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Category: Direct Taxes

S. 234D has no retrospective effect — Applicable only from A.Y. 2004-05.

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7 ITO v. Ekta Promoters (P) Ltd.

ITA Nos. 2551 to 2553 (Del.) of 2006

A.Ys. : 1998-99 to 2000-01. Dated : 11-7-2008

S. 234D of the Income-tax Act, 1961 — S. 234D, inserted
w.e.f. 1-6-2003, being substantive in nature has no retrospective effect — It is
applicable only from A.Y. 2004-05 and cannot be charged for earlier assessment
years even though assessments are pending as on 1-6-2003.

 

A Special Bench was constituted to answer the following
question :

“Whether, in the facts and circumstances of the case,
interest u/s.234D should be charged from A.Y. 2004-05 or with reference to
regular assessment framed after 1-6-2003, irrespective of the assessment years
involved or irrespective of the date when refund was granted ?”

 


The Special Bench, relying on the decisions in the following
cases, held that the provisions of S. 234D are substantive and they cannot be
retrospective :

(a) J. K. Synthetics Ltd. v. CTO, (1994) 119 CTR
(SC) 222

(b) Padmasundara Rao (Decd.) & Ors. v. State of Tamil
Nadu & Ors., (2002) 176 CTR (SC) 104; (2002) 255 ITR 147 (SC)

(c) Reliance Jute & Industries Ltd. v. CIT, (1979)
13 CTR (SC) 186; (1979) 120 ITR 921 (SC)


The Special Bench noted as under :

(a) The argument that Legislature has brought this
provision just to fill the lacuna in the law and, therefore, these provisions
should be construed retrospective cannot be accepted, more particularly when
these provisions have been inserted on the statute w.e.f. 1-6-2003 and not
with retrospective effect.

(b) The Legislature has specifically mentioned the date of
applicability i.e., 1-6-2003 and the Legislature was not incompetent to
make retrospective provision, if it was so intended.

(c) In a fiscal legislation, if a provision is brought for
imposing any liability, the normal presumption will be that it has no
retrospective operation and it is a cardinal principle of tax law that law to
be applied is the law which is in force in the assessment year, unless
otherwise provided expressly or by necessary implication.

(d) The provisions regarding levy and collection of
interest even if construed as forming part of the machinery provisions are
substantive law for the simple reason that in the absence of contract or
usage, interest can be levied under law and it cannot be recovered by way of
damages for wrongful detention of amount.

(e) Thus, the contention of the Revenue that the provision
of S. 234D being under Chapter XVII under the head ‘Collection and recovery’
should be construed to be a procedural or machinery section and, therefore,
should be applied retrospectively has to be rejected.

(f) If the provisions of S. 234D are substantive, then the
same cannot be held to be retrospective, unless specifically provided in the
statute itself.

(g) While applying Heydon’s Rule, (mischief rule of
purposive construction) a word of caution is necessary that text of statute is
not to be sacrificed and the Court cannot rewrite the statute on the
assumption that whatever furthers the purpose of the Act must have been
sanctioned and, therefore, the Court cannot add to the means enacted by the
Legislature for achieving the object of the Act. Moreover, the application of
Heydon’s Rule itself does not confirm retrospective operation of a provision
brought under that rule. This is irrespective of the fact that for application
of that rule it is a condition precedent to find out that there existed a
mischief. Mere fact that earlier there was no provision to charge interest on
the refund issued on processing of return cannot by itself be described as
‘mischief’ or ‘defect’.



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S. 120, S. 124(3) and S. 148 — Reassessment initiated by AO not having jurisdiction, completed by AO having jurisdiction — Reassessment invalid.

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6 (2008) 117 TTJ 42 (Lucknow)


M. I. Builders (P.) Ltd. v. ITO

ITA No. 111 (Lucknow) of 2006

A.Y.  : 1997-98. Dated : 7-9-2007

S. 120, S. 124(3) and S. 148 of the Income-tax Act, 1961 —
Reassessment proceedings initiated by AO not having jurisdiction — Reassessment
completed in continuation of such initiation by AO having jurisdiction —
Reassessment was invalid.

For the relevant assessment year, notice u/s.148(1) was
issued by an Assessing Officer having no jurisdiction over the assessee. On
protest by the assessee within one month of such notice, the case was
transferred to the Assessing Officer having jurisdiction over the assessee and
this Assessing Officer finally passed the reassessment order. The assessee
contended before the CIT(A), inter alia, that the notice u/s.148(1) was
devoid of proper jurisdiction and, therefore, void ab initio.

The CIT(A), however, upheld the reassessment order.

The Tribunal, relying on the decisions in the following
cases, held that the reassessment was invalid :

(a) Lt. Col. Paramjit Singh v. CIT, (1996) 135 CTR
(P&H) 8; (1996) 220 ITR 446 (P&H)

(b) Naginimara Veneer & Saw Mills (P) Ltd. v. Dy. CIT,
(1996) 136 CTR (Gau.) 134; (1996) 219 ITR 527 (Gau.)

(c) Anant Mills Ltd. (In Liquidation) v. CIT, (1993)
109 CTR (Guj.) 231; (1994) 206 ITR 582 (Guj.)

(d) P. A. Ahammed v. Chief CIT, (2006) 200 CTR
(Ker.) 378; (2006) 282 ITR 334 (Ker.)

(e) CIT v. Metal Goods Manufacturing Co. (P) Ltd.,
(1992) 197 ITR 230 (All)

(f) K. V. Kader Haji (Decd.) through LR v. CIT,
(2004) 189 CTR (Ker.) 313; (2004) 268 ITR 465 (Ker.)

(g) ITO v. Ashoke Glass Works, (1980) 125 ITR 491
(Cal.)

The Tribunal noted that the issuance of notice u/s. 148(1) by
the first Assessing Officer was without jurisdiction and, therefore, invalid.
The assessment framed on that basis by the jurisdictional Assessing Officer was
also invalid and, therefore, cancelled.

The Revenue’s stand for protection u/s.124 was also not
allowed by the Tribunal. It noted as follows :

(a) Invoking of S. 124(2) would arise if there was any
chance of validation of proceedings by virtue of S. 124(3) which is not
available to the Assessing Officer in the present case, either under clause
(a) or under clause (b) of S. 124(3).

(b) Protection of the proceedings and assessment thereafter
on account of failure of the assessee to object within the time allowed
u/s.124(3) is available to specific proceedings and not to every proceeding.
Erroneous assumption of jurisdiction cannot, in general, be validated. Such
validation is specific in S. 124(3).

 

(2008) 117 TTJ 289 (Delhi) (SB)


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S. 40A(3) — Cash payment exceeding prescribed limits — S. 40A(3) read with Rule 6DD — Purchases in cash towards supplies of carcass in business of processing and export of meat and meat products — Allowable under clause (l) of Rule 6DD — Also as per claus

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  1. (


  1. (2009) 120 itd 89 (Delhi)


Dy. CIT v.
Hind Industries Ltd.

A.Y. : 2003-04. Dated : 26-9-2008

 

S. 40A(3) — Cash payment exceeding prescribed limits — S.
40A(3) read with Rule 6DD — Purchases in cash towards supplies of carcass in
business of processing and export of meat and meat products — Allowable under
clause (l) of Rule 6DD — Also as per clause (f) of Rule 6DD and, therefore, no
disallowance could be made u/s.40A(3).

The assessee-company was engaged in the business of
processing and export of meat and meat products. The assessee had made all the
purchases in cash and had regularly withdrawn huge cash from bank and
ostensibly made payments for supplies of carcass. The Assessing Officer was of
the view that the payments made in cash would be hit by provisions of S.
40A(3). On appeal, the Commissioner (Appeals) opined that since the payments
had been made to agents in respect of purchases of carcass, there was no room
to interpret clause (f) of Rule 6DD in favour of the assessee. However, so far
as the assessee’s claim for exclusion under clause (l) of Rule 6DD was
concerned, the Commissioner (Appeals) held that payments in cash to agents for
purchases of products of animal husbandry could not be disallowed u/s.40A(3).

 

On the Revenue’s appeal, the ITAT held that :

(1) The AO had disallowed the claim of the assessee in
view of the decision of the Allahabad High Court in the case of CIT v.
Pehlaj Raj Daryanmal, (1991) 190 ITR 242. The decision by the Allahabad
High Court was rendered in 1991 whereas clause (l) was inserted by the IT
Amendment Rules in the year 1995. Therefore, the ratio of the decision of
the Allahabad High Court would not be applicable to the facts of the instant
case.

(2) The contention of the department, that there was no
agent, did not sound good because the AO himself had disallowed the payments
for the reason that they were not made directly to producers/cultivators but
through intermediaries or agents.

(3) Though the Commissioner (Appeals) had rejected the
claim under clause (f), yet, in view of Rule 27 of the Income-tax (Appellate
Tribunal) Rules, 1963, the claim of the assessee was allowable as per clause
(f) of Rule 6DD.

Accordingly, the order of the Commissioner (Appeals) was to
be confirmed.


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S. 32 — Whether road is eligible for depreciation in category of ‘building’ at rate applicable to buildings — Held, Yes.

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  1. (2009) 120 ITD 20 (Chennai)


Tamil Nadu Road Development Co. Ltd. v. ACIT/ITO

A.Ys. : 2003-04 and 2004-05

Dated : 24-10-2008

S. 32 — Whether road is eligible for depreciation in
category of ‘building’ at rate applicable to buildings — Held, Yes.

The assessee-company was incorporated for construction,
development and maintenance of roads at various places in Tamil Nadu as per
the agreement entered into with the Government of Tamil Nadu. Its claim for
depreciation on roads at the rate of 25% (as plant and machinery), was
rejected by the Assessing Officer as road did not figure in the depreciation
schedule. He further observed that roads were not buildings, entitled to
depreciation. On appeal, the Commissioner (Appeals) upheld the Assessing
Officer’s view.

On second appeal by the assessee, the Tribunal held that :

(1) Merely because some optical fibre lines or connection
lines had been laid, the road could not get converted into a plant.

(2) The assessee-company was entitled to collect fixed
amount of toll per vehicle for which it could have created any kind of
barrier for collection of such toll. If the assessee had chosen to install
automated toll plaza, then mere construction of one toll plaza would not
change the nature of the asset which remained the road.

(3) After the A.Y. 1988-89, all the appendices,
prescribing the table of rates of depreciation had the note that building
would include road. Therefore, the assessee would become entitled to
depreciation on the road in the category of ‘building’.

 


In these circumstances, the order of the Commissioner
(Appeals) was set aside and the Assessing Officer was directed to allow
depreciation on the road at the rate applicable to the buildings.


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Collection of tax at source u/s.206C — Collection of octroi under Bombay Provincial Municipal Corporation Act, 1949 was neither for parking lot nor at toll plaza nor for mining or quarrying nor it was for purpose of business, and, therefore, collection of

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  1. (2009) 120 ITD 7 (Nag.)


Akola Municipal Corporation v. ITO

A.Ys. : 2005-06 to 2007-08

Dated : 21-5-2008

 

Collection of tax at source u/s.206C — Collection of octroi
under Bombay Provincial Municipal Corporation Act, 1949 was neither for
parking lot nor at toll plaza nor for mining or quarrying nor it was for
purpose of business, and, therefore, collection of octroi by agent appointed
by assessee would not fall in S. 206C(1C).

 

The assessee-corporation had appointed an agent for
collection of octroi, as levied by the assessee under the Bombay Provincial
Municipal Corporation Act, 1949. The assessing authority held that the
assessee was to collect tax at source on the octroi which was in the nature of
‘Toll Plaza’ within meaning of S. 206C(1C). On appeal, the Commissioner
(Appeals) confirmed the order of the assessing authority.

 

On second appeal by the assessee :

(1) On a close reading of the legislation like the Bombay
Provincial Municipal Corporation Act, 1949, the Constitution, the Tolls Act,
1851 and the Supreme Court and the High Courts’ decisions and various
dictionary meanings, it could be said that ‘toll’ is a different thing than
‘octroi’. Octroi is normally a tax levied on entry of goods into local
areas, whereas ‘toll’ is a tax levied as compensation for the purpose of
temporary use of land or allowing passage of vehicles through the land.

(2) In the instant case, the contract of the
assessee-corporation with the agent for collecting octroi, was different
from clause (e) of the said section dealing with ‘toll’.

 


Accordingly, the orders of the Commissioner (Appeals) as
well as the Assessing Officer were to be vacated and the appeal of the
assessee was to be allowed.


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Deductions u/s.80-IB — Conditions stipulated U/ss.(2) of S. 80-IB are to be fulfilled only if eligible assessee is an industrial undertaking within meaning of Ss.(3) to Ss.(5) of said section — Where assessee was engaged in business of carrying out scient

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  1. (2009) 119 itd 427 (Mum.)


Enem Nostrum Remedies (P.) Ltd. v. ACIT

A.Ys. : 2003-04 and 2004-05

Dated : 28-8-2008

Deductions u/s.80-IB — Conditions stipulated U/ss.(2) of S.
80-IB are to be fulfilled only if eligible assessee is an industrial
undertaking within meaning of Ss.(3) to Ss.(5) of said section — Where
assessee was engaged in business of carrying out scientific research and
development and was not an industrial undertaking and had been approved by
Government of India, for claiming benefit of deduction u/s.80-IB(8A),
conditions of Ss.(2) of S. 80-IB were not required to be fulfilled by it.

 

The assessee-company had been approved as an R&D company by
the department of scientific and industrial research. It claimed deduction
u/s.80-IB(8A). The Assessing Officer denied the deduction u/s.80-IB(8A) by
observing that :

(1) The assessee had not claimed deduction u/s.80-IB(8A)
in the initial year,

(2) Subsequent claim made by it in the relevant
assessment years could only lead to the surmise that its business was formed
by splitting up, or the reconstruction of a business already in existence;

(3) The certificate by the Chartered Accountant in Form
10CCB was not produced.

 


On appeal, the Commissioner (Appeals) held that the
assessee did not fulfill the conditions of S. 80-IB(2)(iii) as it was not
manufacturing or producing any article or thing, and, accordingly, upheld the
view of the Assessing Officer on a different count.

On second appeal by the assessee, the Tribunal held that :

(1) The four conditions stipulated U/ss.(2) of S. 80-IB
are to be fulfilled only if the eligible assessee is an industrial
undertaking within the meaning of S. (3) to S. (5) of said Section, as the
case may be.

(2) If the assessee is not an ‘industrial undertaking’
but is otherwise eligible for deduction under any of other sub-sections of
S. 80-IB, then there is no requirement for importing the conditions
stipulated in Ss.(2) of S. 80-IB which are applicable to industrial
undertakings.

(3) Since in the instant case, the assessee was engaged
in the business of carrying out scientific research and development and had
been approved by the Government of India, for claiming the benefit of
deduction u/s.80-IB(8A), the conditions of Ss.(2) of S. 80-IB were not
required to be fulfilled by it.

Based on the above observations, the Tribunal directed the
Assessing Officer to allow deduction as claimed by the assessee.


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S. 194J of the Act are applicable to payments made for availing bandwidth services and port charges — Held, No.

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New Page 26
2009 TIOL 130 ITAT Mum.


Pacific Internet (India) Pvt. Ltd.
ITA Nos. 1607 to 1609 (Mum.) of 2006
A.Ys. : 2003-04 to 2005-06. Dated : 23-12-2008



Whether payments made to MTNL/VSNL for availing
bandwidth services and port charges are technical services — Held, No. Whether
provisions of


S. 194J of the Act are applicable to payments
made for availing bandwidth services and port charges
— Held, No.

Facts :

The assessee-company was engaged in the business
of providing internet access services to corporate clients and consumers. In
the course of survey action u/s.133A of the Act against the assessee, on
29-10-2004, it was found that the assessee had made huge payments to avail
services of MTNL and VSNL for using bandwidth and network operating. The
Assessing Officer was of the opinion that in respect of payments made to MTNL/VSNL
for availing bandwidth services and port charges, the assessee should have
deducted tax at source as required u/s.194J of the Act. The Assessing Officer,
therefore, treated the assessee as in default within the meaning of S. 201(1)
and passed the order, raising the demand against the assessee for failure to
deduct tax in respect of payments made to MTNL/VSNL and also levied interest
as per the provisions of S.


201(1A) of the Act. Aggrieved, the assessee
preferred an appeal to CIT(A), challenging the order passed by the Assessing
Officer treating the assessee in default within the meaning of S. 201(1), but
did not find favour.

On an appeal by the assessee to the Tribunal,

Held :

The bandwidth services and other infrastructure
availed by the assessee for providing Internet access to its customers are
standard facilities. The Tribunal was of the view that the case of the
assessee is covered by the decision of Delhi High Court in the case of Estel
Communications (P.) Ltd. and accordingly held that payment made by the
assessee company to MTNL/VSNL and other concerns for availing the service of
bandwidth network infrastructure cannot be said to be technical services
within the meaning of S. 194J of the Act read with Explanation 2 to clause
(vii) of S. 9(1) of the Act. The appeal filed by the assessee was allowed and
the orders passed by the Assessing Officer u/s.201(1) and u/s.201(1A) of the
Act were cancelled.

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S. 23 of the Income-tax Act, 1961 — Annual Value — In respect of a let-out property whether association maintenance charges are deductible while computing annual letting value of the property u/s.23 of the Act — Held, Yes.

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New Page 25 2009 TIOL 126 ITAT Bang.


Sheriff Constructions v. ACIT
ITA No. 975/Bang./2008
A.Y. : 2005-2006. Dated : 23-12-2008

 




S. 23 of the Income-tax Act, 1961 — Annual
Value — In
respect of a let-out property whether association maintenance charges are
deductible while computing annual letting value of the property u/s.23 of
the Act — Held, Yes.

Facts :

The assessee-firm was owner of a property by
the name ‘The Summit’ from which rent of Rs.18,39,027 was declared and in
doing so, the assessee deducted association maintenance charges of
Rs.1,77,000. The AO disallowed the claim by holding that this is not an
allowable expenditure u/s.24 of the Act.

The CIT(A) upheld the order of the AO.

In an appeal before the Tribunal, the assessee
contended that since the association maintenance charges have to be paid by
the owner of the property, it depresses the annual letting value of the
property and thus the amount of rent which the property may be reasonably
expected to let from year to year would be an amount against which the
maintenance charges have to be reckoned with. Therefore, the association
maintenance charges were claimed u/s.23(1)(b) of the Act while computing the
annual letting value of the property.

Held :

The issue under consideration is squarely
covered in favour of the assessee in view of the decision of the Delhi Bench
of the Tribunal in the case of Neelam Cable Manufacturing Co. and the
decisions of Mumbai Bench of Tribunal in the case of Sharmila Tagore and
also in the case of Bombay Oil Industries Ltd. The Tribunal observed that no
order or judgment taking a contrary view was brought to its notice by the
Department. Accordingly, the AO was directed to deduct association
maintenance charges paid by the assessee to the Summit Apartment Owners’
Association while computing the annual letting value of the property u/s.23
of the Act.

Cases referred to :

  1. Neelam Cable Manufacturing Co. v. ACIT, (1997) 63 ITD 1 (Del.)

  2. Sharmila Tagore v.
    JCIT,     (2005) 93 TTJ 483 (Mum.)

  3. Bombay Oil Industries,
    ITA No. 550/Mum./ 2000 dated 15-11-2000.

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S. 10B of the Income-tax Act, 1961 — Second proviso to S. 10B(1) and Ss.(4) of S. 10B — When the assessee had domestic sales of more than 25% of total sales value during A.Y. 2001-02, is the asses-see still entitled to partial deduction proportionately on

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New Page 24 2009 TIOL 124 ITAT Mad.-TM


Tube Investments of India Ltd. v. ACIT
ITA No. 12/Mds./2006
A.Y. : 2001-2002. Dated : 5-1-2009

S. 10B of the Income-tax Act, 1961 — Second
proviso to S. 10B(1) and Ss.(4) of S. 10B — When the assessee had domestic
sales of more than 25% of total sales value during A.Y. 2001-02, is the
asses-see still entitled to partial deduction proportionately on export
turnover in view of S. 10B(4) — Held, Yes. Whether excise duty needs to be
included in domestic turnover while computing the value of domestic sales to
find out the domestic sales as a percentage of total turnover — Held, Yes.

Facts :

The assessee had in its return of income claimed
a sum of Rs.2,88,84,327 as exempt u/s.10B of the Act in respect of income of
100% EOU. In the course of assessment proceedings, the AO noted that the
details of sales were as under :

Domestic Sales     Rs. 901.40 lakhs

Export Sales         Rs. 2,227.34 lakhs

Total Sales           Rs. 3,128.74 lakhs

The AO held that since the domestic sales were
28.8%, the assessee was not entitled to deduction u/s.10B of the Act. The
domestic sales as mentioned above were taken to be inclusive of excise duty.

On an appeal by the assessee, the CIT(A)
confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal to
the Tribunal where it contended that the amount of domestic sales to be
considered should be exclusive of excise duty. Also, since during the
assessment year under consideration, second proviso to as well as Ss.(4) were
both on the Statute Book, therefore, it is entitled to claim deduction
u/s.10B, if not at 100%, on proportionate basis in terms of Ss.(4) of S. 10B.

