale, but is in fact a bare permission to use. It is, therefore, subject only to service tax. In our opinion, the fact that the agreement between Subway and its franchisee is limited to the precise period of time stipulated in the agreement is vital to Subway’s case. At the end of the period of the agreement, or before in case there was any breach of its terms, the right of the franchisee to display the mark ‘Subway’ and its trade dress, and all other permissions would also end. This is what setsthis agreement apart from the case of Monsanto and its sublicensee. There, the seed companies could do as they pleased with the seeds; they could alienate or even destroy them. In Subway’s case, there are set terms provided by the agreement which have to be followed. A breach of these would result in termination of the agreement. We believe that there is no passage of any kind of control or exclusivity to the franchisees. In fact, this agreement is a classic example of permissive use. It can be nothing else. For all the reasons in law and fact that the sub-licensing of technology in Monsanto is held to be a transfer of right to use, this franchising agreement must be held to be permissive use.”
While concluding, the Court added that “In our opinion, the mere inclusion of ‘franchises’ under the MVAT Act would not automatically make all franchise agreements liable to sales tax. What must be looked at is the real nature of the transaction and the actual intention of the parties. The agreement must be considered holistically, and effect must be given to the contracting parties’ intentions. The label or description of the document is irrelevant. An agreement styled as a franchise might, on a proper examination, turn out to be nothing more than a mere license (as in Subway’s case). On the other hand, an agreement that calls itself a license might actually be a franchise. If, in a given case, a franchise agreement is effectively nothing more than a mere permissive use, it cannot be made liable to VAT. It would be a service, and hence liable to service tax. When interpreting a taxing statute, or for that matter any statute, full effect must be given to the words used by the Legislature. This, however, does not mean that this principle must be stretched to a point which leads to an absurd result, or one that was not contemplated by the Legislature. The Legislature is presumed to know the law and to have acted in accordance with it. We, therefore, do not think that the Legislature intended for this Notification to have such a sweeping effect as to bring all franchise agreements within the ambit of the MVAT Act. Presumably, what the Legislature intended was to included only those franchise agreements that involved a transfer of the right to use or some other aspect of a deemed sale as defined under Article 366(29A) of the Constitution. As discussed above, we find that Subway’s franchise agreement grants to the franchisee nothing more than mere permissive use of defined intangible rights. It is therefore a service, and is not amenable to VAT. We also hasten to clarify that we are not determining whether any particular kind of arrangement is or is not a franchise. Any examples we have given are merely illustrative, and not binding or final findings.”
Read the full text of the Judgment below.
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 (CBEC) No.106/2016-CUSTOMS (N.T.), dated 4th 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 19th August, 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
| Sl.No. | Foreign Currency | Rate of exchange of one unit of foreign currency equivalent to Indian rupees | ||
| (1) | (2) | (3) | ||
| (a) | (b) | |||
| (For Imported Goods) | (For Export Goods) | |||
| 1. | Australian Dollar | 52.50 | 50.55 | |
| 2. | Bahrain Dinar | 183.75 | 171.45 | |
| 3. | Canadian Dollar | 52.95 | 51.30 | |
| 4. | Danish Kroner | 10.35 | 9.95 | |
| 5. | EURO | 76.90 | 74.30 | |
| 6. | Hong Kong Dollar | 8.75 | 8.50 | |
| 7. | Kuwait Dinar | 229.50 | 214.70 | |
| 8. | New Zealand Dollar | 49.65 | 47.90 | |
| 9. | Norwegian Kroner | 8.30 | 8.00 | |
| 10. | Pound Sterling | 88.75 | 85.90 | |
| 11. | Singapore Dollar | 50.75 | 49.10 | |
| 12. | South African Rand | 5.20 | 4.85 | |
| 13. | Saudi Arabian Riyal | 18.45 | 17.25 | |
| 14. | Swedish Kroner | 8.10 | 7.80 | |
| 15. | Swiss Franc | 70.75 | 68.45 | |
| 16. | UAE Dirham | 18.80 | 17.65 | |
| 17. | US Dollar | 67.75 | 66.05 | |
| 18.
| Chinese Yuan | 10.25 | 9.95 | |
SCHEDULE-II
| Sl.No. | Foreign Currency | Rate of exchange of 100 units of foreign currency equivalent to Indian rupees | |
| (1) | (2) | (3) | |
| (a) | (b) | ||
| (For Imported Goods) | (For Export Goods) | ||
| 1. | Japanese Yen | 68.10
| 65.80 |
| 2. | Kenya Shilling | 68.20 | 63.75 |
In the spirit of Co-operative federalism and in order to bring-in the transparency and predictability in the Open Market Borrowings (OMBs) by the States, the Central Government has decided to simplify the consent mechanism for OMBs under Article 293 (3) of the Constitution.
Till now, the States were required to obtain quarterly consent from the Central Government for raising OMBs within the Net Borrowing Ceiling (NBC) fixed for each of the States as per the formula prescribed by the Fourteenth Finance Commission (FFC). The simplified mechanism would, however, allow the States to prepare their borrowing calendar for the first nine months and seek one-time consent for raising OMBs during the first nine months of the Financial Year. Thereafter, based on the assessment of details of borrowings and repayment thereof (actuals for first 3 quarters and estimates for last quarter), consent for the first two months of Fourth Quarter will be given. The consent for the last month i.e. March will be given based on the re-assessment of actual borrowings for the first 11 months by the States.
Thus, the simplified procedure will ensure that consent under Article 293(3) is issued only on three occasions during the year, one in the month of April for first nine months after fixation of borrowing ceilings, second in the month of December for the first two months of the fourth quarter and last in the month of March after the assessment of actual borrowings by the States.