As regards inclusion of excise duty in computing
the value of domestic sales, the Tribunal held that in view of the ratio of
the decision of SC in the case of Chowranghee Sales Bureau P. Ltd., excise
duty and sales tax are part of trading turnover and therefore, excise duty
needs to be included in domestic sales to find out the value of domestic
sales.

The Accountant Member held that since during the
assessment year, both, the second proviso as well as Ss.(4) were on the
statute book, an assessee whose domestic sales were less than 25% would be
covered by the second proviso and would be entitled to 100% deduction and if
the domestic sales exceeded this limit of 25%, then Ss.(4) would apply and the
assessee would be entitled to deduction on a proportionate basis. In the
present case, since the domestic sales exceeded 25% of the total sales, the AO
was directed to allow deduction on a proportionate basis u/s.10B(4).

The Judicial Member disagreed with the Accountant
Member on the issue of grant of proportionate deduction and held that during
the period relevant to the A.Y. 2001-02, if an assessee had domestic sale of
more than 25%, then the assessee would not be entitled to exemption u/s.10B of
the Act.

Upon a difference of opinion amongst the Members,
the TM was asked to consider the question as to whether when the assessee had
domestic sales of more than 25% of the total sale value during the A.Y.
2001-02, he is still entitled to partial deduction on export turnover in view
of provisions of 10B(4) ?

On a reference the Third Member

Held :

The eligibility criteria are laid down in Ss.(1).
The second proviso is an additional incentive which has been granted to the
assessee to provide economic flexibility and to allow it to dispose of the
export-rejects and by-products, etc. The second proviso no way governs the
eligibility criteria. No interdict is laid down in the statute to withdraw the
total benefit of S. 10B in the eventuality of domestic sales being in excess
of 25% limit. There is no ambiguity in the language of the statute. The
interpretation that benefit of S. 10B is not available in the eventuality of
domestic sales exceeding the percentage mentioned in the second proviso would
render the provisions of Ss.(4) otiose. On the panoply of the second proviso
deduction cannot be denied. Accordingly, he held that the assessee was
entitled to claim deduction proportionately on export turnover in view of the
provisions of S.10B(4).



The view of the Accountant Member became the
majority view. The ground raised by the assessee stood allowed.

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S. 10(10D) read with S. 37(1) of the Income-tax Act, 1961 — Keyman Insurance Policy premium paid by firm in respect of policy on lives of partners is an allowable deduction.

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New Page 23 (2009) 27 SOT 476 (Mum.)


 ITO v. Modi Motors
 ITA No. 6900 (Mum.) of 2006

A.Y. : 2003-04. Dated : 12-12-2008
 

 
S. 10(10D) read with S. 37(1) of the Income-tax Act, 1961
— Keyman Insurance Policy premium paid by firm in respect of policy on
lives of partners is an allowable deduction.

For the relevant assessment year, the assessee’s
claim for deduction of premium paid by it on the Keyman Insurance Policy in
respect of the lives of two working partners u/s.37(1) was disallowed by the
Assessing Officer on the grounds that :

  1. Keyman Insurance Policy
    premium was allowable only in case an assessee who was an employer, paid the
    amount in respect of the life of an employee.

  2. the partnership firm could
    not be termed as ‘Another person’ within the meaning of S. 10(10D), as a
    firm is not independent and distinct from its partners.

The CIT(A) held that the Assessing Officer was
not justified in presuming that there was no distinction between the partners
and the firm, and the conditions of S. 37 were also satisfied because that
expenditure had been incurred for the purpose of business and, accordingly, he
deleted the disallowance made by the Assessing Officer.

The Tribunal allowed the claim of the assessee.
The Tribunal noted as under :


  1. In view of
    the various judicial opinions and also the legislative change in the Act, it
    was to be held that under the Income-tax Act, a partnership firm is an
    entity separate from its partners and if there exists any specific provision
    in the Income Tax law modifying the partnership law, then such specific
    provision shall be applied.




  2. The
    wordings of Explanation to S. 10(10D) are also relevant, wherein it has been
    mentioned that “Keyman Insurance Policy life insurance taken by the person
    on the life of another person who is or was the employee of a
    first-mentioned person or is or was connected in any manner whatsoever with
    the business of the first-mentioned person”. Hence, the Legislature has also
    envisaged various kinds of relationships (in addition to employer-employee
    relationship) which may exist between the person paying the premium and the
    person on whose life such

     





Keyman Insurance Policy is taken.


  1. The CBDT
    vide its Circular No. 762, dated 182-1998 has explained the provisions of S.
    10(10D) wherefrom it is abundantly clear that in order to allow the premium
    paid on Keyman Insurance Policy as business expenditure, there can exist
    relationships other than that of an employer and employee.




  2. The amount
    received on maturity or surrender of Keyman Insurance Policy is taxable
    under the head ‘Income from salary’ u/s.17(3)(ii) or ‘Income from profits
    and gains of business or profession’ u/s.28(1)(vii) or ‘Income from other
    sources u/s.56(2)(iv)’. Hence, if the Legislature would have intended that
    such premium was allowable as deduction only in cases where employer and
    employee relationship existed, then the amount received on
    maturity/surrender would have been made taxable only under the head `Income
    from salary’.





  3. In view of
    the above, Keyman Insurance Premium paid by the firm on the life of its
    partners is allowable as business expenditure.



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Tax avoidance — For application of Ss.(7) of S. 94, all the three conditions mentioned in clauses (a), (b) and (c) thereof must be cumulatively satisfied; conditions of three months before and after record date for purchase and sale respectively of units

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New Page 22 (2008) 304 ITR (AT) 36 (Delhi)


ITO v. Shambhu Mercantile Ltd. ITA No. 2056/Del./2006
A.Y. : 2004-2005. Dated : 29-2-2008

S. 94(7) and CBDT Circular No. 14 of 2001

Tax avoidance — For application of Ss.(7) of
S. 94, all the three conditions mentioned in clauses (a), (b) and (c) thereof
must be cumulatively satisfied; conditions of three months before and after
record date for purchase and sale respectively of units not having been
satisfied cumulatively in all the transactions, loss incurred in those
transactions could not be disallowed by invoking Ss.(7) of S. 94.

The assessee had purchased units of three mutual
funds on the record date for declaration of dividend. These units were sold
after a period of three months from the said record date at a loss of
Rs.1,88,47,816.

The Assessing Officer held that S. 94(7) can be
invoked even if any one of the conditions is fulfilled. Since the units were
purchased on the record date, he held the case to be one of dividend stripping
and disallowed the loss invoking the provisions of S. 94(7), even though they
were sold after three months from the record date. The CIT(A) accepted the
claim of the assessee that all three conditions of S. 94(7) are to be
cumulatively satisfied. On Revenue’s appeal, the ITAT held that :

  1. The question that arises for consideration is as to whether clauses (a), (b)
    and (c) of S. 94(7) need to be satisfied cumulatively or not. One may take a
    look at the language used in other portions of the IT Act, 1961, where such
    requirement for satisfying one of the many conditions or all conditions
    cumulatively is laid down.

  2. The case where only one condition is needed to be satisfied as laid down in
    the proviso to S. 139(1) relating to one by six scheme, may be taken for
    instance. The language of such provision uses the expression ‘or’ at the end
    of each condition.

  3. The Legislature, when it desired that all conditions are to be satisfied
    cumulatively, has used the word ‘and’ in the relevant provision. For
    example, one may take the language used in provisions of S. 80-O, where the
    conditions of receipt of income in convertible foreign exchange and such
    income should be for services rendered outside India are cumulatively
    required to be satisfied.

  4. A
    plain reading of the provision of S. 94(7) shows that it has neither used
    the expression ‘or’ nor the expression ‘and’. The Revenue wants to say that
    each of the conditions laid down in S. 94(7) is independent and if an
    assessee satisfies any one of the conditions, then he should be held to be
    covered within the mischief of the law. But the use of words, ‘such person’,
    ‘such unit’, ‘such date’, ‘such securities or units’ in clauses (b) and (c)
    of S. 94(7) also indicates that the three clauses have to be read
    together—Such an interpretation also finds support from CBDT Circular No. 14
    of 2001.

On these reasonings, the ITAT upheld the claim of
the assessee that all the conditions laid down in clauses (a), (b) and (c) of
Ss.(7) of S. 94 have to be satisfied before the said provisions can be applied
in a given case.

levitra

Assessee engaged in loading and unloading iron and steel at railway siding using a mobile crane cannot be said to be carrying on civil construction work within the meaning of S. 44AD and, therefore, she is not liable to penalty u/s.271B for failure to get

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New Page 21 (2008) 304 ITR (AT) 246 (Patna)


Nirmal Jain (Smt.) v. ITO
ITA No. 273/Pat./2005
A.Y. : 2000-01. Dated : 8-2-2007

S. 44AB, S. 44AD, S. 271B, S. 273B

Assessee engaged in loading and unloading iron
and steel at railway siding using a mobile crane cannot be said to be carrying
on civil construction work within the meaning of S. 44AD and, therefore, she is
not liable to penalty u/s.271B for failure to get accounts audited u/s.44AB,
even though she has shown income below 8% of the gross receipts.

The assessee was engaged in loading and unloading
iron and steel at railway siding using a mobile crane. She declared net profit
at a rate lower than 8% of the gross receipts. The Assessing Officer held that
she should have got her accounts audited as required under clause (c) of S. 44AB
and accordingly imposed penalty u/s.271B. The said order of penalty was upheld
by the CIT(A). On second appeal, the ITAT held that :

1. Use of mobile crane for loading and unloading iron and steel cannot be said to be civil construction work. Once the provisions of S. 44AD are enacted for computing profits and gains of business of civil construction, then any other work which is not in the nature of civil construction cannot be brought within the mischief of this Section.

2. ‘Works contract’ cannot be construed to mean any contract relating to work. Therefore, the assessee was under a bona fide belief that her case does not fall u/s.44AD and that she was not required to get her accounts audited, even though she has shown income below 8% of the gross receipts.

3. Her gross receipts being less than Rs. 40 lacs, there was no compulsion to get the accounts audited u/s.44AB.

4. The principle of ejusdem generis has to be invoked when particular words pertaining to a class or category or genre are followed by general words, and the general words are construed as limited to words of the same kind as those specified. This principle would apply when : (i) the statute contains an enumeration of specified words; (ii) the subject of enumeration constitutes a class or category; (iii) that class or category is not entrusted by enumeration; (iv) each term follows enumeration; and (v) there is no indication of a different legislative intent.

5. There is no legislative intent to infer that works contract can mean any works contract other than civil construction. The heading of S. 44AD clearly says “Special provision for computing profits and gains of business of civil construction, etc.” Ss.(1) of S. 44AD provides that a sum equal to 8% of the gross receipts paid or payable to the assessee can be assessed as income from civil construction or supply of labour for civil construction. Therefore, intention of the Legislature is clear that S. 44AD has been enacted for the purpose of computing profits and gains of business of civil construction and nothing else.

Cases referred to :

    CIT v. Shree Warna Sahakari Sakhar Karkhana, (2002) 253 ITR 226 (Bom.), and

    CIT v. Mohd. Ishaque Gulam, (1998) 232 ITR 869 (MP)

Payment of tax by employer on behalf of employee is a non-monetary perquisite — Tax on such tax is exempt u/s.10(10CC)

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3) (2007) 109 ITD 141 (Delhi) (SB)


RBF Rig Corpn. LIC (RBFRC) v. ACIT

A.Y. 2004-05. Dated : 30-11-2007

 

Payment of tax by employer on behalf of employee is a
non-monetary perquisite and hence tax on such tax is not liable to be again
included in the total income of the employee by virtue of clause 10CC of S. 10.

 

For A.Y. 2004-05, the returns of income of non-resident
foreign national employees employed in India were filed by the employer as their
statutory agents. These employees were paid salary ‘net of taxes’ and the taxes
were borne by the employer company. Accordingly, the taxes borne by the employer
were added to the income of the employees and tax was calculated on the
grossed-up salary. However, the Assessing Officer held that the tax borne by the
employer was also a monetary perquisite and hence further tax on such tax should
also be added to the salary by multiple-stage grossing up process. The assessee
appealed to CIT(A), but without success.

 

In the following two cases, the Delhi Bench of the Tribunal
held that tax on tax borne by the employer was a monetary perquisite and hence
not exempt u/s.10(10CC) :

(1) B.J. Services Co. Middle East Ltd. v. ACIT, (IT
Appeal No. 4033 to 4053 of 2005)

(2) Western Geo International Ltd. v. ACIT, (2007)
16 SOT 459

 


In the circumstances, a Special Bench was constituted at the
request of the assessee and recommended by the Regular Bench to consider the
operation of S. 10(10CC) and to review the above decisions.

 

The Special Bench observed that :

(1) The Finance Act 2002 has inserted Clause 10CC in S. 10
to exempt tax on non-monetary perquisites paid by the employer on behalf of
the employees.

(2) The above clause overrides S. 200 of the Companies Act,
1956, which prohibits payment of tax-free salary by a Company.

(3) Combined reading of S. 10(10CC) along with other
consequential amendments by the Finance Act, 2002 like insertion of S.
192(1A), S. 40(a)(v), amendment of S. 195A, etc. suggests that the employer
has an option to pay the taxes on behalf of the employee. Once this option is
exercised by the employer, it is nothing but discharge of an obligation by the
employer, which but for such payment by the employer would have been payable
by the employee. Thus it is a perquisite fully covered by sub-clause (iv) of
clause (2) of S. 17.

(4) A payment by the employer to a third party on behalf of
the employee cannot be considered as a monetary payment to the employee. It
may be a monetary gain or monetary benefit or monetary allowance for the
employee, but it is definitely not a monetary payment to the employee.

(5) S. 10(10CC) excludes from its operation tax on direct
monetary payments to the employees. Tax paid to the Government is a payment to
a third party and hence cannot be excluded from the operation of S. 10(10CC).

 


Thus, taxes paid by employer on behalf of employees is a
non-monetary perquisite within the meaning of S. 17(2)(iv) and hence tax on such
tax is exempt u/s.10(10CC). Such taxes can be added in the salary of the
employees for the purpose of grossing up, but the tax on such tax can not be
again added for multiple-stage grossing up.

 

Case relied upon :

 CIT v. Mafatlal Gangabhai & Co. (P) Ltd., (1966) 219 ITR 644 (SC)

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S. 43B : (a) Advance payment of excise duty allowable without incurring of prior liability. (b) Modvat credit available does not amount to payment, hence not allowable.

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2) (2007) 110 TTJ 183 (Chd.) (SB)


Dy. CIT v.
Glaxo Smithkline Consumer Healthcare Ltd.

ITA No. 343 (Chd.) 2005

A.Y.2001-02. Dated : 20-7-2007

S. 43B of the Income-tax Act, 1961 –




(a) Deduction for tax, duty, etc. is allowable u/s.
43B on payment basis before incurring the liability to pay such amounts;
excess amount of excise duty reflected in the account-current is, therefore,
nothing but actual payment of excise duty, even though mentioned as advance
payments. Hence, it is allowable deduction u/s.43B.


(b) Modvat credit available to assessee, as on the
last day of the previous year does not amount to payment of excise duty and,
hence, not allowable u/s.43B.


 


Allowability u/s.43B on payment :

The assessee’s claim before the Assessing Officer was that
the balance of Central Excise Duty lying in the PLA and RG-23 registers should
be allowed as a deduction u/s.43B. The CIT(A) allowed the claim, relying on the
decisions in the following cases :

(a) Raj & Sandeep Ltd. v. Asst. CIT, (ITA No.
1853/Chd./1992 dated 18-2-1993)

(b) Modipon Ltd. v. IAC, (1995) 52 TTJ (Del.) 477

(c) Honda Siel Power Products Ltd. v. Dy. CIT,
(2000) 69 TTJ 97 (Del.)/(2001) 77 ITD 123 (Del.)

 


The Regular Division Bench at Chandigarh found that divergent
views have been expressed by the co-ordinate Benches of the Tribunal on this
issue and there is no judgment of any superior Court so as to settle the
divergent views. The Special Bench was constituted to decide the following
issue :

“Whether deduction for tax, duty, etc. is allowed on
payment basis without incurring of prior liability to pay such amount u/s.43B
of the Act ?”

 


The Special Bench held that deduction for tax, duty, etc. is
allowable u/s.43B on payment basis before incurring the liability to pay such
amounts; excess amount of excise duty reflected in the account-current is,
therefore, nothing but actual payment of excise duty even though mentioned as
advance payments. Hence, it is allowable as deduction u/s.43B. The Special Bench
relied on the decisions in the following cases :

(a) Indian Communication Network (P) Ltd. v. IAC,
(1994) 48 TTJ (Del.) (SB) 604; (1994) 49 ITD 56 (Del.) (SB)

(b) Lakhanpal National Ltd. v. ITO, (1986) 54 CTR
(Guj.) 241; (1986) 162 ITR 240 (Guj.)

(c) Berger Paints India Ltd. v. CIT, (2004) 187 CTR
(SC) 193; (2004) 266 ITR 99 (SC)

 


The Special Bench noted as under :

(a) S. 43B provides for the deduction of sums payable
mentioned in clauses (a) to (f), only if actually paid, but it shall be
allowed irrespective of the previous year in which the liability to pay such
sum was incurred by the assessee. The intention of the legislature is apparent
in the language used in S. 43B that the deduction in respect of tax or duty,
which was actually paid by the assessee has to be allowed as deduction without
looking into the year of incurring the liability. The expression ‘irrespective
of the previous year’ dispenses with the concept of previous year in the
matter of the sums covered by S. 43B.

(b) Any reference to the time of incurring or accruing of
the liability is dispensed with by the statute, while concentration is made on
the point of actual payment of the sum to the treasury of the Government.

(c) The payments made to the credit of the accounts-current
are nothing but substantial/actual payments of central excise duty. The
assessee has no option to pay or not to pay such deposits in that running
account to meet the liability of central excise duty arising from time to
time. The payments of advance deposits in the account-current are necessitated
by the mandate of law and not by the option of the assessee. The advance
payments of central excise duty, therefore, satisfy the character of exaction
made by the sovereign under authority of law.

(d) S. 43B has brought in a change in the normal rule of
deduction of expense based on the accounting method followed by an assessee.
The normal principles and practices are done away. Accordingly, there is no
force in the argument of the Revenue that the deduction can be granted only if
the liability is incurred during the previous year even when the payment was
made by the assessee.

(e) The nature of the account-current brings home the point
that the advance payments of excise duties are actual payments of duties.
Therefore, when the payments are understood as actual payments, those
payments, even if mentioned as advance payments, need to be allowed as
deduction u/s.43B.

 


Modvat credit not allowable u/s.43B :

The other issue considered by the Special Bench was whether
Modvat credit available to the assessee as on the last day of the previous year
amounts to payment of central excise duty u/s.43B.

 

The Special Bench held that Modvat credit available to the
assessee on the last day of the year does not amount to payment of excise duty
and, hence, it is not allowable u/s.43B.

 

The Special Bench noted as under :

(a) There is a distinction between unexpired Modvat credit
available in the hands of the assessee as well as the set-off of the credit
balance against actual liability. The time lag between the two points cannot
be ignored. On actual set-off of the unexpired Modvat credit against the
liability towards the payment of duty may be as good as tax paid, but the
unexpired Modvat credit before the point of such set-off cannot be treated as
tax paid.

    b) In the case of unexpired Modvat credit, there is no question of set-off on the last day of the previous year and, therefore, there is no occasion to treat the unexpired credit as equivalent to tax paid. In fact, the unexpired Modvat credit available to an assessee is in the nature of a future entitlement which cannot be considered as equivalent to advance payment of duty.

    c) In a case of advance payment of central excise duty, there is a defacto payment of duty by cash in the Government treasury. The payment is made towards the central excise account which has been already held as actual payment of excise duty itself. However, in the scheme of Modvat, there is no such payment of excise duty. The credit is available to an assessee under the scheme of Modvat in order to minimise the escalation effect of payment of excise duty by successive manufacturers. Therefore, the excise duty paid at the earlier point is set off against the central excise liability at the next point. Till the set-off is availed at the next point, the duty available for set-off by the assessee is nothing but part of the cost of the materials purchased by him. That is not a payment per se made towards excise duty, but it was in fact a payment made towards the purchase cost.

    d) The balance of Modvat credit becomes equivalent to the payment only at the point of time the assessee exercises his option to set off the credit balance against the central excise liability and not before.

S. 147 : In proceedings /s.147, AO cannot probe if any other income had escaped assessment.

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New Page 2

1 ) (2007) 110 TTJ 118 (Jp)


Silver Mines
v. ITO

ITA No. 426 (Jp) 2005

A.Y. 2000-01. Dated : 21-5-2007

S. 147 of the Income-tax Act, 1961 – When proceedings u/s.147
are initiated, Assessing Officer cannot probe if any other income had escaped
assessment.

 

In the course of reassessment proceedings, the Assessing
Officer made various additions to the assessee’s income. The CIT(A) held that
when proceedings u/s.147 of the Act are initiated, the proceedings are open only
qua items of underassessment. Further, finality of assessment proceedings on
other issues remains undisturbed. He noted that no assessment was framed
u/s.143(3), nor notice u/s. 143(2) was issued within the time allowed and,
therefore, other issues which are not covered by escaped income cannot be
disturbed. Accordingly, he deleted such additions. He relied on the decisions in
the cases of Vipin Khanna v. CIT, (2002) 175 CTR (P & H) 335 and CIT
v. Sun Engineering Works (P.) Ltd., (1992) 107 CTR (SC) 209.

 

The Tribunal, also relying on the decisions in the above
cases, upheld the CIT(A)’s order. The Tribunal noted as under :

(a) No notice u/s.143(2) had been served on the assessee
within the stipulated time, indicating that the Assessing Officer had not
found it necessary to require the assessee to produce any evidence in support
of the return. Therefore, the return filed by the assessee had become final.

(b) Therefore, when proceedings u/s.147 are initiated, the
proceedings are open only qua items of underassessment and the finality of
assessment proceedings on other issues remains undisturbed. The amendments
made in S. 143 and S. 147 w.e.f. 1st April 1989 do not in any manner negate
this proposition of law.

(c) The Assessing Officer is not permitted to make fishing
inquiries to probe if any other income had escaped assessment or not, and such
inquiries can only be permitted if, in the first instance, some material comes
to his notice to suggest that some other item of income may have escaped
assessment or had been underassessed.



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I S. 2(47), 54EC- Transfer of shares is completed only on final delivery of shares and upon all covenants of the share purchase agreement becoming finally irrevocable and not on the date of execution of the share purchase agreement.

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New Page 1

46 2009-TIOL- 789-ITAT- MUM

Mrs. Hami Aspi Balsara vs ACIT

ITA No. 6402/Mum/2008

Assessment Year: 2005-06.
Date of Order: 22.5.2009

I S. 2(47), 54EC- Transfer of
shares is completed only on final delivery of shares and upon all covenants of
the share purchase agreement becoming finally irrevocable and not on the date of
execution of the share purchase agreement.


II Ss. 28(va), 55(2)(a)- Section
28(va) would be attracted where the assessee was carrying on business and not
where the assessee only had right to carry on business in the form of capital
asset— Where capital asset is in the nature of right to carry on business, then
the consideration for non-compete will come within the ambit of capital gains
tax.

Fact I:

The assessee, on 27.1.2005, entered into an agreement for the
sale of shares held by the assessee and other persons in three companies viz.
Balsara Home Products Ltd., Balsara Hygiene Products Ltd. and Besta Cosmetics
Ltd. (i.e. target companies) to Dabur India Ltd. (the buyer). A sum of Rs
10,65,06,753 was received by the assessee on 28.1.2005. As per the terms of the
share purchase agreement, the transfer of shares was effective from 1.4.2005.
The assessee regarded 1.4.2005 to be the date of transfer, and investments
qualifying for exemption u/s 54EC were made within a period of six months from
1.4.2005.

The Assessing Officer (AO) held that since various covenants
in the share purchase agreement resulted in substantial extinguishment of the
rights of the assessee in the target company, and also since the sale
consideration was not refundable to the assessee, the transfer of shares had
taken place on 27.1.2005, it being the date of the share purchase agreement. He
taxed capital gains in the assessment year 2005-06. He also held that the
investment had not been made within six months from the date of transfer and,
therefore, denied exemption u/s 54EC.

Aggrieved, the assessee preferred an appeal to CIT(A) who
confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.


Fact II:

The sale consideration for shares of companies having
Intellectual Property Rights, was in excess of the book value of the shares.
Since the share purchase agreement had a non-compete covenant and no specific
consideration was assigned to it, the AO considered the difference between the
sale consideration for the transfer of shares and the book value of the shares —
which was approximately 80% of the sale consideration — to be the consideration
for non-compete, and charged it to tax u/s 28(va).

The CIT(A) confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

Held I:



(i) `Sale’, as contemplated u/s 2(47)(i), and
extinguishment of rights, as contemplated u/s 2(47)(ii), are not mutually
interchangeable. If a particular transaction is a transaction of sale, then,
unless the sale is complete, no transfer can be said to have taken place;
because there will always be extinguishment of rights in the case of a sale —
and if a single right out of the entire bundle of the property in a capital
asset is extinguished, then, the transfer would be complete. This will lead to
an absurd situation.

(ii) A case of sale and that of extinguishment of rights
are mutually exclusive. It could not be said that there was extinguishment of
rights on 27.1.2005 because extinguishment of rights implies that the right
cannot be revived. However, till the time the right is revocable, it could not
be said that there was extinguishment of rights. At best it can be said to be
a case of suspension of rights till all the requirements for completing the
sale were over. It was only on execution of the second amendment to the share
purchase agreement on 1.4.2005 that the Escrow Agreement and the power of
attorney became incapable of being revoked, modified or altered unilaterally
by the sellers. Therefore, prior to this date, the sellers had the right to
revoke the share purchase agreement.

(iii) Clause (c) of Section 372A of the Companies Act, 1956
mandates that a company cannot acquire by way of subscription, purchase or
otherwise the securities of any other corporate body, unless previously
authorized by a special resolution passed in a general meeting. This special
resolution was passed by Dabur India Ltd. on 28.3.2005. Therefore, in any
case, prior to this date, it cannot be said that the shares of the assessee
were acquired by Dabur India Ltd.

(iv) The definition of the term `sale’ as per the Sale of
Goods Act assumes importance since this term is not defined in the Income-tax
Act. On a reading of S. 4 of the Sale of Goods Act, it becomes evident that an
agreement to sell becomes complete when the conditions contemplated in the
agreement are fulfilled.

(v) S. 65 of the Indian Contract and Specific Relief Act
makes it very clear that if, for any reason, the terms of a contract cannot be
fulfilled, then the assessee is bound to restore the benefits she had
received, including the consideration to the purchaser.

(vi) The decision of the Amritsar Bench of ITAT, in the
case of Maxtelcon Ventures Ltd. (301 ITR (AT) 90), was rendered with reference
to K N Narayanan (145 ITR 373)(Ker) without considering the subsequent
decision of the same High Court in the case of 203 ITR 663.

In view of specific provision in Indo-Swiss treaty, income from shipping business does not qualify for benefit under DTAA and hence, such income would be taxable in terms of provisions of Income-tax Act.

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New Page 1

 

  1. Gearbulk AG (AAR)

(2009 TIOL 24 ARA IT)

AAR No. 803 of 2009

Article 7, 22, India-Switzerland Treaty

Dated : 30-9-2009

 

Issue :

In view of specific provision in Indo-Swiss treaty, income
from shipping business does not qualify for benefit under DTAA and hence, such
income would be taxable in terms of provisions of Income-tax Act.

Facts :


The applicant is a non-resident shipping Company
incorporated under the laws of Switzerland. The applicant enters into medium
and long term shipping contracts for the transportation of cargo worldwide.

During the financial years 2007-08 and 2008-09, the
applicant entered into a shipping contract with non resident charter for
transportation of cargo from Indian ports to overseas ports. The customers
were procured with the help of assistance of independent agents in UK. In
India, independent agent was appointed for shipping agency, clearing &
forwarding services and for acting as port agent. Admittedly, the applicant
had no physical presence or dependent agent anywhere including in India.

There was no dispute that the applicant trigged tax
liability in India in terms of provisions of S. 172 of the Act but, claimed
exemption by relying on treaty provisions.

Treaty between India and Switzerland as signed in the year
1994 is peculiarly worded. Article 7(1) of the treaty specifically excludes
profits from the operation of ships in international traffic. Article 8 of the
treaty is restricted in its application to the operation of aircraft in
international traffic. The treaty was amended in the year 2001 and ‘other
income’ article was added. In terms of ‘other income’ article, income not
dealt with in the foregoing articles was made taxable only in the Country of
Residence (COR) unless right or property in respect of which income paid is
effectively connected with PE in source country.

The applicant’s contention was that the profits from the
operation of ships in international traffic which stands excluded by Article 7
of the DTAA, is covered by ‘other income’ Article of the treaty; and in
absence of PE in India, the income cannot be taxed in India after amendment of
treaty in the year 2001.

Held :

The AAR held :

The Treaty provisions show that shipping business income
earned by a non-resident is not intended to be covered by Indo–Swiss treaty.
The language and scheme of the provisions of the treaty as also a comparative
study of Treaties of India & Switzerland with others lead to the inevitable
conclusion that shipping income derived from international operations is
sought to be kept outside the purview of the Treaty.

Article 7 of the treaty is explicit and specifically
excludes profits from shipping activity. While specific provision is made for
air transportation business, no such provision was made in the treaty for
shipping business.

The residuary Article 22, concerning ‘other incomes’ was
introduced in 2001. Till then, there was no dispute that the profits derived
from the operation of ships in international traffic was left untouched by the
Treaty because of the specific exclusion in Article 7. The obvious implication
of the exclusion is that such income is subjected to domestic tax law
provisions.

If such legal position was intended to be changed by the
amendments made to the treaty in 2001, specific reference to that effect was
required by amendment to Article 7 and/or in ‘other income’ Article. The AAR
observed :

‘Nor is there explicit language in Article 22 to bring it
within the coverage of the Article. When a particular species of income
excluded from the ambit of the Treaty is sought to be brought within the
scope of the Treaty for the first time, we would expect clear and specific
language to express the intendment rather than leaving it to be taken care
of by Article 22 by implication’.

Shipping profits is specie of business income. As a result
profits of shipping business can be considered to have been dealt with by
Article 7. In any case, when an article concerning business profits
specifically refers to profits from the operation of ships in international
traffic, it can be said that the shipping profits have been dealt with in a
manner as provided by Article 7 of DTAA and the exclusion clause clearly
depicts the intention of the authors of the treaty not to treat the shipping
profits at par with the business profits. As a result, for the purpose of
Article 22, Article 22 cannot apply as the profits arising from the operation
of ships cannot be treated as an item not dealt with in the preceding articles
of the treaty.

The AAR noted the commentary on UNMC and Prof. Klaus Vogel,
which was brought to the notice of the AAR by the applicant, on the rationale
of the provision of reserving the right of taxation to the country of
residence in respect of aircraft and shipping operations. The AAR however
contended that in the absence of clear words in the Indo Swiss Treaty, the
shipping profits could not be placed at par with international air transport.


levitra

S. 263 — Assessing Officer adopted one of the permissible view — Such order cannot be said to be erroneous.

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New Page 2

Part A: Reported Decisions


(2010) 126 ITD 141 (Bang.)

Siemens Public Communication Networks Ltd. v. CIT

A.Y. : 2003-04. Dated : 16-1-2009

20. Provision of warranty created on accrual basis
is an allowable expenditure.

S. 263 — Assessing Officer adopted one of the
permissible view — Such order cannot be said to be erroneous.

Notional income cannot be considered for deduction
u/s.10B as the assessee is the same.

Facts:

The assessee created provision for warranty on
accrual basis on the last day of each quarter. The actual warranty-related
expenses were adjusted against the provision. The assessee claimed the provision
for warranty as expenditure in its computation of income. The Assessing Officer
allowed the assessee’s claim. The CIT invoked S. 263 and disallowed the
provision for warranty.

The main contention of the assessee was that
provision for warranty was made on the basis of past experience. It placed
reliance on the decision of Wipro-GE Medical Systems Ltd. v. DCIT, (81 TTJ 455)
(Bang.).

Held:

Following the decision of CIT v. Wipro GE Medical
Systems, (supra), the provision for warranty was held to be an allowable
expenditure.

The Tribunal further held that the Assessing
Officer had adopted one of the permissible views. An order is not erroneous or
prejudicial to the interest of Revenue, unless the view taken by the AO is
unsustainable in law.

Facts:

The assessee company had two units — SCS & TCM. SCS
unit’s income was exempt u/s.10B. The company maintains a common bank account
where the amounts received by both the units are deposited. As such no separate
balance sheets for both the units were prepared. The amounts received were
identified by the invoices in the name of respective units and necessary entries
passed in accounts maintained in SAP. Hence it was natural that the funds earned
by S. 10B unit were also utilised by non-10B unit. Based on the fund
utilisation, a monthly cross-charge interest at a suitable rate of interest was
made. Hence, the surplus funds which were available from the EOU have been used
by the other unit. The assessee booked a notional interest income in the account
of EOU unit and claimed expenditure u/s.10B for the said interest income.

Held:

The interest income booked by the assessee is only
a cross entry. As such the assessee has not earned any interest income. The
assessee is the same. There is no relationship of borrower or lender. Such
interest derived on notional basis cannot be considered for the purpose of
deduction u/s.10B.

Note : Though the judgment as regards second issue is
against the assessee, it discusses an important aspect of notional income which
cannot be taxed as the assessee remains the same.


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Deeming fiction in S. 50C in respect of the words ‘full value of consideration’ applicable only to S. 48 — Meaning of full value of consideration in Explanation to S. 54F(1) not governed by S. 50C — For S. 54F, sale deed value is the full value of conside

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Part A: Reported Decisions



(2010) 45 DTR (JP) (Trib) 41

Gyan Chand Batra v. ITO

A.Y. : 2006-07. Dated : 13-8-2010

 

19. Deeming fiction in S. 50C in respect of the
words ‘full value of consideration’ applicable only to S. 48 — Meaning of full
value of consideration in Explanation to S. 54F(1) not governed by S. 50C — For
S. 54F, sale deed value is the full value of consideration.

Facts :

The assessee had sold a plot of land for sale
consideration of Rs.10.81 lac and declared a long-term capital gain of Rs.5,558.
The AO invoked provisions of S. 50C and the full consideration was taken as
Rs.19,24,987 and reworked capital gain accordingly.

The assessee has purchased a flat within a period
of two years from the date of transfer of the plot. The assessee has made total
investment of Rs.21,14,986, out of which Rs.16.74 lac was paid before the date
of filing of return for concerned assessment year. Therefore, before the learned
CIT(A), the assessee contended that the assessee may be allowed relief u/s.54F
by considering the full value of the consideration as shown by the assessee in
the sale deed as compared to the full value of consideration adopted by the AO
in view of S. 50C of the Act. The learned CIT(A) rejected the claim of the
assessee by observing that the assessee had not claimed S. 54F deduction at the
time of filing of return of income or during the course of assessment
proceedings. Further, the learned CIT(A) held that the availability of deduction
u/s.54F is subject to fulfilment of various conditions and those conditions were
not fulfilled by the assessee.

Held :

The deeming fiction as provided in S. 50C in
respect of the words, ‘full value of consideration’ is to be applied only for S.
48 of the Income-tax Act. The words ‘full value of consideration’ as mentioned
in other provisions of the Act are not governed by the meaning as provided in S.
50C. For the meaning of full value of consideration as mentioned in different
provisions of the Act except in S. 48, one will have to consider the full value
of consideration as specified in the sale deed.

For claiming exemption u/s.54F, net consideration
received upon transfer of original asset is compared with the cost of the new
asset. In Explanation to S. 54F(1), it is mentioned that net consideration means
the full value of consideration received or accruing as a result of the transfer
of the capital asset as reduced by any expenditure incurred wholly and
exclusively in connection with such transfer. The meaning of full value of
consideration in Explanation to S. 54F(1) will not be governed by meaning of
words ‘full value of consideration’ as mentioned in S. 50C. In the instant case,
the cost of new asset is not less than the net consideration as per sale deed,
thus the whole of the capital gains will not be charged even if the capital
gains have been computed by adopting the value adopted by the stamp registration
authority.

The decision of Goetze (India) Ltd. v. CIT, (2006)
204 CTR (SC) 182 restricts the power of the AO to entertain the claim for
deduction otherwise than by revised return and did not impinge on the power of
the Tribunal u/s.254 of the Act. In the instant case, the assessee has claimed
the deduction u/s.54F before the learned CIT(A) and the learned CIT(A) has
entertained such claim. Therefore, the issue of claim can be considered.

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Security deposit received from the licensee with a view to secure due performance of its obligations under the leave-and-licence agreement is in the nature of loan and is in the capital field — Forfeiture of such security deposit upon premature terminatio

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Part A: Reported Decisions



(2010) 44 DTR (Mumbai) (Trib.) 124

ACIT v. Das & Co.

A.Y. : 2003-04. Dated : 27-8-2009

 

18. Security deposit received from the licensee
with a view to secure due performance of its obligations under the
leave-and-licence agreement is in the nature of loan and is in the capital field
— Forfeiture of such security deposit upon premature termination of lease does
not partake the character of income as a capital receipt cannot be said to have
converted itself into a trading receipt on signing of the termination agreement.

Facts :

The assessee was into the business of warehousing,
property leasing, trading in chemical and textile auxiliaries. The assessee
entered into a leave-and-licence agreement with Concord Motors Ltd., a
subsidiary of Tata Motors Ltd. for a period of two terms of three years each. A
lock-in period of five years and six months was provided in the agreement. The
lease rent was treated as business income. During the assessment year under
consideration, the agreement was terminated prematurely by the licensee when 16
months were still remaining out of the lock-in period. On termination of the
lease, the assessee forfeited the interest-free security deposit received by it
from the licensee which was for an amount of Rs.1.50 crore under a separate
security deposit agreement and Rs.5 lakh under a leave-and-licence agreement.
Further, the assessee had received an amount of Rs.24,37,500 as damages for
premature termination from the licensee. This amount was paid on account of
hardship and inconvenience suffered by the assessee as damages. The assessee
treated entire receipt as capital receipt. The AO treated it as revenue receipts
and as taxable income. Upon further appeal, the CIT(A) upheld the order of the
AO.

Held :

A perusal of the terms of agreements clearly shows
that the security deposit is a capital receipt. The deposit is not in the nature
of advance for goods or services, nor could it be qualified as in relation to
the rental component. It is in the nature of loan and is in the capital field.
On a perusal of the termination agreement, it is clear that the forfeiture of
security deposit in question is not in lieu of rental payments and the assessee
is not in default. The forfeiture of security deposit does not partake the
character of income, because a capital receipt cannot be said to have converted
itself into a trading receipt on signing the agreement.

In a decision of Morely (Inspector of Taxes) v.
Tattersall, (1939) 7 ITR 316 (CA), it is clearly laid down that the quality and
nature of receipt for income-tax purpose are fixed once and for all when it is
received and that it does not change its character subsequently. This decision
has been followed in the case of K.M.S. Lakshmanier & Sons v. CIT, (1953) 23 ITR
202 (SC) and it has been observed that one of the conditions is that it is to be
adjusted against a claim arising out of a possible default of a depositor,
cannot alter the character of the transaction or the fact that the purpose for
which the deposit is made is to provide a security for the due performance of a
collateral contract, cannot invest the deposit with a different character. It
remains a loan of which the repayment in full is conditioned by the due
fulfilment of obligations under the collateral contract.

In a subsequent decision of CIT v. T.V. Sundaram
Iyengar & Sons Ltd., (1996) 222 ITR 344 (SC), the above decision of Morely
(Inspector of Taxes) v. Tattersall was considered and held that if an amount is
received in the course of trading transaction, even though it is not taxable in
the year of receipt as being of revenue character, the amount changes its
character when the amount becomes the assessee’s own money because of limitation
or by any other statutory or contractual right. In the case on hand, the
original receipt was in the nature of a loan and never had a revenue character
as it was not at any time a trading receipt as in the case of T.V. Sundaram
Iyengar & Sons.

Further, in the case of Mahindra & Mahindra Ltd. v.
CIT, (2003) 261 ITR 501 (Bom.), it is held that subsequent waiver of principal
amount of loan was not assessable u/s.28(iv) of the Act.

Therefore, the forfeiture of security deposit
amounting to Rs.1.55 crore is not taxable. However, the payment of lump sum
consideration of Rs.24.37 lac is in lieu of the rents and is in the revenue
field unlike the remission of a loan liability. Therefore the same was rightly
taxed as such.

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S. 80IB(10) — Merely because some flats are larger than 1500 sq. feet, the assessee will not lose the benefit in its entirety — Only with reference to the flats which have area more than the prescribed area the assessee will lose the benefit — While compu

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Part A: Reported Decisions



(2010) TIOL 619 ITAT-Bang.

SJR Builders v. ACIT

ITA No. 1192/Bang./2008

A.Y. : 2005-06. Dated : 21-8-2009

 

17. S. 80IB(10) — Merely because some flats are
larger than 1500 sq. feet, the assessee will not lose the benefit in its
entirety — Only with reference to the flats which have area more than the
prescribed area the assessee will lose the benefit — While computing the
built-up area of 1500 sq. feet for the purpose of deduction u/s.80IB(10), the
mezzanine floor and common areas are to be excluded.

Facts :

The assessee firm was engaged in the construction
and real estate business. In the return of income filed, the assessee claimed
deduction u/s.80IB(10) in respect of the projects developed and built by it. The
Assessing Officer (AO) in a survey action found that some of the flats in the
project undertaken by the assessee, in respect of which deduction u/s.80IB(10)
was claimed were more than 1500 sq. feet. He held that the assessee was not
entitled to the benefit of S. 80IB(10).

Aggrieved, the assessee preferred an appeal to
CIT(A) who confirmed the disallowance made by the AO.

Aggrieved, the assessee preferred an appeal to the
Tribunal.

Held :

The Tribunal held that the assessee is entitled to
deduction u/s.80IB(10) to the extent of flats the built-up area of which is not
more than 1500 sq. feet. In respect of penthouses, the built-up area of which
was more than 1500 sq. feet, the Tribunal held that they may be excluded for
exemption. The Tribunal held that in the light of the decision of the Special
Bench in the case of Brahma Associates, merely because some flats are larger
than 1500 sq. feet the assessee will not lose the benefit in its entirety. It
held that the assessee will lose the benefit only with reference to the flats
which have area more than the prescribed area. It also held that while
considering the built-up area of 1500 sq. feet for the purpose of exemption
u/s.80IB(10), the mezzanine floor and common areas are to be excluded. It
directed the AO accordingly.

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S. 194C and S. 194I — Payment made by an assessee for hiring vehicles for transportation of its employees qualifies for TDS u/s.194C.

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Part A: Reported Decisions


(2010) TIOL 618 ITAT-Mum.

ACIT v. Accenture Services P. Ltd.

ITA No. 5920, 5921 and 5922/Mum./2009

A.Ys. : 2007-08, 2008-09 and 2009-10

Dated : 20-10-2010

 


16. S. 194C and S. 194I — Payment made by an
assessee for hiring vehicles for transportation of its employees qualifies for
TDS u/s.194C.

Facts :

The assessee entered into agreements with various
transport service providers. Under the agreements entered into, the service
provider was to provide transport service at particular locations for
transportation of the assessee’s employees to different destinations and
locations mentioned in the agreement. The transport service provider had to
provide vehicles along with the requisite staff and relevant facilities, full
maintenance and repairs of vehicles, etc.

The assessee deducted income-tax u/s.194C on
payments made under the above-referred agreements. The Assessing Officer was of
the view that the payments under the above-referred agreements were covered by
provisions of S. 194I. The AO held the assessee to be in default as per
provisions of S. 201(1) and also charged interest u/s.201(1A) for all the
assessment years.

Aggrieved, the assessee preferred an appeal to
CIT(A) who held the contract entered by the assessee with the transport service
provider to be covered by Explanation 3 to S. 194C. He held the assessee should
not be treated as an assessee in default u/s.201(1) as well as also not liable
for levy of interest u/s.201(1A).

Aggrieved, the Revenue preferred an appeal to the
Tribunal.

Held :

The Tribunal upon going through the agreements
entered by the assessee noted that the assessee was not required to provide
anything, but was availing the services of the transport for picking up and
dropping of its employees from its offices at different locations to the places
of its clients. It observed that though as per the agreements, the vehicles
provided for the requirements of the assessee were dedicated but it is not a
case of hiring of vehicles only without other facilities. It observed that in
the case of the assessee, all the facilities along with the vehicles were to be
provided by the transport service provider and he was under the obligation to
replace the vehicles as well as the driver and other staff after running certain
hours. It also noted that each vehicle was provided appropriate number of
drivers and time directives to enable the vehicle to be operated 24 hours a day
and 7 days per week. The service provider was responsible for ensuring all legal
and operational obligations. Thus, it was a kind of wet lease, wherein the
assessee was utilising the transport services provided by the service provider
without making any arrangement of its own, but all the arrangements were the
responsibility and obligation of the service provider.

The Tribunal noted that the CBDT has in para 8(ii)
of Circular No. 681, dated 8-3-1994 clarified that transport contract would be
in addition to contract for transportation of loading and unloading of goods;
also covers contracts for plying buses, ferried, etc. along with the staff. It
noted that the Board has also considered this issue in Circular No. 558, dated
28-3-1990 in paragraph 3. It also noted that in Circular No. 715, dated 8-8-1992
the CBDT has in answer to question no. 6 clarified that the provisions of S.
194C shall apply when a plane or a bus or any other mode of transport is
chartered by one of the entities mentioned in S. 194C of the Act. It held that
the classification of vehicles as Plant for the purposes of claiming
depreciation cannot be stretched to determine the nature of services provided
which is otherwise clear from the agreement between the parties. It noted the
observations of the Bombay High Court in the case of Indian National Ship Owners
Association and Others v CIT, (TDS).

Upon going through paragraphs 56.2 and 56.3 of
Circular No. 3 of 2008, dated 12-3-2007 dealing with Explanatory notes on
provisions of the Finance Act, 2007, it held that the provisions of S. 194I are
confined to payment for rent on hiring of land or building including factory
building, furniture or fittings, but not for transport vehicle and other mode of
transportation, particularly when the same is in the nature of providing and
availing transport services. It also held that the expression plant and
machinery used in explanation to S. 194I refers to only plant and machinery used
by the assessee in the business of hiring them, but not the hiring of transport
service.

The appeal filed by the Revenue was dismissed.

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Reassessment u/s.147 — When the assessee has made full and true disclosure of all the facts to the AO, the assessment cannot be reopened on the same ground of failure to disclose all the material facts. Further, once the assessee has disclosed all the mat

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New Page 2

  1. (2009) 120 ITD 374 (Delhi)

Moonbeam Finvest Lease Ltd. v. ITO, Ward-5(4), New
Delhi

A.Y. : 1998-99. Dated : 31-1-2008

Reassessment u/s.147 — When the assessee has made full and
true disclosure of all the facts to the AO, the assessment cannot be reopened
on the same ground of failure to disclose all the material facts. Further,
once the assessee has disclosed all the material facts, the proviso to S. 147
cannot be applied and hence reopening is invalid beyond 4 years from the
relevant assessment year.

Facts :

The assessee’s return for A.Y. 1998-99 was processed
u/s.143(1)(a). In the course of assessment proceedings, the details of ‘Lease
Equalisation Account’ charges were asked for by the AO The assessee submitted
his reply and assessment was completed u/s.143(3). On 7-3-2005 the AO reopened
the assessment by issuing notice u/s.148 on the ground of failure on the part
of the assessee to disclose fully and truly all the material facts. The
assessee challenged the reopening of the assessment on the ground of mere
change of opinion as well as on the ground that it was barred by limitation as
notice was issued after 4 years from the end of relevant A.Y. The CIT(A)
confirmed the action of AO. On appeal to Tribunal, it held that the duty of
the assessee was to make full and true disclosure of all material facts and
the AO had to decide what inference can be drawn therefrom. If assessee had
disclosed all the material facts, reopening could not be justified as it would
amount to mere change of opinion on the part of the AO. Since, in the instant
case the AO was satisfied with the explanation of the assessee at the time of
original assessment, it was not allowed to him to reopen the assessment on the
same ground. Further, as there was no failure on the part of the assessee to
disclose all the facts, proviso to S. 147 could not be applied and notice
u/s.148 could not be validly issued beyond 4 years from the end of relevant
assessment year.



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S. 50C — When the stamp valuation authority has accepted the consideration declared by the assessee in the sale deed, there is no question of once again referring the matter to Departmental Valuation Officer (DVO) u/s.50C.

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New Page 2

  1. (2009) 120 ITD 233 (ASR)


Punjab Poly Jute Corpn. v. ACIT, Cir.-1,
Bhatinda

A.Y. : 2005-06. Dated : 11-4-2008

S. 50C — When the stamp valuation authority has accepted
the consideration declared by the assessee in the sale deed, there is no
question of once again referring the matter to Departmental Valuation Officer
(DVO) u/s.50C.

Facts :

The assessee had sold certain land at the rate of Rs.
220.81 per sq.yd. (total consideration Rs.16.34 lakhs) which rate was accepted
by stamp valuation authority. However, according to AO the value applicable to
the land as per Punjab State Rules, was at the rate of Rs.500 per sq.yd.
Hence, he referred the matter to DVO thus determining full value of
consideration at Rs.72 lakhs and capital gains at Rs.62.40 lakhs. On appeal to
CIT (A), it confirmed the order of the AO.

On appeal to Tribunal, it held that S. 50C comes into play
only when there is valuation at a higher value for stamp valuation purposes by
the State Authority than declared by assessee in sale deed. When there is such
difference noticed, valuation adopted by stamp valuation authority has to be
substituted with the sale consideration of such property mentioned in the sale
deed. In the instant case, the value of sale consideration was accepted by the
stamp valuation authority as the property was registered with the rate of
Rs.220.81 i.e. rate at which sale of land was made. When the stamp
valuation authority has accepted the consideration declared by the assessee in
the sale deed, there can not be any question of once again referring the
matter to Departmental Valuation Officer (DVO) u/s.50C.

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Penalty u/s.271(1)(c) — When the explanation offered by the assessee was bona fide but assessee could not establish its case for deduction in quantum proceedings that would not automatically become a case for levy of penalty for concealment or furnishing

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  1. (


  1. (2009) 120 ITD 151 (Luck.)


Ashok Grih Udyog Kendra (P.) Ltd. v. ACIT-VI,
Kanpur

A.Y. : 2000-01. Dated : 11-4-2008

Penalty u/s.271(1)(c) — When the explanation offered by the
assessee was bona fide but assessee could not establish its case for deduction
in quantum proceedings that would not automatically become a case for levy of
penalty for concealment or furnishing of inaccurate particulars of income.

Facts :

The assessee company filed its return of income for A.Y.
2000-01 claiming an expenditure of Rs.2.37 lakhs as LTC paid to an employee
under the head travelling expenses. The AO disallowed the expenditure on the
ground that the expenditure had not been incurred for the purposes of
business. Further, it was also contended by the Department that if expenses
were incurred on account of travelling of the employee, no TDS had been
deducted and also that the employee was closely related to the director of the
company and hence the expenditure was disallowable u/s.40A(2)(b) as well. The
AO also imposed penalty u/s.271(1)(c) for claiming wrong deduction. The CIT(A)
confirmed the action of AO. On appeal to Tribunal regarding the allowability
of the expenditure, it confirmed the action of AO. Thereafter the assessee
preferred appeal for imposition of penalty u/s.271(1)(c). The Tribunal held
that there was only difference of opinion regarding the allowablility of
expenditure between assessee and department. Although, the disallowance of
expenditure has been upheld by the Tribunal, the department has never
challenged the genuineness of expenditure. It is well settled law that
findings in the assessment proceedings are relevant but not conclusive in
penalty proceedings because the considerations that arise in penalty
proceedings are different from those that arise in the assessment proceedings.
In the instant case, the assessee had disclosed all the material facts
necessary for assessment. Consequently, although the expenditure is
disallowed, the penalty u/s. 271(1)(c) for concealment or furnishing of
inaccurate particulars of income cannot be imposed.

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Notification No. 531. Legal : 710/(m) dated 23rd July, 2010

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Part D : COMPANY LAW


Changes relating to Company
Law for the period 15th July, 2010 to 15th August, 2010

106 Notification No. 531.
Legal : 710/(m) dated 23rd July, 2010

The Company Secretaries (Amendment)
Regulations, 2010 has substituted Regulations 6, 11, 13, 14, 98, 99, 114,115,
118, 150, 152, 154, 155 & 161; amendments have been made from Regulations 15-19,
101 & 117; Regulations 15A, 101A, 154A, 168A and 168B have been added;
Regulations 56 to 87W, 106 and 116 have been omitted.

 

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New versions

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New Page 1

Part D : COMPANY LAW


Changes relating to Company
Law for the period 15th July, 2010 to 15th August, 2010


105 New versions

New versions of Form 1, Form
1AA, Form 4, Form 4C, Form 15, Form 20A, Form 20B, Form 22, Form 22B, Form 23,
Form 23AA, Form 25C, Form 44, Form 49, Form 52, Form 61, Form DD-B, Form I- Cost
Audit Report and Form 67 are available on the portal — www.mca.gov.in —
effective 1st August, 2010.

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Government amends public shareholding requirement rules.

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New Page 1

Part D : COMPANY LAW


Changes relating to Company
Law for the period 15th July, 2010 to 15th August, 2010

104 Government amends public
shareholding requirement rules.

Government has issued a
Notification amending the Securities Contracts (Regulation) (Amendment) Rules,
2010 notified on 4th June 2010. This Notification allows public shareholding of
10% (as against 25% earlier) to public sector enterprises. It also provides more
flexibility to all companies in attaining the public shareholding levels.

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Notification No. 1510/CR-90/Taxation-1

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Part B : INDIRECT TAXES



MVAT UPDATE

MVAT Notification

103 Notification No.
1510/CR-90/Taxation-1

Every registered dealer, liable to file
quarterly return, shall make payment electronically under the MVAT Act, 2002
w.e.f. 1st October, 2010.

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Clarification regarding certain issues arising out of budgetary changes — D.O. Letter D.O.F. No. 334/03/2010-TRU, dated 1-7-2010.

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New Page 1

Part B : INDIRECT TAXES


SERVICE TAX UPDATE

Notifications :

102 Clarification regarding
certain issues arising out of budgetary changes — D.O. Letter D.O.F. No.
334/03/2010-TRU, dated 1-7-2010.

By this letter the Research
Unit, Department of Revenue under the Ministry of Finance has issued the
following clarifications to resolve certain issues arising out of budgetary
changes :

(1) The Finance Act, 2010
has added eight new services to the list of taxable services and modified
scope of nine existing services. These changes become effective from 1-7-2010
being the appointed date notified by Notification No. 24/2010-Service Tax,
dated 22nd June 2010. It has been decided to specifically exempt service tax
on the partial or full amount of consideration received by the service
provider before the appointed date which pertains to services provided after
the appointed date.

(2) In case of domestic
air journey, service tax will be leviable @ 10% of the gross value of the
ticket or Rs.100 per journey, whichever is less. In case of international air
journey undertaken in economy class, service tax will be leviable @ 10% of the
gross value of the ticket or Rs.500 per journey, whichever is less. The
aforesaid rates are subject to non-availment of CENVAT credit. And for the
purpose of gross value of the ticket, all the charges except statutory levies
shall be considered.

(3) It is clarified that
when ticket covers more than one domestic journey/flight/sector (say,
Mumbai-Delhi-Mumbai) or in case of
round-trip journey ticket, tax would be separately chargeable for each
journey/flight/sector since the taxability is on embarkation in India for
domestic journey.

(4) Tickets involving
multiple journies/flights with one of the sectors involving embarkation or
disembarkation at North-Eastern States/Bagdogra, the journey/flight that
involves embarkation or disembarkation at North-Eastern States/Bagdogra would
alone be covered under exemption from service tax under Notification No.
27/2010-ST, dated 22nd June, 2010.

(5) The scheme of tax on
passengers embarking in India for an international journey in higher class
remains unchanged.

(6) In respect
of aircraft operations services, the airlines or the agent may not issue a
separate invoice to the passenger, but the ticket in any form showing
specified particulars would be deemed to be the invoice/bill/challan for the
purpose of Rule 4A of the Service Tax Rules, 1994.

(7) With intent to ease
the classification disputes, the definitions of port, other port and airport
services were amended to comprehensively cover under their ambit, all services
provided within an airport, or a port or other port whether or not they are
otherwise classifiable as distinct taxable services. But some apprehensions
have been raised that these changes may have certain unintended effects with
reference to exemptions, abatements, etc. To address these issues, various
measures as enlisted at (a) to (g) in this letter have been taken by way of
promulgating post-budget Notifications.

(8) The definition of
existing taxable service, namely, ‘Sponsorship Service’ is amended to remove
exclusion available for sponsorship pertaining to sports events organised by
private organisations or business entities. However, exemption is provided for
sponsorship service with reference to certain sports championships or
tournaments, such as national tournament.

(9) The Finance Act, 2010
has, in respect of commercial & residential complex construction services,
inter alia introduced concept ‘completion certificate’ to be issued by
‘competent authority’. As the practice regarding issuance of completion
certificates varies from State to State, the scope of the phrase ‘competent
authority’ to issue completion certificate has been widened by including
therein architect, chartered engineer and local licensed surveyor.

(10) Abatement of 75% of
the gross value of construction of industrial or commercial complex or
residential complex is available where the gross value includes cost of land
and 67% of the gross value where the gross value does not include cost of the
land.

(11) Two flagship schemes
of the Government of India, namely, Jawaharlal Nehru National Urban Renewal
Mission (JNNURM) and Rajiv Awaas Yojana are kept outside the ambit of the
service tax under construction of residential complex service.

(12) Service tax on
transport of goods by railways though leviable is not yet operational and this
levy will now take effect from 1st January, 2011.

(13) Taxable services
provided by distribution licensee or a distribution franchisee authorised to
distribute power under the Electricity Act, 2003 for distribution of
electricity is exempt from levy of service tax.

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S. 80HHC r. w. S. 147 — Assessee filed original return but did not claim deduction u/s.80HHC since no positive business income — Case reopened and certain disallowances made — Consequently business income turned positive — Assessee claimed deduction u/s.8

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37 ITO v. Tamilnadu Minerals Ltd.
(2010) 124 ITD 156 (Chennai TM)
A.Ys. : 2001-02 & 2002-03. Dated : 13-10-2009


 

S. 80HHC r. w. S. 147 — Assessee filed original return but
did not claim deduction u/s.80HHC since no positive business income — Case
reopened and certain disallowances made — Consequently business income turned
positive — Assessee claimed deduction u/s.80HHC — AO did not allow the claim
since it was not claimed in the original return and no tax audit report was
filed. Held—Assessee rightfully claimed deduction.

Facts :

The assessee company is a Government of Tamil Nadu
undertaking engaged in the manufacture and export of granites. During the year
under consideration, the total income declared by the assessee was
Rs.2,97,86,549. This total income constituted entirely of income from other
sources. There was no positive income under the head ‘business income’.
Subsequently the assessment was reopened u/s.147 and the AO made certain
disallowance u/s.43B and u/s.14A. This resulted into positive business income.
The assessee thus contended that it should be allowed deduction u/s. 80HHC. The
Assessing Officer rejected the plea on the ground that the deduction was not
claimed in the original return despite there being a positive income, the
assessee had also not filed the audit report and the proceedings u/s.147 are for
the benefit of the revenue and so the assessee cannot claim a benefit which it
had not claimed in the original return.

Held :

(i) S. 147 being for the benefit of the revenue, the
assessee cannot be permitted to convert the reassessment proceedings into an
appeal or revision in disguise, and seek relief in respect of items not
claimed into the original assessment proceedings. However, in the given case,
the assessee could not have claimed the deduction in absence of any business
profits. Further, no sooner the disallowance u/s.43B was proposed by the AO,
the assessee immediately put forth its claim for deduction u/s.80HHC. This it
did because as a result of disallowance, the business income turned positive.
The assessee thus claimed a rightful deduction.

(ii) The argument of the Revenue that the assessee could
have filed a revised return has no force.

(iii) In original return since the deduction was not
claimed, there was no question of filing the audit report as well. But when
the business income became positive and when the assessee made a claim for the
deduction, it is well within its right to file the audit report at the time of
making the claim.

S. 194C(2) — Assessee hired lorries from other tank lorry owners to carry out the activity of transportation — Whether payments made to the tank lorry owners would amount to sub-contract within the meaning of S. 194C(2) — Held, No.

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36 Mythri Transport Corporation v. ACIT
(2010) 124 ITD 40 (Visakhapatnam)
A.Y. : 2005-06. Dated : 9-1-2009

S. 194C(2) — Assessee hired lorries from other tank lorry
owners to carry out the activity of transportation — Whether payments made to
the tank lorry owners would amount to sub-contract within the meaning of S.
194C(2) — Held, No.

Facts :

The assessee was a transport contractor engaged in
transporting bitumen to various points. Since the assessee did not have enough
number of lorries, it hired lorries from others. The tank lorry owners from whom
the lorries were hired were paid amounts after the receipt of bills from the
contractees by the assessee after retaining a certain amount termed as
commission.

The Assessing Officer and the CIT(A) held that the tank lorry
owners were sub-contractors and any payment made to tank lorry owners would come
within the purview of S. 194C.

Held :

As per the provisions of S. 194C(2), the sub-contractor
should carry out whole or any part of the work undertaken by the assessee. It
signifies positive involvement in the execution of the whole or any part of the
main work by spending his time, money and energy. In the instant case, there is
no material to suggest that the other lorry owners involved themselves by
spending their time, money and energy or by taking risk associated with the main
contract work. Hence, the payment made to the lorry owners would not fall within
the purview of S. 194C(2).

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S. 271(1)(c) — Mere change of head of income by AO cannot be construed as concealment of income — Valuation made by DVO cannot be construed as basis for levying penalty — Valuation done by DVO can be adopted by AO only when there is material on record tha

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35 DCIT v. JMD Advisors (P) Ltd.
(2010) 124 ITD 223 (Delhi)
A.Y. : 2003-04. Dated : 8-2-2008


 

S. 271(1)(c) — Mere change of head of income by AO cannot be
construed as concealment of income — Valuation made by DVO cannot be construed
as basis for levying penalty — Valuation done by DVO can be adopted by AO only
when there is material on record that sale consideration received by assessee is
more than that declared by him.

Facts :

The assessee-company was engaged in the business of real
estate. It purchased a property and carried on construction work on the same.
The constructed building alongwith the land was then sold at a loss. This loss
was claimed as business loss by the company. The Assessing Officer observed that
the said property was shown in the balance sheet as ‘fixed assets’ and not as
stock in trade. He thus held that the loss incurred was a long-term capital loss
and not business loss. He further referred the matter to the DVO to estimate the
sale consideration and the cost of construction of the property. Based on the
valuation figures given by the DVO, the AO worked out figure of long-term
capital loss.

He also initiated penalty proceedings u/s.271(1)(c) of the
Act.

Held :

(a) The Assessing Officer ignored the fact that the
assessee-company was incorporated with the main object of carrying on real
estate business. Further, the assessee had shown the property as ‘work in
progress’ in the balance sheets of prior years. Hence the action of the AO to
treat the property as capital asset was not well founded.

(b) Even though the action of the AO was not challenged in
the quantum proceedings as the income assessed was finally a loss, this cannot
draw any adverse inference in the penalty proceedings. Also, a mere change in
the head of income cannot be construed as concealment of income.

(c) Further, for reference to the DVO for valuation of the
fair market value, the AO first needs to bring the material on record to prove
that the assessee has received more consideration than that declared by him.
Since there was no material on record, the action of AO was not tenable in law
and addition made on this basis cannot be treated as concealed income of the
assessee to attract penalty.

(d) The AO had further substituted the cost of construction
recorded in the books of the assessee with the valuation of DVO. However, no
material was brought on record by the AO that the cost of construction was an
inflated one in the books of account of the assessee. Hence, the addition made
by the AO by substituting the cost of construction by the valuation of DVO was
not justified, much less the imposition of penalty.

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S. 55A—Bearing in mind that in the 1980s, it was common practice to pay a part of sale consideration by unaccounted cash, the rates given by independent media and press like Times of India/Accommodation Times is certainly more reliable indicator of the pr

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34 2010 TIOL 277 ITAT (Mum.)
Kumar K. Chhabria v.
ITO
A.Y. : 2005-06. Dated : 30-3-2010


 

S. 55A—Bearing in mind that in the 1980s, it was common
practice to pay a part of sale consideration by unaccounted cash, the rates
given by independent media and press like Times of India/Accommodation Times is
certainly more reliable indicator of the prevailing market value of properties
than comparable sale instances.

Facts :

The assessee, while computing long-term capital gain arising
on transfer of office premises purchased by him for Rs.69,000 on 1st October,
1978, considered the fair market value of this property as on 1st April, 1981 to
be its cost of acquisition. The fair market value claimed to be Rs.16,20,000 was
backed by a valuation report by an approved valuer which report relied upon
certain press reports about prevailing market prices and not on any comparable
sale instances.

The Assessing Officer (AO) found the value as per comparable
sale instances in the same society to be much lower. The assessee on being
confronted with these instances submitted that these transactions apparently had
cash element in the consideration and that the valuation of the assessee was
also in consonance with Indian Valuer Directory and Reference Book. The AO
referred the matter to the DVO who valued the premises at Rs.3,00,000 on the
basis of certain sale transactions at Cuffe Parade area. The AO adopted this
amount of Rs.3,00,000 as fair market value of the property on 1-4-1981 and
computed long-term capital gains on that basis. He rejected the assessee’s
objection to the DVO report by stating that this report is binding on the AO.

Aggrieved the assessee preferred an appeal to the CIT(A) who
rejected the appeal of the assessee.

Aggrieved the assessee preferred an appeal to the Tribunal.

Held :

(i) A Third Member decision of the Tribunal in the case of
Rubab M. Kazerani v. JCIT, 91 ITD 429 (TM) has concluded that reference to DVO
u/s.55A can be made when value of the property as disclosed by the assessee is
less than the fair market value and not vice-versa. In the present case, on
the contrary, AO was of the prima facie view that the fair market value is
less than the value disclosed by the assessee. Thus, the learned CIT(A)’s
emphasis on binding nature of DVO valuation is wholly devoid of legally
sustainable basis.

(ii) It is not even in dispute that at least in eighties,
it was a common practice to pay a part of sale consideration by unaccounted
cash and it was because of this practice several legislative measures had to
be taken to combat tax evasion in property sale transactions. Bearing this in
mind, the rates given by independent media and press like Times of India/Accomodation
Times is certainly more reliable indicator of the prevailing market value of
properties. The market prices given in ‘Indian Valuer Directory & Reference
Book’, also partly supports the valuation by valuation report as filed by the
assessee.

(iii) The Tribunal noted that as against the assessee’s
valuation @ Rs.2,700 per sq.ft., the Directory & Reference Book states the
value of office premises in Nariman Point area @ Rs.2000 per sq.ft. The
valuation as per ‘Accommodation Times’, ranges from Rs.2,400 per sq.ft. to
Rs.3,200 per sq.ft. for commercial area.

(iv) The Tribunal adopted the rate of Rs.2,000 per sq.ft.
as given in the refrencer as against the valuation @ Rs.500 per sq.ft, adopted
by D.V.O. and valuation @ Rs.2,700 per sq.ft. as adopted by the assessee’s
valuer.

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S. 133(6)—Merely for want of Permanent Account Numbers, the AO is not justified in disbelieving the transactions by doubting the creditworthiness of the karigars and disallowing the payments made to karigars who have confirmed the receipt of amounts.

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33 2010 TIOL 272 ITAT (Mum.)
ACIT v. Lakhi Games Impex Pvt. Ltd.
A.Y. : 2003-04. Dated : 29-1-2010


 

S. 133(6)—Merely for want of Permanent Account Numbers, the
AO is not justified in disbelieving the transactions by doubting the
creditworthiness of the karigars and disallowing the payments made to karigars
who have confirmed the receipt of amounts.

Facts :

The assessee company was engaged in the business of import of
rough diamonds, cutting and polishing and thereafter export of the same. It had
claimed a sum of Rs.22,69,75,283 as labour charges paid to karigars. In the
course of assessment proceedings, particulars of individual recipients of labour
charges were furnished. The Assessing Officer (AO) issued notices u/s.133(6) to
five parties. Notice was served to one party and the other four notices were
returned unserved by the postal authorities. No reply was received from the
party to whom the notice was served. On being confronted, the assessee filed a
confirmation in respect of the said party. The assessee company also filed
confirmations of the other four parties to whom notices were issued but were
returned unserved. Since PAN in respect of all these five parties did not exist
in the confirmations, the AO doubted the creditworthiness of the parties and the
genuineness of the transactions. He disallowed the labour charges in respect of
these five parties.

Aggrieved, the assessee preferred an appeal to the CIT(A) who
observed that this is not a case of cash credit where creditworthiness has to be
examined. He held that non-availability of PAN cannot make a transaction as
non-genuine. He allowed the appeal filed by the assessee.

Aggrieved, the Revenue preferred an appeal to the Tribunal.

Held :

The Tribunal agreed with the finding of the CIT(A) that this
is not a case of cash credit and the issue relates to the allowability of
expenditure. Since the parties have confirmed to have received the payments,
merely for want of permanent account numbers the AO was not justified in
disbelieving the transactions by doubting the creditworthiness of the karigars.

The Tribunal upheld the order of the CIT(A) and the ground
raised by the Revenue was dismissed.

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Classification of New Services notified through Finance Act, 2010 under Export of Services Rules, 2005 — Circular No. 129/11/2010-ST, dated 21-9-2010

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Part B : INDIRECT TAXES


SERVICE TAX UPDATE

15 Classification of New
Services notified through Finance Act, 2010 under Export of Services Rules, 2005
— Circular No. 129/11/2010-ST, dated 21-9-2010.

To resolve the doubts raised
by the service tax payers regarding classification of new services introduced by
the Finance Act, 2010, the CBEC has clarified that all the new services shall
fall in category 3(iii) of the Export of Services Rules, 2005 and Taxation of
Services (Provided from Outside India and Received in India) Rules, 2006
popularly known as Import Rules, 2006. Consequently for services to be
classified as an eligible export, the same must be provided to a service
recipient located outside India and for services to be classified as import of
service the same must be provided from outside India to a service recipient
located in India.

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Capital gains — Since sale consideration of the industrial unit has been arrived at by ‘capitalisation of profits’ and not challenged by any of the authorities below, it cannot be said that the sale of unit is an itemised sale of assets of the unit.

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42 (2010) 38 DTR (Pune) (TM) (Trib.) 393
J. B. Electronics v. JCIT
A.Y. : 1997-98. Dated : 31-12-2009

 

Capital gains — Since sale consideration of the industrial
unit has been arrived at by ‘capitalisation of profits’ and not challenged by
any of the authorities below, it cannot be said that the sale of unit is an
itemised sale of assets of the unit.

Facts :

The assessee-firm sold its industrial unit to the sister
concern and surplus of Rs.3,90,75,996 arising was claimed to be exempt on the
ground that it was a slump sale of its business. The price for transfer was
arrived at by capitalisation of profits method. The weighted average of net
profits for 3 preceding years has been capitalised and the consideration is
arrived at on the basis of 5 times of such weighted average. Accordingly the
sale consideration of Rs.5,64,79,500 was fixed. Individual value of assets and
liabilities was not considered in computation of price of sale of business.

The AO noted that the assessee had got its assets revalued at
Rs.1,71,85,000 as on 31st March, 1995 on the basis of valuation report of an
independent valuer. It was thus clear that the value of assets was not more than
Rs.1,71,85,000 shortly before the date of transfer of assets. The difference
between Rs.1,71,85,000 and WDV of assets was taxed as short-term capital gain
and difference between the consideration i.e., Rs.5,64,79,500 and Rs.1,71,85,000
was taxed as long-term capital gain as goodwill u/s.55(2)(ii).

Aggrieved, the assessee carried the matter in appeal before
the CIT(A) but without any success. Not satisfied with the order of the CIT(A),
the assessee carried the matter in appeal before the Tribunal. There was a
difference of opinion between the members, and the matter was referred to the
Third Member.

Held :

None of the authorities below had any issues with genuineness
or bona fides of the valuation method adopted for sale of the unit. It has never
been the case of any of the authorities below that the consideration arrived at
was part of the sham arrangement and that inter se relationship between the
buyer and the seller has vitiated the bona fides of the sale agreement.

There is no dispute that valuation as on 1st May 1996, which
was the date of transfer of the business, for individual assets is not
available, and the valuation report relied upon by the authorities below is
dated 12th April, 1995 estimating value of the assets as on 31st March, 1995.
The value of an asset as on 1st May 1996 cannot be the same as on 31st March,
1995. The decision of CIT v. Artex Manufacturing Co., 227 ITR 260 (SC), which
has been relied upon by the lower authorities will be relevant only in a case in
which sale consideration of the business is computed on the basis of values of
specific assets and liabilities.

The other aspect of the matter is that the unit has been
transferred as a going concern. Even the manpower, registrations, contracts,
permissions and sanctions were to be transferred to the buyer. The unit has been
transferred to the buyer in a fully functional state along with all the
employees and all the contracts.

Regarding the argument raised that the sale transaction is a
collusive transaction between the sister concerns and the whole theory of
valuation on the basis of capitalisation of profits is an afterthought, it has
not been the case of any of the authorities below that the sale agreement is a
sham agreement or that valuation method adopted by the assessee is not bona
fide. The payments have been made in accordance with this agreement on 1st May,
1996 itself, and therefore it cannot be said that the quantification of sales
consideration was an afterthought. As for the assessee and the buyer being
sister concerns, merely because an agreement is entered into by related parties
the effect of the agreement cannot be ignored. Therefore, the impugned
transaction is not a case of itemised sale and it is clearly a case of slump
sale of the business.

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S. 80HH and S. 80-I — New industrial undertaking vis-à-vis expansion of production capacity of existing unit.

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41 (2010) 38 DTR (Delhi) (SB) (Trib.) 137
JCIT v. Thirani Chemicals Ltd.
A.Y. : 1992-93. Dated : 9-4-2010

 

S. 80HH and S. 80-I — New industrial undertaking vis-à-vis
expansion of production capacity of existing unit.

Facts :

The assessee is engaged in the business of manufacturing
calcium carbonate since 1978 with a starting production capacity of 5,000 MT
annually, which was enhanced in various stages — to 7,500 MT in 1986-97 — to
9,600 MT in the year 1988-89 — to 11,000 MT in 1990-91 and 70,000 MT in 1991-92,
which resulted in corresponding increase in the production. The assessee claimed
deductions u/s.80HH and u/s.80-I in these years on the basis that with each
expansion a new industrial undertaking came into existence in the year in which
the production capacity was increased and the period of allowability of
deductions will increase accordingly.

For A.Y. 1991-92 and 1992-93, the AO rejected such claims of
the assessee holding that it was a case of gradual expansion and reconstruction
of existing unit and the increase in the production capacity cannot be held as
establishment of new industrial undertaking. The CIT(A) confirmed the view of
the AO in A.Y. 1991-92. However for A.Y. 1992-93, the CIT(A) took a different
view than his predecessor and allowed the claim of the assessee.

The Tribunal decided the appeal for A.Y. 1991-92 in favour of
the assessee relying on the observations of the CIT(A) for A.Y. 1992-93. Whereas
for A.Y. 1992-93 the Tribunal considered the matter afresh without being
influenced by the earlier order on the ground that the fact that the appeal
against the order of the CIT(A) for A.Y. 1992-93 was pending before the Tribunal
was not brought to the notice of the Tribunal at the time when the appeal for
A.Y. 1991-92 was heard. Upon considering the matter afresh, the Tribunal decided
against the assessee.

Upon further appeal to the High Court, it was directed to
form a Special Bench to resolve the controversy.

Held :

The true test is, there must emerge a new and identifiable
undertaking, separate and distinct from the existing unit. In the present case,
there is no dispute that so-called expanded new plant and machinery were
installed in the existing building, on same process line-up and infrastructure
and new equipments were connected to the old machinery set-up. The rotary gas
producer was common for the old and the new plant. Similarly, all the raw
material processed passed through a common lime holding tank. The old and the
new plant were integrated in such a manner that it was difficult to identify the
input of raw material and final product whether it was produced through the
so-called expanded plant and machinery or through the old plant and machinery.
Raw material, finished products, employees, electric connection, maintenance of
books of accounts, etc. were all common and could not be identified as coming
from new or old plant. Further, the assessee was not able to ascertain the exact
profits independently from old and expanded plant, that is why the assessee
computed its profits on proportionate basis. Therefore no independent and
distinct unit came into existence for the purpose of claiming deduction either
u/s.80HH or u/s.80-I.

 

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S. 4 of Payment of Gratuity Act, 1972 is amended.

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Part E : Miscellaneous

67 S. 4 of Payment of Gratuity Act, 1972 is
amended.

S. 4 of the Payment of Gratuity Act, 1972 is amended for increasing
the maximum amount of gratuity payable to employees from 3.5 lakh to 10 lakh.
The amendment is notified on 24th May, 2010.

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The Double Tax Avoidance Treaty and Protocol signed between Finland and India on 15-1-2010.

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Part D : COMPANY
LAW


Part E : Miscellaneous

66 The Double Tax Avoidance Treaty and Protocol
signed between Finland and India on 15-1-2010.

The Double Tax Avoidance Treaty and Protocol signed
between Finland and India on 15th January, 2010 has been notified to be entered
into force on 19th April, 2010. The treaty shall apply from 1st January, 2011
for Finland and from 1st April, 2011 for India.

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Conditions of listing for issuers seeking listing on SME Exchange

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Part D : COMPANY
LAW

65 Conditions of listing for issuers seeking listing on SME
Exchange

In recognition of the need for making finance available to
small and medium enterprises, SEBI has decided to encourage promotion of
dedicated exchanges and/or dedicated platforms of the exchanges for listing and
trading of securities issued by SMEs. Consequently, SEBI amended SEBI (ICDR)
Regulations, 2009 and specified the new ‘Model Equity Listing Agreement’ to be
executed between the SME issuer and the stock exchange.

The key highlights of the amendments to listing requirements
are :

(a) Companies listed on the SME exchange may send to their
shareholders a statement containing the salient features of all the documents,
as prescribed in sub-clause (iv) of clause

(b) of proviso to S. 219 of the Companies Act, 1956,
instead of sending a full annual report.

(b) Periodical financial results may be submitted on a
‘half-yearly basis’, instead of a ‘quarterly basis’.

(c) SMEs need not publish their financial results, as
required in the main board and can make it available on their website.


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Enhancement of Disclosure Requirements in Offer Document

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Part D : COMPANY
LAW

64 Enhancement of Disclosure Requirements in Offer Document

At the SEBI Board meeting held on 19th May 2010, it was
decided that the offer documents of companies raising capital will contain
disclosures from directors if they were directors of any company when the shares
of the said company were suspended from trading by stock exchange(s) for more
than 3 months during the last 5 years or delisted.

Visit SEBI website for a complete text of the press release
containing various decisions taken at the Board meeting.


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Easy Exit Scheme, 2010

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Part D : COMPANY
LAW


63 Easy Exit Scheme, 2010

The Ministry of Corporate Affairs vide General Circular No. 2
/2010 F. No. 2/7/2010-CL V, has on 26 May, 2010 given an opportunity to the
defunct companies, for getting their names strike off from the Register of
Companies, through an ‘Easy Exit Scheme, 2010’ u/s.560 of the Companies Act,
1956. The Scheme shall come into force on the 30th May, 2010 and shall remain in
force up to 31st August, 2010. Defunct company has been defined as a company
registered under the Companies Act, 1956, which is not carrying over any
business activity or operation on or after the 1st April, 2008 and includes a
company which has not raised its paid-up capital as provided in Ss.(3) and
Ss.(4) of S. 3 of the Companies Act, 1956.

The Scheme does not cover the following companies, namely :

(a) listed companies;

(b) companies registered u/s.25 of the Companies Act, 1956;

(c) vanishing companies;

(d) companies where inspection or investigation is ordered
and being carried out or yet to be taken up or where completed prosecutions
arising out of such inspection or investigation are pending in the Court;

(e) companies where order u/s.234 of the
Companies Act, 1956 has been issued by the Registrar and reply thereto is
pending or where prosecution if any, is

(f) pending in the Court;

(g) companies against which prosecution for a
non-compoundable offence is pending in the Court;

(h) companies which have accepted public deposits which are
either outstanding or the company is in default in repayment of the same;

(i) company having secured loan;

(j) company having management dispute;

(k) company in respect of which filing of documents have
been stayed by the Court or Company Law Board (CLB) or Central Government or
any other competent authority;

(l) company having dues towards income-tax or sales tax or
central excise or banks and financial institutions or any other Central
Government or State Government departments or authorities or any local
authorities.



 



Applications need to be made in the Form EES 2010, along with
affidavit and indemnity bond among other things.


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Company Law Settlement Scheme, 2010

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New Page 1Part D : Company
Law

62 Company Law Settlement Scheme, 2010

The Ministry of Corporate Affairs, vide the General Circular
No. 1 /2010 F. No. 2/7/2010-CL V, dated 26 May, 2010, has given an opportunity
to the defaulting companies to enable them to make their default good by filing
belated documents and to become a regular compliant in future. The Ministry, in
exercise of the powers u/s.611(2) and 637B (b) of the Companies Act, 1956 has
decided to introduce a Scheme, namely, ‘Company Law Settlement Scheme, 2010,’
condoning the delay in filing documents with the Registrar, granting immunity
from prosecution and charging additional fee of 25% of actual additional fee
payable for filing belated documents under the Companies Act, 1956 and the rules
made thereunder. The Scheme shall come into force on the 30th May, 2010 and
shall remain in force up to 31st August, 2010. The application for seeking
immunity in respect of belated documents filed under the Scheme may be made
electronically in the required Form, after closure of the Scheme and after the
document(s) are taken on file, or on record or approved by the Registrar of
Companies as the case may be, but not after the expiry of six months from the
date of closure of the Scheme.

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A.P. (DIR Series) Circular No. 54, dated 26-5-2010 — Deferred Payment Protocols dated April 30, 1981 and December 23, 1985 between Government of India and erstwhile USSR.

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Part C : RBI/FEMA

61 A.P. (DIR Series) Circular No. 54, dated 26-5-2010 —
Deferred Payment Protocols dated April 30, 1981 and December 23, 1985 between
Government of India and erstwhile USSR.

The Rupee value of the special currency basket has been fixed at Rs.63.0402
with effect from May 31, 2010 as against the earlier value of Rs. 60.897378.

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Clarification regarding eligibility of deduction u/s.80C of the Act for investment under Jeevan Akshay-VI — Notification No. 34/2010, dated 19-5-2010.

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Part A : Direct Taxes

35 Clarification regarding eligibility of deduction u/s.80C
of the Act for investment under Jeevan Akshay-VI — Notification No. 34/2010,
dated 19-5-2010.

Jeevan Akshay-VI of the Life Insurance Corporation of India
has been approved as an annuity plan eligible for deduction under clause (xii)
of Ss.(2) of S. 80C of the Act. This clarification would be applicable for
investment made under this scheme for A.Y. 2008-09 and onwards.

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S. 80-I r/w S. 80-IA — Where old business is carried on and on growth of business, new units established, benefit of S. 80-I/80-IA available to new unit, if said unit is ‘undertaking’ — A unit qualifies as industrial undertaking when it produces articles

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11 114 ITD 189 (Mum.)


Jt. Commissioner of Income-tax v.


Associated Capsules (P) Ltd.

A.Ys. : 1994-95 to 1997-98. Dated : 5-2-2008

S. 80-I r/w S. 80-IA — Whether where an old business is
carried on by the assessee and commensurate with the growth of the business, new
units are established, benefit of S. 80-I/80-IA will be available to a unit or
new unit, if said unit is in the nature of ‘undertaking’ — Held, Yes; Whether a
unit qualifies to be called an industrial undertaking when it undertakes
production or manufacture of articles or things in its own right and produces
such articles or things by itself as a separate and independent unit — Held,
Yes.

 

Facts :

The assessee had been engaged in the business of production
of empty hard gelatine capsules and their sale to pharmaceutical companies. The
manufacturing activities were carried out by the assessee with the help of
capsule manufacturing machines. In the relevant assessment year, the assessee
had seventeen capsule manufacturing machines installed in four separate
undertakings. It claimed deduction u/s.80-I and u/s.80-IA in respect of its
undertakings.

The AO noticed that the departmental authorities in a survey
u/s.133A at the factory premises of the assessee-company had found that all the
four undertakings were located in the same premises of the factory and all of
them were involved in the production of capsules; that the source of power for
all the units was one, inasmuch as there was one electricity bill for the
factory; that air-conditioning plant for all the units was common; and that
certain ancillary activities, pre and post-manufacturing were common. He held
that all the four undertakings, which were claimed by the assessee to be
separate and independent of each other were essentially one undertaking. He
therefore concluded that undertakings in question could not be regarded as
separate and independent for the purpose of deduction u/s.80-I and u/s.80-IA
and, accordingly, denied the deduction claimed by the assessee.

On appeal, the CIT(A) held that though all the machines and
undertakings involved in the manufacturing of the same article, i.e.,
capsules, were located in the same premises, yet the area of each of the four
undertakings was clearly demarcated and separated from each other; that though
the main source of power in the entire factory was common, yet the power
consumed by each machine was clearly and separately recorded; that though
centralised air-conditioning was provided to all the undertakings, it could be
shutoff for any undertaking without affecting the others; the supply of raw
materials was monitored machinewise and under-takingwise; in a nutshell, each of
the undertaking was working independently of the others. He, therefore, held
each of the undertaking to be separate and independent, and to be producing
capsules in its own right. He, therefore, allowed assessee’s claim for deduction
u/s.80-I and u/s.80-IA.

On Revenue’s appeal, the Tribunal made the following
observations :

1. A perusal of S. 80-I and S. 80-IA establishes that the
notion of ‘undertaking’ is a core jurisdictional element for the application
of S. 80-I and S. 80-IA. The other conditions stipulated can be satisfied only
when there is an ‘undertaking’. The undertaking should be new, in the sense
that it should have begun to manufacture or produce specified articles or
things after the prescribed time schedule.

2. Application of S. 80-I/S. 80-IA to new industrial
undertakings started for the first time by the assessee is usually devoid of
any difficulties. Controversies arise where the old business is being carried
out by the assessee and the new activity is launched by him establishing new
plants and machinery by investing substantial funds to produce the articles or
things which are the same as those from of the old business or to produce some
distinct marketable products
which may feed the old business. It is the general contention of the Revenue
in these cases that establishment of a new undertaking manufacturing the same
product is not a new undertaking eligible for tax incentives. Benefit under
the said Sections is available to a unit or a new unit only if it is in the
nature of an ‘undertaking’.

3. The term ‘undertaking’ has not been statutorily defined
in the Income-tax Act, and the crucial question of whether a unit is to be
considered as an undertaking is left to be decided by the Tribunals/Courts.
The Tribunal further observed that a unit qualifies to be an undertaking when
it undertakes production or manufacture of articles or things in its own right
and produces such articles or things by itself as a separate or independent
unit.

4. The CIT(A) on examination of the material on record had
held that the units in question were well-integrated units producing capsules
on their own, and had a separate and distinct identity of their own, which had
not been shown to be incorrect or based on no material. The Department had
also not rebutted the assessee’s claim that it had treated each undertaking as
separate and independent in its accounts. It was also not the case of the
Department that any of the negative tests laid down in S. 80I(2) was attracted
in this case. Therefore, the CIT(A) had decided the issue correctly.
Therefore, the appeal filed by the Revenue was liable to be dismissed.

 


Cases referred to :



(i) Textile Machinery Corpn. Ltd. v. CIT, (1997) 107
ITR 195 (SC) (para 7)

(ii) Periyar Chemicals Ltd. v. CIT, (1997) 226 ITR
467 (Ker.) (para 9)

S. 11(1)(a) — Application of income should result and should be for the purpose of charitable purposes in India and application need not be in India.

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40 (2010) 38 DTR (Delhi) (Trib.) 105
National Association of Software & Services Companies (NASSCOM) v.

Dy. DIT (E)
A.Ys. : 1998-99, 2004-05 & 2005-06

Dated : 12-3-2010

 

S. 11(1)(a) — Application of income should result and should
be for the purpose of charitable purposes in India and application need not be
in India.

Facts :

The assessee incurred expenditure at an event at Hannover,
Germany, which was claimed as application of income within the meaning of S.
11(1)(a). The AO and CIT(A) were of the opinion that the expenditure should have
been incurred in India in order to be eligible for exemption.

Held :

A perusal of the provisions of S. 11(1)(a) of the Act clearly
shows that the words used are ‘is applied to such purpose in India’. The words
are not ‘is applied in India’. The fact that the Legislature has put the words
‘to such purpose’ between ‘is applied’ and ‘in India’ shows that the application
of income need not be in India, but the application should result and should be
for the purpose of charitable and religious purpose in India. It is not the case
of the Revenue that the expenditure incurred by the assessee in Hannover,
Germany has not resulted in the benefit being derived in India. In these
circumstances, it cannot be said that the expenditure incurred by the assessee
in Hannover, Germany, which resulted in and which was for the purpose of
attaining the charitable object in India, is not application of income. The
decision in the case of Gem & Jewellery Export Promotion Council v. ITO, 68 ITD
95 (Mum.) was followed.

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S. 145 — Entire amount of time-share membership fee receivable by assessee upfront at time of enrolment of a member is not income chargeable to tax in initial year on account of contractual obligation fastened to the receipt to provide services in future

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32 2010 TIOL 262 ITAT (Mad.) (SB)
ACIT v. Mahindra Holidays & Resorts (India) Ltd.
A.Ys. : 1998-99 to 2002-03. Dated : 26-5-2010

S. 145 — Entire amount of time-share membership fee
receivable by assessee upfront at time of enrolment of a member is not income
chargeable to tax in initial year on account of contractual obligation fastened
to the receipt to provide services in future over term of contract.

Facts :

The assessee was in the business of selling time share units
in its various resorts. It granted membership for a period of 25/33 years on
payment of a certain amount as membership fee. During the currency of the
membership, the member had a right to holiday for one week in a year at the
place of his choice from amongst the resorts of the assessee. He also had a
right to transfer, bequeath or gift his membership/time-share unit to any
person. The membership fee was received either in lump sum or in instalments. In
addition to the membership fee, the member was liable to pay annual maintenance
charges, irrespective of whether he made use of the resort or not. These charges
were for the maintenance and upkeep of the various resorts. Additional payment
towards utilities like electricity, water, etc. was payable if the resort was
utilised. The assessee was following the mercantile system of accounting. It
treated the membership fee as revenue receipt. However only 40% of the amount
received was offered for taxation in the year of receipt and the balance was
equally spread over the period of membership of 25 or 33 years on the ground
that it was relatable to the services to be offered to the members. The
Assessing Officer (AO) held that as per the accrual system of accounting, the
entire receipt had to be assessed as income in the year of receipt; the Act does
not recognise the concept of deferred income. He made an addition of 60% of the
receipts shown by the assessee as advance subscriptions.

Aggrieved, the assessee preferred an appeal to the CIT(A) who
upheld the contentions of the assessee and deleted the addition in all the
years.

Aggrieved, the Department preferred an appeal to the
Tribunal. At the instance of the assessee a Special Bench was constituted to
consider the following question :

“Whether the entire amount of the time-share membership fee
receivable by the assessee upfront at the time of enrolment of a member is the
income chargeable to tax in the initial year when there is a contractual
obligation fastened to the receipt to provide the services in future over the
term of the contract ?”

Held :

(i) From the observations of the Supreme Court in E. D.
Sassoon & Co. Ltd v. CIT, (26 ITR 27) (SC), it is evident that two conditions
are necessary to say that income has accrued to or earned by the assessee.
They are, (i) it is necessary that the assessee must have contributed to its
accruing or arising by rendering services or otherwise, and (ii) a debt must
have come into existence and he must have acquired a right to receive the
payment. In the present case, a debt is created in favour of the assessee
immediately on execution of the agreement. However, it cannot be said that the
assessee has fully contributed to its accruing by rendering services. The
assessee is bound to provide accommodation to the members for one week every
year till the currency of the membership. Till the assessee fulfils its
promise, the parenthood cannot be traced to it.

(ii) The argument of the assessee that the main reason to
spread the balance amount of membership fee over the tenure of membership was
due to the fact that the assessee has to incur heavy expenditure for the
upkeep and maintenance of its resorts was not accepted since the assessee was
collecting separate charges for maintenance and use of utilities and therefore
it was held that matching concept cannot be pressed into service with regard
to the membership fee.

(iii) If the assessee is not able to provide accommodation
in any of its notified resorts, it will try to procure alternate
accommodation. This also will entail additional expenditure on the part of the
assessee over and above paying liquidated damages to the assessee. Unlike the
case in Calcuta Co. Ltd. (37 ITR 1) (SC), the liability in this case is
difficult not only to quantify but also to reasonably estimate it. The
liability is undoubtedly there. However, no scientific basis has been brought
to our notice to quantify the same even reasonably. Even if the assessee had
chosen to provide for the liability every year to comply with the matching
concept, it would have been wholly unscientific and arbitrary.

(iv) In the case of Rotork Controls India, 314 ITR 62 (SC),
the Supreme Court has observed that a provision is recognised when (a) an
enterprise has a present obligation as a result of a past event; (b) it is
probable that an outflow of resources will be required to settle the
obligation; and (c) a reliable estimate can be made of the amount of the
obligation. If these conditions are not met, no provision can be recognised.
In the present case, the assessee has a present obligation as a result of a
past event and outflow of resources is probable to settle the obligation.
Thus, first two conditions are satisfied. However, considering the nature of
activity, it is the third condition which is difficult to satisfy.

(v) Recognising the entire receipt as income can lead to
distortion. Somewhat similar, though not exactly identical, situation was face
by the Supreme Court in the case of Madras Industrial Investment Corporation
Ltd. v. CIT, 255 ITR 802 (SC). The only difference is that in the case of
Madras Industrial Investment Corporation the distortion was supposed to be on
account of expenditure, in the present case the distortion is on account of
the entire income being accounted in the year of receipt.

(vi) Since it is difficult to estimate the liability which
is likely to be incurred in future, more so in the absence of any scientific
basis or historical data, the only way to minimise the distortion is to spread
over a part of the income over the ensuing years.

(vii) The entire amount of time-share membership fee
receivable by the assessee upfront at the time of enrolment of a member is not
the income chargeable to tax in the initial year on account of contractual
obligation that is fastened to the receipt to provide services in future over
the term of contract.

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S. 45, S. 48 and S. 55(2) — Assessee, CHS, owned land and building — Upon enactment of DCR, assessee became entitled to additional FSI which was transferred for consideration — Is right transferred covered by S. 55(2) — Held, No. Whether since right trans

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Part B — Unreported Decisions

(Full texts of the following Tribunal decisions are available
at the Society’s office on written request. For members desiring that the
Society mails a copy to them, Rs.30 per decision will be charged for
photocopying and postage.)


24 New Shailaja CHS Limited
v. ITO, 22(1)(4)


ITAT ‘B’ Bench, Mumbai

Before R. S. Syal (AM) and

V. Durga Rao (JM)

ITA No. 512/Mum./2007

A.Y. : 2003-04. Decided on : 2-12-2008

Counsel for assessee/revenue : Tarun Ghia/

Pitamber Das

S. 45, S. 48 and S. 55(2) of the Income-tax Act, 1961 (‘the
Act’) — A.Y. 2003-04 — Assessee, a co-operative housing society, owned land and
building — Upon enactment of Development Control Regulations, 1991 (DCR), the
assessee became entitled to additional FSI of around 11,000 sq.ft. which
additional FSI was transferred by the assessee for a consideration of
Rs.48,96,225 — Is the right transferred covered by any of the items mentioned in
S. 55(2) of the Act — Held, No. Whether since the right transferred emanated
from amendment to DCR and is not covered by any of the items of S. 55(2) and
does not have any cost of acquisition no capital gain can be charged on transfer
of additional FSI — Held, Yes.

 

Per R. S. Syal :

Facts :

The assessee, a co-operative housing society, had acquired
land in the year 1972 along with building thereon constructed by use of FSI of
approx. 11,000 sq.ft. Upon enactment of Development Control Regulations, 1991
(DCR) the assessee became entitled to an additional FSI of around 11,000 sq. ft.
The assessee sold such entitlement/right to M/s. D. K. Builders for a
consideration of Rs.48,96,225. The Assessing Officer (AO) computed capital gain
arising on sale of this entitlement to be Rs.1.22 crores, by considering the
value of residential flat as arrived at by stamp valuation authorities. The
assessee preferred an appeal to the CIT(A) who dismissed the same. Aggrieved,
the assessee preferred an appeal to the Tribunal.

 

Held :

The Tribunal noted that the concept of transferable
development right has been introduced in Mumbai in the Development Control
Rules, 1991 of the Bombay Municipal Corporation. These rights are given in the
form of a Development Right Certificate (DRC) which is issued by the Municipal
Corporation. TDR means the development potential. The FSI of a plot of land is
separated from the plot and is allowed to be transferred. TDR can be used by the
person/ owner/lessee in whose favour it is granted on his land in the receiving
zone. He can use it fully or partly or sell it fully or partly at will. The
Tribunal stated that while it is true that such right is a capital asset as per
the provisions of S. 2(14) but in order to compute capital gain, apart from the
existence of capital asset there should be sale consideration accruing as a
result of the transfer of capital asset as well as the cost of acquisition of
the asset along with the cost of improvement, if any. The Tribunal observed that
the cost of land and the existing building structure could not be attributed in
the additional FSI received by means of 1991 rules since the assessee was the
owner of the land and building and continued to remain the same even after the
transfer of the said capital asset. The Tribunal noted that the Apex Court has
in B. C. Srinivasa Shetty’s case held that transfer of capital asset which does
not have any cost of acquisition does not result into capital gain chargeable
u/s.45. The Tribunal held that there is a difference in the situation when cost
of acquisition is Rs.Nil and where the cost of acquisition cannot be ascertained
or no cost of acquisition has been incurred. The Tribunal noted that the items
of capital assets specified in S. 55(2) are those for which the cost of
acquisition shall be taken to be Nil for computing capital gain. It held that if
the assessee had not incurred any cost of acquisition on a capital asset and
such capital asset does not fall in the category of the capital assets specified
in S. 55(2), then the judgment of the Apex Court in the case of B. C. Srinivasa
Shetty shall apply and no capital gains shall be charged. In the light of the
above, the Tribunal held that the right transferred emanated from the 1991 rules
making the assessee eligible to additional FSI. The right transferred is not
covered by any of the items mentioned in S. 55(2) and it does not have any cost
of acquisition and therefore no capital gain can be charged on transfer of
additional FSI for sale consideration of Rs.48.06 lakhs for the reason that it
has no cost of acquisition. It held that its view is fortified by the decision
of the Mumbai Bench in Jethalal D. Mehta, which decision has not been modified
or reversed by the Hon’ble High Court.

 

Cases referred to :



(1) Jethalal D. Mehta v. DCIT, (ITA No. 672/Mum./2000)
(Mum.)

(2) CIT v. B. C. Srinivasa Shetty, (1981) 128 ITR 294 (SC)

 


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Diplomatic Authorities of Republic of South Africa deleted. Notification No. VAT/1509/CR-9/Taxation1, dated 18-2-2009

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12 Diplomatic Authorities of Republic of South Africa deleted.
Notification No. VAT/1509/CR-9/Taxation1, dated 18-2-2009 :


Refund is granted to tax collected by any registered dealer on his sales
made to the diplomatic authorities and international bodies or organisations
listed in column (2) of the Schedule appended to the Notification No.
VAT-1507/CR-41/Taxation-1, dated 25-6-2007. By this Notification, ‘Republic
of South Africa’ has been deleted from this Schedule.

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Clarification by CBDT that filing of an application to the Dispute Resolution Panel is optional (reproduced hereunder for ease of reference)

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42 Clarification by CBDT that filing of an application to the
Dispute Resolution Panel is optional (reproduced hereunder for ease of
reference)


F. No. 142/22/2009-TPL (Pt. II)

20th January 2010

The Director General of Income-tax (International Taxation),

Room No. 406, Drum Shape Building,

I. P. Estate, Delhi.



Subject:

Clarification regarding
filing of Objections before Dispute Resolution Panel (DRP) – reg

A new section 144C was inserted in the Income-tax Act, 1961
vide Finance (No. 2) Act of 2009. Section 144C provides for constitution of a
Dispute Resolution Panel (DRP) to decide cases of an eligible assessee as
defined in sub-section (15) of section 144C of the Income-tax Act. The Dispute
Resolution Panel Rules were notified vide SO No. 2958 (E) dated 20th November
2009.

2. A query has been raised as to whether it is compulsory for
an assessee to file an objection before the DRP or whether he can choose to file
an appeal through the normal appellate channel of CIT (Appeals).

3. The provisions from sub-section (2) to sub-section (5) of
section 144C are quite clear that a choice has been given to the assessee either
to go before the DRP or to prefer the normal appellate channel. It is again
clarified that it is the choice of the assessee whether to file an objection
before the Dispute Resolution panel against the draft assessment order or not to
exercise this option and file an appeal later before CIT (Appeals) against the
assessment order passed by the Assessing Officer.

4. This position may also be brought to the notice of
taxpayers at large.

C. S. Kahlon,
Member (L&C).


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Establishment of Branch Office (BO) / Liaison Office (LO) in India by Foreign Entities – Eligibility Criteria and Procedural Guidelines

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Part C:
FEMA

 

Given below are the highlights of certain RBI
circulars, press notes and notifications

33 A. P. (DIR Series) Circular No. 23, dated December
30, 2009

Establishment of Branch Office (BO) / Liaison
Office (LO) in India by Foreign Entities – Eligibility Criteria and Procedural
Guidelines

This circular places in public domain the
eligibility criteria and procedural guidelines for the establishment of Branch
Offices and Liaison Offices by foreign entities in India.

The broad criteria regarding eligibility for
opening of BO and LO, documents required, etc., are given in Annex A. The scope
of activities permitted and other procedural guidelines (additional offices /
activities, renewal, closure) are given in Annex B.

Application for establishing a BO/LO has to be made
to designated AD Category – I Bank in Form FNC given in Annex C. The same, along
with the relevant documents, will be submitted by the Bank to the RBI. However,
applications from foreign banks and insurance companies will continue to be
received directly by the RBI. Comfort letter to be given by applicants who do
not satisfy the eligibility criteria and are subsidiaries of other companies is
given in Annex D.

All BO and LO (new as well as existing) will be
allotted a Unique Identification Number which needs to be quoted in all
references to RBI.

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New rates of profession tax prescribed w.e.f. 1-7-2009 in Maharastra.

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Spot Light

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Buyback/Prepayment of Foreign Currency Convertible Bonds (FCCBs)

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Part C : RBI/FEMA


Given below are the highlights of certain RBI Circulars

  1. A. P. (DIR Series) Circular No. 65, dated April 28, 2009

Buyback/Prepayment of Foreign Currency Convertible Bonds
(FCCBs)

Presently, buyback of FCCB up to US $ 50 million is
permitted, subject to certain terms and conditions, under the approval route.

This Circular has raised this limit for buyback out of
internal accruals from US $ 50 million to US $ 100 million, subject to the
following :

i) Minimum discount of 25 per cent of book value for
redemption value up to USD 50 million;

ii) Minimum discount of 35 per cent of book value for the
redemption value over USD 50 million and up to USD 75 million; and

iii) Minimum discount of 50 per cent of book value for
the redemption value of USD 75 million and up to USD 100 million.

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External Commercial Borrowings (ECB) Policy — Liberalisation

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Part C : RBI/FEMA


Given below are the highlights of certain RBI Circulars

  1. A. P. (DIR Series) Circular No. 64, dated April 28, 2009

External Commercial Borrowings (ECB)
Policy — Liberalisation

Presently, ECB could be obtained, up to June 30, 2009, at
rates higher than the all-in-cost ceilings by obtaining approval of RBI under
the approval route.

This Circular has extended this date for borrowing at rates
higher than the all-in-cost ceilings by obtaining approval of RBI under the
approval route from June 30, 2009 to December 31, 2009.

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Gram Nyayalayas Act, 2008 to become operative from 2nd October 2009 — Press Release dated 29-9-2009.

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  1. Gram Nyayalayas Act, 2008 to become operative from 2nd
    October 2009 — Press Release dated 29-9-2009.

The Gram Nyayalayas Act, 2008 has been enacted to provide
for the establishment of the Gram Nyayalayas at the grass roots level for the
purpose of providing access to justice to the citizens at their door steps.
This Act shall come into force from Gandhi Jayanti this year i.e. 2nd
October 2009.

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A.P. (DIR Series) Circular No. 11, dated 5-10-2009 : Issue of Bank Guarantee on behalf of service importers.

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Given below are the highlights of certain RBI Circulars.

9. A.P. (DIR Series) Circular No. 11, dated 5-10-2009 : Issue
of Bank Guarantee on behalf of service importers.

Presently, an importer of services is permitted to issue a
Bank Guarantee up to US $ 100,000 or its equivalent in favour of the foreign
supplier of services, subject to certain terms and conditions.

This circular has increased the limit for issuing Bank
Guarantee in favour of the foreign supplier of services from US $ 100,000 to
US $ 500,000 for all importers (other than Public Sector
Companies/Undertakings and Central/State Government Departments), provided the
transaction is a bonafide transaction and the Bank Guarantee is issued to
secure a direct contractual liability arising out of a contract between a
resident and a non-resident. The importer is required to submit in the normal
course, to the Bank issuing the Bank Guarantee, documentary evidence for
import of services.

In the case of Public Sector Companies/Undertakings and
Central/State Government Departments the limit will continue to be US $
100,000. For issue of Bank Guarantee in excess of US $ 100,000 or its
equivalent prior permission is required to be obtained from the Ministry of
Finance, Government of India.

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A.P. (DIR Series) Circular No. 10, dated 5-10-2009 : Foreign Exchange Management Act, 1999 — Advance remittance for import of services.

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Given below are the highlights of certain RBI Circulars.

  1. A.P. (DIR Series) Circular No. 10, dated 5-10-2009 :
    Foreign Exchange Management Act, 1999 — Advance remittance for import of
    services.

Presently, the limit for advance remittance for all
permissible current account transactions for import of services without
obtaining a Bank Guarantee from the foreign supplier is US $ 500,000 or its
equivalent.

This circular clarifies that the said limit of US $ 500,000
or its equivalent is not applicable to Public Sector Companies/Undertakings
and Central/State Government Departments. And the limit for them continues to
be US $ 100,000 or its equivalent. For advance remittance in excess of US $
100,000 or its equivalent prior permission is required to be obtained from the
Ministry of Finance, Government of India.

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Foreign Exchange Management (Deposit) Regulations, 2000 — Loans to Non-Residents/Third Party against security of Non-Resident (External) Rupee Accounts [NR(E)RA]/Foreign Currency Non-Resident (Bank) Accounts [FCNR(B)] — Deposits

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Part C : RBI/FEMA


Given below are the highlights of certain RBI Circulars

  1. A. P. (DIR Series) Circular No. 66, dated April 28, 2009

Foreign Exchange Management (Deposit) Regulations,
2000 — Loans to Non-Residents/Third Party against security of Non-Resident
(External) Rupee Accounts [NR(E)RA]/Foreign Currency Non-Resident (Bank)
Accounts [FCNR(B)] — Deposits

Presently, loans up to Rs. 20 lakh can be availed by the
account holder/third party against security of deposits in NR(E)RA and FCNR(B)
accounts.

This Circular has increased this limit from Rs. 20 lakh to Rs. 100 lakh.
Hence, account holder/third party can avail loans up to Rs. 100 against
security of deposits in NR(E)RA and FCNR(B) accounts.

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Foreign Direct Investment (FDI) in India — Transfer of Shares/Preference Shares/Convertible Debentures by way of sale — Modified Reporting Mechanism

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Part C : RBI/FEMA


Given below are the highlights of certain RBI Circulars

  1. A. P. (DIR Series) Circular No. 63, dated April 22, 2009

Foreign Direct Investment (FDI) in India — Transfer of
Shares/Preference Shares/Convertible Debentures by way of sale — Modified
Reporting Mechanism

This Circular has made the following changes, with
immediate effect, in respect to reporting requirements in case of transfer of
shares/preference shares/convertible debentures by way of sale from resident
to non-resident and vice versa :

1. Form FC-TRS has been revised as per format attached to
this Circular.

2. Proforma for reporting of inflows/outflows by banks
has also been revised as per format attached to this Circular.

3. Bank receiving the remittance/handling the transaction
will have to carry out KYC non-resident purchaser as per format (Annex II)
attached to this Circular.

4. The resident transferor/transferee will have to submit
Form FC-TRS to the bank within 60 days from the date of receipt of the
amount of consideration.

5. In case of deferment of consideration (which continues
to require prior approval of RBI) the bank carrying out the transaction will
have to submit Form FC-TRS to RBI within 60 days from the date of receipt of
the full and final amount of consideration.

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External Commercial Borrowings (ECB) Policy —Liberalisation — Issue of guarantee for operating lease

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Part C : RBI/FEMA


Given below are the highlights of certain RBI Circulars

  1. A. P. (DIR Series) Circular No. 62, dated April 20, 2009

External Commercial Borrowings (ECB)
Policy —Liberalisation — Issue of guarantee for operating lease

Presently, AD Category – I banks are permitted to convey
‘no objection’ under FEMA for creation of charge on immoveable assets,
financial securities and issue of corporate pr personal guarantees in favour
of overseas lender/security trustee, to secure ECB to be raised by the
borrower, subject to compliance with prescribed conditions.

This Circular, in addition to the above, allows AD
Category – I banks to convey ‘no objection’ under FEMA for issue of corporate
guarantee in favour of the overseas lessor, for operating lease in respect of
import of aircraft/aircraft engine/helicopter, subject to compliance with
prescribed conditions.

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A.P. (DIR Series) Circular No. 70, dated 30-6-2009 : Export of goods and software : Realisation and repatriation of export proceeds : Liberalisation.

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Part C : RBI/FEMA

Given below are the highlights of certain RBI Circulars.


  1. A.P. (DIR Series) Circular No. 70, dated 30-6-2009 : Export
    of goods and software : Realisation and repatriation of export proceeds :
    Liberalisation.

Presently, exporters are permitted to realise and
repatriate the full export value of the goods or soft-ware exported within
twelve months from the date of export, as against the norm of realising and
repatriation of the full export value of the goods or software exported within
six months from the date of export.

This Circular has extended this relaxation for a further
period of one year i.e., up to June 30, 2010. As a result exporters can
repatriate the full export value of the goods or software exported up to June
30, 2010 within twelve months from the date of export.

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On-line downloading of GR Forms

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Part C : RBI/FEMA

Given below are the highlights of certain RBI Circulars and Press Notes
issued by DIPP

  1. A. P. (DIR Series) Circular No. 60, dated March 26, 2009

On-line downloading of GR Forms

Presently, exporters are required to purchase GR Forms from
Regional Offices of RBI. Now, in addition to the above facility of purchasing
the GR Forms, exporters have been given an option of downloading the said GR
Forms from RBI website www.rbi.org.in and use the same.


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Buyback/Prepayment of Foreign Curren-cy Convertible Bonds (FCCBs)

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Part C : RBI/FEMA

Given below are the highlights of certain RBI Circulars and Press Notes
issued by DIPP

  1. A. P. (DIR Series) Circular No. 58, dated March 13, 2009

Buyback/Prepayment of Foreign Curren-cy Convertible
Bonds (FCCBs)


As per A. P. (Dir Series) Circular No. 39, dated December
8, 2008 the entire procedure of buyback was to be completed by Indian
companies by March 31, 2009.


This Circular has extended the said date from March 31,
2009 to December 31, 2009.


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Clarificatory guidelines on downstream investment by Indian companies

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Part C : RBI/FEMA

Given below are the highlights of certain RBI Circulars and Press Notes
issued by DIPP

  1. Ministry of Commerce & Industry, DIPP (FC Section) —
    Press Note No. 4 (2009), dated February 25, 2009

Clarificatory guidelines on downstream investment by
Indian companies

This Press Note aims to bring clarity into the Policy for
downstream investment by investing Indian companies.


The Policy on downstream investment comprises policy for :


(a) Only operating companies — Foreign investment in
such companies would have to comply with the relevant sectoral conditions on
entry route, other conditions and caps with regard to the sectors in which
such companies are operating.

(b) Operating-cum-investing companies — Foreign
investment into such companies would have to comply with the relevant
sectoral conditions on entry route, other conditions and caps with regard to
the sectors in which such companies are operating. Further, the subject
Indian companies into which downstream investments are made by such
companies would have to comply with the relevant sectoral conditions on
entry route, other conditions and caps in regard of the sector in which the
subject Indian companies are operating.

(c) Only investing companies — Foreign investment in
investing companies will require prior Government/FIPB approval, regardless
of the amount or extent of foreign investment. The Indian companies into
which downstream investments are made by such investing companies would have
to comply with the relevant sectoral conditions on entry route, other
conditions and caps in regard of the sector in which the subject Indian
companies are operating.

(d) Others companies — Government/FIPB approval is
required for infusion of funds into companies that do not have any
downstream investments. Further, as and when such company commences
business(s) or makes downstream investment, it will have to comply with the
relevant sectoral conditions on entry route, other conditions and caps.


Downstream investments can be made by
operating-cum-investing companies, only investing companies and other
companies, subject to the following conditions :


(a) Such company must notify SIA, DIPP and FIPB of its
downstream investment within 30 days of such investment even if equity
shares/CCPS/CCD have not been allotted along with the modality of investment
in new/existing ventures (with/without expansion programme).

(b) Downstream investment by way of induction of foreign
equity in an existing Indian company to be duly supported by a resolution of
the Board of Directors supporting the said induction as also a shareholders’
agreement if any.

(c) Issue/transfer/pricing/valuation of shares shall be
in accordance with applicable SEBI/RBI guidelines.

(d) Investing companies would have to bring in requisite
funds from abroad and not leverage funds from domestic market for such
investments. This would, however, not preclude downstream operating
companies to raise debt in the domestic market.


This Press Note has amplified Annexure to Press Note 7
(2008), dated June 16, 2008 to the extent stated therein.




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Guidelines for transfer of ownership or control of Indian companies in sectors with caps from resident Indian citizens to non-resident entities

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Part C : RBI/FEMA

Given below are the highlights of certain RBI Circulars and Press Notes
issued by DIPP

  1. Ministry of Commerce & Industry, DIPP (FC Section) —
    Press Note No. 3 (2009), dated February 13, 2009

Guidelines for transfer of ownership or control of
Indian companies in sectors with caps from resident Indian citizens to
non-resident entities



Presently, transfer of shares from residents to
non-residents, including acquisition of shares in an existing company, is on
the automatic route, subject to the sectoral policy on FDI. This Press Note
lays down guidelines for transfer of ownership or control of Indian companies
in sectors with caps from resident Indian citizens to non-resident entities.

Foreign investment shall include all types of foreign
investments i.e., FDI, investment by FIIs, NRIs, ADRs, GDRs, Foreign
Currency Convertible Bonds (FCCB) and convertible preference shares,
regardless of whether the said investments have been made under Schedule 1, 2,
3 and 6 of FEMA (Transfer or Issue of Security by Persons Resident Outside
India) Regulations.

In sectors with caps, including inter alia defence
production, air transport services, ground handling services, asset
reconstruction companies, private sector banking, broadcasting, commodity
exchanges, credit information companies, insurance, print media,
telecommunications and satellites, Government approval/FIPB approval would be
required in all cases, where :

1. An Indian company is being established with foreign
investment and is owned by a non-resident entity or

2. An Indian company is being established with foreign
investment and is controlled by a non-resident entity or

3. The control of an existing Indian company, currently
owned or controlled by resident Indian citizens and Indian companies, which
are owned or controlled by resident Indian citizens, will be/is being
transferred/passed on to a non-resident entity as a consequence of transfer
of shares to non-resident entities through amalgamation, merger,
acquisition, etc. or

4. The ownership of an existing Indian company, currently
owned or controlled by resident Indian citizens and Indian companies, which
are owned or controlled by resident Indian citizens, will be/is being
transferred/passed on to a non-resident entity as a consequence of transfer
of shares to non-resident entities through amalgamation, merger,
acquisition, etc.

These guidelines will not apply for sectors / activities
where there are no foreign investment caps, that is, 100% foreign investment
is permitted under the automatic route.

This Press Note has amplified Annexure to Press Note 7
(2008), dated June 16, 2008 to the extent stated therein.



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Guidelines for calculation of total foreign investment i.e., direct and indirect foreign investment in Indian companies

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Part C : RBI/FEMA

Given below are the highlights of certain RBI Circulars and Press Notes
issued by DIPP

  1. Ministry of Commerce & Industry, DIPP (FC Section) —
    Press Note No. 2 (2009) dated, February 13, 2009


Guidelines for calculation of total foreign investment
i.e., direct and indirect foreign investment in Indian companies



This Press Note lays down the guidelines for calculation of
total foreign investment i.e., direct and indirect foreign investment
in Indian companies, accordingly :


1. Direct Foreign Investment


All investments made directly by a non-resident entity
into the Indian company would be counted towards foreign investment.



2. Indirect Foreign Investment




(a) Foreign investment through an investing Indian
company would not be considered for calculation of the indirect foreign
investment if the Indian company which is making the investment is ‘owned and controlled’ by resident Indian citizens and/or Indian companies
which are owned and controlled by resident Indian citizens.


(b) Foreign investment through an investing Indian
company which does not satisfy the condition mentioned above or where the
said investing company is owned or controlled by ‘non-resident
entities’, the entire investment by the investing company into the subject
Indian Company would be considered as indirect foreign investment.


3. Total foreign investment would be the sum total of
direct and indirect foreign investment.

4. This methodology of calculation would apply at every
stage of investment in Indian companies and thus to each and every Indian
company.

Full details about the foreign investment including
ownership details, etc. in Indian company(s) and information about the control
of the company(s) would be furnished by the company(s) to the Government of
India at the time of seeking approval.

In all sectors attracting sectoral caps, the balance equity
i.e., beyond the sectoral foreign investment cap, would specifically be
beneficially owned by/held with/in the hands of resident Indian citizens and
Indian companies, owned and controlled by resident Indian citizens. In the I &
B and Defence sectors where the sectoral cap is less than 49%, the company
would need to be ‘owned and controlled’ by resident Indian citizens and
Indian companies, which are owned and controlled by resident Indian citizens.



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Foreign investment in Print Media dealing with news and current affairs

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Part C : RBI/FEMA

Given below are the highlights of certain RBI Circulars and Press Notes
issued by DIPP

  1. Ministry of Commerce & Industry, DIPP (FC Section) —
    Press Note No. 1 (2009), dated January 14, 2009

Foreign investment in Print Media dealing with news and
current affairs


This Press Note lays done FDI policy in respect of foreign
investment in publication of facsimile edition of foreign newspapers and
Indian edition of foreign magazines dealing with news and current affairs.

This Press Note has amplified Entry No. 27 Annexed to Press
Note 7 (2008), dated June 16, 2008 as follows :

Foreign direct investment (FDI) in publication of facsimile
edition of foreign newspapers



1. FDI up to 100% is permitted with prior approval of the
Government in publication of facsimile edition of foreign newspapers,
provided the FDI is by the owner of the original foreign newspaper(s) whose
facsimile edition is proposed to be brought out in India.


2. Publication of facsimile edition of foreign newspapers
can be undertaken only by an entity incorporated or registered in India
under the provisions of the Companies Act, 1956.


3. Publication of facsimile edition of foreign newspaper
would also be subject to the guidelines for publication of newspapers and
periodicals dealing with news and current affairs and publication of
facsimile edition of foreign newspapers issued by the Ministry of
Information & Broadcasting on 31.3.2006, as amended from time to time.



Foreign investment in publication of Indian editions of
foreign magazines dealing with news and current affairs



1. Foreign investment, including FDI and investment by
NRIs/PIOs/FII, up to 26%, is permitted with prior approval of the
Government.

2. ‘Magazine’, for the purpose of these guidelines, will
be defined as a periodical publication, brought out on non-daily basis,
containing public news or comments on public news.

Foreign investment would also be subject to the guidelines
for publication of Indian editions of foreign magazines dealing with news and
current affairs issued by the Ministry of Information & Broadcasting on
4.12.2008.



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Opening of Diamond Dollar Accounts —Liberalisation

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Part C : RBI/FEMA

Given below are the highlights of certain RBI Circulars and Press Notes
issued by DIPP

  1. A. P. (DIR Series) Circular No. 51, dated February 13, 2009

Opening of Diamond Dollar Accounts —Liberalisation

Presently, RBI permits opening of Diamond Dollar Accounts (DDA)
on a case-to-case basis, provided the firms/companies interested in opening
the same have :


(i) a track record of at least 3 years in import/ export
of diamonds/coloured gemstones/ diamond and coloured gemstone-studded
jewellery/plain gold jewellery, and

(ii) an average annual turnover of Rs. 5 crore or above
during preceding three licensing years.


This Circular permits banks to open such DDA, subject to
the firms/companies opening the same complying with certain terms and
conditions. Application form for opening DDA is also annexed to this Circular.




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Hedging of freight risk by domestic oil-refining, shipping companies and other companies

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Part C : RBI/FEMA

Given below are the highlights of certain RBI Circulars and Press Notes
issued by DIPP

  1. A. P. (DIR Series) Circular No. 50, dated February 4,
    2009

Hedging of freight risk by domestic oil-refining,
shipping companies and other companies


This Circular provides that banks that have been granted
permission by RBI to approve commodity hedging transactions, are permitted to
allow hedging of freight risk by domestic oil-refining companies and shipping
companies on the following terms and conditions :


i) The hedging can be undertaken as plain vanilla
Over-the-Counter (OTC) or exchange traded products in the international
market/exchange.

ii) The exchanges on which the products are purchased
must be a regulated entity.

iii) The maximum tenor permissible will be one year
forward.


In case of hedging of freight risk by other companies,
banks will have to obtain prior permission of RBI on behalf of their
customers.



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Settlement system under ACU Mechanism

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Part C : RBI/FEMA

Given below are the highlights of certain RBI Circulars and Press Notes
issued by DIPP

  1. A. P. (DIR Series) Circular No. 43, dated 26.12.2008

Settlement system under ACU Mechanism


Presently, transactions through the Asian Clearing Union (ACU)
can be settled in ACU Dollars only.

This Circular provides that on and from 1.1.2009,
transactions through ACU can be settled in ACU Dollars or ACU Euros at the
option of the participants.


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Rate of tax on timber is 12.5% from 1st April 2009

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Part B : Indirect taxes



  1. Rate of tax on timber is 12.5% from 1st April 2009 :

Trade Circular No. 13 T of 2009, dated 15.04.2009 :

With effect from 1.4.2009 the rate of tax on Timber shall be 12.5%.

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Extension of time for applying for declarations prior to 31/03/08

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Part B : Indirect taxes


  1. Extension of time for applying for declarations prior to
    31/03/08 :

Trade Circular No. 12 T of 2009, dated 31.03.2009 :

The Commissioner has extended time for applying for
declaration prior to 31.3.2008 till 30.6.2009. Declarations for the periods
prior to 1.4.2008 will not be issued after 1.7.2009.

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Luxury Tax on luxuries provided in hotels from 1.5.2004 to 30.4.2005

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Part B : Indirect taxes



  1. Luxury Tax on luxuries provided in hotels from 1.5.2004 to
    30.4.2005 :

Trade Circular No. 11 T of 2009, dated 25.03.2009 :

This Circular provides procedural clarifications in respect
of Notification No.LTA-1090/CR-47/ Taxation-2, dated 18.11.2008 granting
exemption of Luxury Tax in excess of 6% on the luxuries provided during the
period from 1.5.2004 to 30.4.2005.

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Pending ‘Ps’ under B.S.T & C.S.T. Acts up to P year 2004-05 and instruction for disposal thereof

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Part B : Indirect taxes


  1. Pending ‘Ps’ under B.S.T & C.S.T. Acts up to P year 2004-05
    and instruction for disposal thereof :

Trade Circular No. 10 T of 2009, dated 23.03.2009 :

By this Circular, the Commissioner has issued fresh
assessment guidelines. It has been directed that no assessments will be done
from ‘C’ & ‘D’ category of the dealers except priority ‘Ps’ falling in 7
categories enumerated in the Circular. Even compulsory assessment criteria for
all the pending Ps, pertaining to financial year in which gross tax liability
(before adjusting set-off) is Rs. 6 lakh or less under the BST and CST Acts,
shall not be assessed except those falling under the criteria enumerated in
the Circular.



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Filing of revised return as advised by auditor in Audit Report

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Part B : Indirect taxes


  1. Filing of revised return as advised by auditor in Audit
    Report :

 


Trade Circular No. 9 T of 2009, dated 21.03.2009 :

As per para 15 of Trade Circular 26T of 2006, dated
18.09.2006, a dealer can file the single revised return for the period ending
on 31st March of the respective year to give effect to the observations of the
auditor.

By this Circular, the Commissioner has clarified that if it
is not possible to give effect to all the observations of the auditor by
filing revised return for the period ending on 31st March of the respective
year, then the dealer can revise the returns for the respective periods for
which discrepancies have been pointed out by the auditor. All such revised
returns will have to be filed electronically only.

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Refund of service tax paid on taxable services provided in relation to the authorised operations in a Special Economic Zone

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Part B : Indirect taxes


Updates in VAT and Service Tax :

Service Tax update

Circulars

  1. Refund of service tax paid on taxable services provided in
    relation to the authorised operations in a Special Economic Zone

This Circular explains the new Notification No.15/2009, dated 20.05.2007 in
relation to Refund of service tax paid on taxable services provided in
relation to the authorised operations in a Special Economic Zone.

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A.P. (DIR Series) Circular No. 5, dated 22-7-2009 : Issue of Indian Depository Receipts (IDRs).

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Part C : RBI/FEMA

Given below are the highlights of certain RBI Circulars.


  1. A.P. (DIR Series) Circular No. 5, dated 22-7-2009 : Issue
    of Indian Depository Receipts (IDRs).

This Circular makes operational the rules/guidelines for
issue of Indian Depository Receipts by companies resident outside India
through a Domestic Depository.

This Circular also lays down criteria for issue, purchase,
transfer and redemption of IDR. Some of the important points are as under :

  1. IDR must be
    denominated in Indian Rupees.

  2. Financial/Banking companies having presence in India, either through a
    branch or subsidiary, will have to obtain approval of the sectoral
    regulator(s) before they can issue IDR.

  3. The company
    issuing IDR will have to immediately repatriate the proceeds of the issue.

  4. IDR can be
    purchased, held and transferred by persons resident in India, FII & NRI.
    Provisions of FEMA will not be applicable to investment and transfer of IDR
    by persons resident in India. FII and NRI will have to comply with the
    provisions of Notification No. FEMA 20/2000-RB, dated May 3, 2000, as
    amended from time to time. Further, NRI can only invest out of funds held in
    their NRE/FCNR(B) accounts.

  5. Automatic
    fungibility of IDR is not permitted.

  6. IDR can be
    converted into underlying equity shares after one year from the date of
    their issue.

  7. Listed
    Indian companies and Indian mutual funds, registered with SEBI can sell or
    continue to hold the underlying shares, subject to the terms and conditions
    as per Regulations 6B & 7 and 6C, respectively, of Notification No. FEMA
    120/RB-2004, dated July 7, 2004, as amended from time to time.

  8. Other
    persons resident in India, including resident individuals, have to sell the
    underlying shares within a period of 30 days from the date of conversion of
    the IDR into underlying shares.

  9. Provisions
    of FEMA will not apply to the holding of the underlying shares, on
    redemption of IDR by FII, including SEBI approved sub-accounts of the FII,
    and NRI.

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A.P. (DIR Series) Circular No. 3, dated 17-7-2009 : Deferred payment protocols dated April 30, 1981 and December 23, 1985 between Govt. of India and erstwhile USSR.

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Part C : RBI/FEMA

Given below are the highlights of certain RBI Circulars.


  1. A.P. (DIR Series) Circular No. 3, dated 17-7-2009 :
    Deferred payment protocols dated April 30, 1981 and December 23, 1985 between
    Govt. of India and erstwhile USSR.

This Circular provides that, with effect from June 25,
2009, the rupee value of the special currency basket has been fixed at
Rs.66.5719 as against the earlier value of Rs.64.6153.

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A.P. (DIR Series) Circular No. 71, dated 30-6-2009 : External Commercial Borrowings (ECB) Policy.

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Part C : RBI/FEMA

Given below are the highlights of certain RBI Circulars.


  1. A.P. (DIR Series) Circular No. 71, dated 30-6-2009 :
    External Commercial Borrowings (ECB) Policy.

This Circular modifies certain aspects of the ECB Policy
with immediate effect as under :

1. ECB for integrated township :

Presently, corporates engaged in the development of
integrated townships are permitted to avail ECB under the Approval Route up to
June 30, 2009.

This Circular has extended this permission up to December
31, 2009 under the Approval Route.

2. ECB for NBFC Sector :

Presently, NBFCs which are exclusively involved in
financing of the infrastructure sector, are permitted to avail ECB from
multilateral/regional financial institutions and Government-owned development
financial institutions for on-lending to borrowers in the infrastructure
sector under the Approval Route if, among other conditions, their direct
lending portfolio vis-à-vis their total ECB lending to NBFC at any point of
time is not less than 3 : 1.

This Circular has dispensed with this condition that the
direct lending portfolio vis-à-vis their total ECB lending to NBFC at any
point of time is not less than 3 : 1. All other conditions, including availing
ECB under Approval Route, apply as before.

3. ECB for Development of Special Economic Zone :

SEZ developers can avail of ECB under the Approval Route
for providing infrastructure facilities, as defined in the ECB Policy, within
the SEZ.

4. Corporates under investigation :

Corporates who have violated ECB Policy and are under
investigation by RBI and/or Directorate of Enforcement will not be allowed to
access the Automatic Route. All requests from such corporates will be examined
under the Approval Route.

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Business/Employment visa

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Part D : Miscellaneous

  1. Business/Employment visa

The Ministry of Home Affairs has issued Frequently Asked Questions on
work-related visas issued by India, clarifying the purpose, duration and
various scenarios under which Business Visa/Employment Visa may be granted to
foreign nationals. These FAQ’s are available on www.mha.nic.in

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Royalties and fees for technology transfer

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Part D : Miscellaneous

  1. Royalties and fees for technology transfer

The Union cabinet has approved a proposal of the Department
of Industrial Policy & Promotion, Ministry of Commerce & Industry to permit
all payment for royalty, lump sum fee for transfer of technology, payment for
use of trademark/brand name on the automatic route without any restrictions,
and subject to FEMA(Current Account Transaction) Rules, 2000. To get the
information about the nature/details of technology and the amount paid for it,
a suitable post reporting requirement would be devised within three months in
consultation with the Department of Economic Affairs and Reserve Bank of
India.

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Social Security Agreement with Netherlands

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Part D : Miscellaneous

  1. Social Security Agreement with Netherlands

The Government of India has signed a Social Security
Agreement with the Government of Netherlands on 22-10-2009.

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Dispute Resolution Panel Rules, 2009 — Notification No. 84/2009 [F. No. 142/22/2009-TPL], dated 20-11-2009.

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  1. Dispute Resolution Panel Rules, 2009 — Notification No.
    84/2009 [F. No. 142/22/2009-TPL], dated 20-11-2009.

Alternate Dispute Resolution Mechanism was introduced by
Finance (No. 2 )Act, 2009 and consequently Section 144C is introduced w.e.f.
1st April, 2009.

Dispute Resolution Panel Rules, 2009 are introduced and the
rules shall come into force on the date of their publication in the Official
Gazette. The said Rules provide for the procedure for filing objection,
procedure for the hearing by the panel, passing of the assessment order by the
panel and rectification thereof and appeal before the ITAT, etc. The Rules
also prescribe formats of Form Nos. 35A and 36B.

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Income-tax Department’s website has offered a facility to enable the assessees to ascertain whether the Income-tax Department has received ITR V at Bangalore. The procedure is as follows :

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  1. Income-tax Department’s website has offered a facility to
    enable the assessees to ascertain whether the Income-tax Department has
    received ITR V at Bangalore. The procedure is as follows :



(i) Log-in at the Department’s website using the e-filing
log-in ID and Password.

(ii) After the log-in is successful, click on the ‘My
Account’ tab at the top of the window.

(iii) Select the last option ‘E-filing processing status’.

(iv) Provide the assessment year.

(v) The next screen will provide information whether ITR V
is received and the date of receipt.

(vi) There is a hyperlink to obtain the confirmation
receipt.


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Income-tax — Instruction No. 7/2009, dated 22nd/23rd December, 2009 — F. No. 275/23/2007-IT(B) — Government of India, Ministry of Finance, Department of Revenue, Central Board of Direct Taxes, New Delhi.

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  1. Income-tax — Instruction No. 7/2009, dated 22nd/23rd
    December, 2009 — F. No. 275/23/2007-IT(B) — Government of India, Ministry of
    Finance, Department of Revenue, Central Board of Direct Taxes, New Delhi.

 

To,

All Chief Commissioners & Directors Generals of Income Tax,
All Commissioners of Income Tax (TDS),
Director of Income Tax (TDS).

Certificate of lower deduction or non-deduction of tax at
source under Section 197 of Income-tax Act — matter reg.

I am directed to bring to your notice on the subject of
issue of certificates under Section 197. Instruction No. 8/2006, dated
13-10-2006, was issued stating that certificates for lower deduction or nil
deduction of TDS u/s.197 are not to be issued indiscriminately and for issue
of each certificate, approval of the JCI/Addl. CIT concerned need to be taken
by the Assessing Officer (AO). Further, a letter of even number dated
16-10-2008 was issued stating that power of issue of certificates under
Section 197 would ordinarily be exercised by the officers manning TDS
Administration. However, instances are being brought to the notice of Board
that the AOs are issuing certificates for lower or non-deduction of tax at
source u/s.197 indiscriminately, in contravention of relevant Income-tax Rules
and Instructions.

I am, therefore, directed to communicate to you that
further to the contents of Instruction No. 8/2006, prior administrative
approval of the Commissioner of Income-tax (TDS) shall be taken (where the
cumulative amount of tax foregone by non-deduction/lesser rate of deduction of
tax arising out of certificate under Section 197 during a financial year for a
particular assessee exceeds Rs.50 lakh in Delhi, Mumbai, Chennai, Kolkata,
Bangalore, Hyderabad, Ahmedabad and Pune stations and Rs.10 lakh for other
stations. Once the CIT (TDS) gives administrative approval of the above, a
copy of it has to be endorsed invariably to the jurisdictional CIT also.

The content of the above instruction may be brought to the
notice of all officers working in your charge for strict compliance.

Sd/-

(Ansuman Pattnaik)
Director (Budget)

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Income-tax — Instruction No. 6/2009, dated 18-12-2009 F. No. 225/11/2006/ITA. II, Government of India, Ministry of Finance, Dept. of Revenue, CBDT, New Delhi.

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  1. Income-tax — Instruction No. 6/2009, dated 18-12-2009 F.
    No. 225/11/2006/ITA. II, Government of India, Ministry of Finance, Dept. of
    Revenue, CBDT, New Delhi.

To,

All Cadre Control Chief Commissioners of
Income-tax/Directors General of Income-tax

 

Scheme for improving quality of assessments — regarding :

For past sometime the Board has been concerned about the
need for improving general quality of scrutiny assessments on a sustainable
basis. In this connection, reference is invited to Board’s Instruction No.
2/2006, dated 27-4-2006 which required monitoring of scrutiny assessments by
Range Heads under the powers available to them under Section 144A of the
Income-tax Act. Instructions have also been issued from time to time for
strengthening the machinery for review of assessments and inspection of
assessment charges. However, it is felt that there is significant scope for
improving the quality of scrutiny system. The matter came up for discussion
during 25th Annual Conference of Chief Commissioner of Income-tax held in
August 2009. A presentation was made by the CCIT Chandigarh outlining a scheme
for improving quality assessments implemented in NWR Region. After taking into
account various suggestions, it was decided to devise a similar scheme with
appropriate flexibility for country-wide implementation.

2. Accordingly, it has now been decided that the following
scheme for improving quality of assessments shall be implemented from calendar
year 2010 onwards :

(i) At the beginning of each calendar year i.e.,
in the month of January, the Range Head in consultation with the concerned
Assessing Officer would identify at least 5 pending time-barring assessment
cases in respect of each Assessing Officer of his Range for monitoring.
These should normally include cases taken up for scrutiny with the
permission of the CCIT. The selection should be done jointly by the Range
Head and the concerned Assessing Officer. Cases of PSUs and loss-making
concerns should normally not be identified for this purpose. This exercise
should also include those Ranges which are held as additional charge by a
Range Head in January.

(ii) The Range Head would issue directions u/s. 144A in
the identified cases for the guidance of the Assessing Officer regarding the
course of investigation to enable him to complete these assessments in a
proper manner. This should be done at the earliest available opportunity so
as to allow the Assessing Officer to have sufficient time to complete the
assessment proceedings. A copy of the directions issued by the Range Head
would also be endorsed to the CIT. The Range Head should also monitor the
subsequent developments in the assessment proceedings in these cases.

(iii) On completion of the assessment the Assessing
Officer shall send a copy of the assessment order to the Range Head and the
CIT.

(iv) In the event of a Range Head holding more than one
Range, the concerned CCIT may appropriately relax the requirement for issue
of directions u/s.144A in respect of the cases of the Range(s) held as
additional charge.

(v) For the purpose of this instruction, a quality
assessment would be one in which issues arising for consideration are
clearly identified, investigation of basic facts in respect of these issues
is carried out, adequate opportunity to rebut adverse evidence is given to
the assessee, the rival evidence are suitably analysed and evaluate in the
light of correct interpretation of law, and these efforts result in
substantial addition to the returned income. The benchmark for the quantum
of addition to the returned income, which may quality for being a quality
assessment, may be decided by the concerned CCIT depending upon the
potential of the given Range/Charge. Normally, this should not be less than
Rs.5 lakh, excluding additions on account of recurring issues. It is
expected that the selected cases will meet the parameters for quality
assessment.

(vi) As regards the remaining scrutiny assessments, it is
expected that 30% of assessments completed by the Range Head, 20% of the
remaining scrutiny assessments completed by DC/ACIT and 10% of ITOs will
result in quality assessments. These benchmarks can be reviewed once the
scheme has been in operation for some time.

(vii) The parameters for determining whether an
assessment is a quality assessment should be decided by the concerned Chief
Commissioner in the light of the above and should be widely circulated at
the beginning of the calendar year i.e., in the month of January of
every year.

(viii) At the end of the financial year, the data
regarding assessments, completed by Assessing Officers of the CCIT Region
shall be got evaluated by the concerned CCIT in the month of next April
according to the parameters decided earlier. The overall results will be
tabulated in the enclosed proforma and circulated in the CCIT (CCA) Region
for information. Separate performance ranking should be done for Range Heads
in respect of cases completed by them u/s.143(3) out of the cases selected
under Instruction 4 of 2007, dated 16-5-2007, and those monitored by them
under this instruction.

(ix) CCsIT may also devise methods for commending good
performance of AO in the area of quality assessments and reflecting the same
in the annual appraisals. Important cases involving large successful
additions may be reported to the Board in monthly D.O. letters. These can
also be sent to DTI (RSP&PR) for inclusion in the Annual Report of good
assessment cases.

3. These instructions may please be brought to the notice
of all officers working in your Cadre Control region immediately for proper
compliance.

Sd/-

(S.
S. Khan)
Member (Income Tax)sessing Officers


New rules for valuation of perquisites and ESOPs notified — Notification No. 94/2009, dated 18-12-2009.

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  1. New rules for valuation of perquisites and ESOPs notified —
    Notification No. 94/2009, dated 18-12-2009.

Post FBT, Budget 2009 had restored taxation of perquisites
given to employees. The perquisite valuation rules (Rule 3) has been notified
with retrospective effect from 1st April 2009. Even the rule for ESOP
valuation and taxation thereof has been notified with effect from 1st April
2009.

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Clarification regarding applicability of Section 194J to Third Party Administrators — Circular No. 8/2009, dated 24-11-2009.

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  1. Clarification regarding applicability of
    Section 194J to Third Party Administrators — Circular No. 8/2009, dated
    24-11-2009.

It has been clarified in this Circular that payments made
by TPAs to the hospitals on behalf of the insurance companies are liable to
deduct tax at source under Section 194J of the Act. However, in case, in the
past defaults have occurred in this matter, the Board has clarified the
following :



  •  No
    proceedings u/s.201 be initiated after expiry of six years from end of
    financial year of default


  •  No demand
    u/s.201(1) be enforced if TPAs are able to satisfy the jurisdictional TDS
    officer that the hospitals have duly paid the taxes along with a certificate
    to this effect from the auditors of hospitals.



However, the liability of interest u/s.201(1A) of the Act
till payment of taxes by hospitals as well as penalty implications would apply
to the TPAs.

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Clarification on remittances of consular receipts — Circular No. 9/2009, dated 30-11-2009.

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  1. Clarification on remittances of consular receipts —
    Circular No. 9/2009, dated 30-11-2009.

It has been clarified by the Board that for the purpose of
remittance of consular receipts abroad, diplomatic missions in India need to
submit only a self-certified undertaking in Form No. 15CA to the remitter
bank. They are not required to obtain a certificate from an
accountant/certificate of Assessing Officer in Form 15CB, since their receipts
are tax exempt.

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Clarification for the new procedure prescribed for furnishing the CA certificate/undertaking while making remittance to non-residents — Circular No. 4/2009, dated 29-6-2009

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Part A : Direct taxes

  1. Clarification for the new procedure prescribed for
    furnishing the CA certificate/undertaking while making remittance to
    non-residents — Circular No. 4/2009, dated 29-6-2009.

The CBDT vide insertion of Rule 37BB prescribed procedures
for e-filing of the new undertaking in Form 15CA and modified the format of CA
certificate in Form 15CB. A clarificatory Circular has been issued to explain
the modus operandi of the system.

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New Scheme of TDS/TCS procedures deferred till further notice : Press Release dated 30-6-2009.

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Part A : Direct taxes

  1. New Scheme of TDS/TCS procedures deferred till further
    notice : Press Release dated 30-6-2009.

The CBDT has kept the new procedures prescribed under
Notification No. 31/2009 in abeyance till further notice. Accordingly
taxpayers can continue to follow the existing procedures till further
information is received from the Board. Returns can also be filed without
Unique Transaction Number (UTN).

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CBDT clarification regarding deduction u/s.80IB(10) in respect of undertakings developing housing projects : Instruction No. 4/2009, dated 30-6-2009 (reproduced)

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Part A : Direct taxes

  1. CBDT clarification regarding deduction u/s.80IB(10) in
    respect of undertakings developing housing projects : Instruction No. 4/2009,
    dated 30-6-2009 (reproduced)

U/ss.(10) of S. 80-IB an undertaking developing and
building housing projects is allowed a deduction of 100% of its profits
derived from such projects if it commenced the project on or after 1-10-1998
and completes the construction within four years from the financial year in
which the housing project is approved by the local authority.

2. Clarifications have been sought by various CCsIT on the
issue whether the deduction u/s.80-IB(10) would be available on a year-to-year
basis where an assessee is showing profit on partial completion or if it would
be available only in the year of completion of the project u/s.80-IB(10).

3. The above issue has been considered by the Board and it
is clarified as under :



(a) The deduction can be claimed on a year-to-year basis
where the assessee is showing profit from partial completion of the project
in every year.

(b) In case it is late, and it is found that the
condition of completing the project within the specified time limit of 4
years as started in S. 80-IB(10) has not been satisfied, the deduction
granted to the assessee in the earlier years should be withdrawn.

 



4. The above Instruction will override earlier
clarification on this issue contained in Member (R)’s D.O. letter No.
58/Misc./2008/CIT(IT&CT), dated 29-4-2008 and Member (IT)’s D.O. letter No.
279/Misc./46/08-ITJ, dated 2-5-2008.

5. This may kindly be brought to the notice of the all
Assessing Officers in your charge.

F.No.178/32/2009-ITA.I (Raman Chopra)

Director (ITA-I)

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Notification No.15/2009 — Service Tax dated 20.05.2009. Amendment to Notification No. 9/2009-Service Tax, dated the 3rd March, 2009

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Part B : Indirect taxes


Updates in VAT and Service Tax :

Service Tax update

Notifications

  1. Notification No.15/2009 — Service Tax dated 20.05.2009.
    Amendment to Notification No. 9/2009-Service Tax, dated the 3rd March, 2009

Exemption to levy service tax on services provided in
relation to the authorised operations in a Special Economic Zone. So the
refund procedure has been dispensed with by this notification when services
have been utilised wholly in the SEZ. Refund procedure will continue where
taxable services provided to SEZ are consumed partially or wholly outside SEZ.
Exemption is subject to conditions and requirements specified in this
notification.

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Notification No. 23/2009-Service Tax, dated 7-7-2009.

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Part B : Indirect taxes

Updates in VAT and Service Tax :

MVAT UPDATE

Mvat Notifications

  1. Notification No. 23/2009-Service Tax, dated 7-7-2009.

By this Notification the Works Contract (Composition Scheme
for Payment of Service Tax) Rules, 2007 have been amended by laying down
procedure for computing the gross amount under the Composition Scheme. The
amendment would not apply where the execution has commenced or any payment
been made on or before 7-7-2009.

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Change in rate and conditions for composition scheme of restaurants, eating house, refreshment room, boarding establishment, factory canteen, clubs, hotels and caterers : Notification No. VAT-1509/CR-81-D/Taxation-1, dated 29-6-2009.

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Part B : Indirect taxes

Updates in VAT and Service Tax :

MVAT UPDATE

Mvat Notifications

  1. Change in rate and conditions for composition scheme of
    restaurants, eating house, refreshment room, boarding establishment, factory
    canteen, clubs, hotels and caterers : Notification No.
    VAT-1509/CR-81-D/Taxation-1, dated 29-6-2009.

By this Notification the Commissioner has amended
Notification No.VAT-1505/CR-105/Taxation-1, dated 1-6-2005 whereby rate of
composition tax has been reduced from 8% to 5% w.e.f. 1-7-2009 and has made
some changes in conditions laid down in the said Notification No. 1505.

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Notification No. 22/2009-Service Tax, dated 7-7-2009.

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Part B : Indirect taxes

Updates in VAT and Service Tax :

MVAT UPDATE

Mvat Notifications


  1. Notification No. 22/2009-Service Tax, dated 7-7-2009.

By this Notification clause (e) of Rule (2) of the Taxation
of Services (provided from outside India and received in India) Rules, 2006
has been substituted and extended to services provided at the installations,
structures and vessels in the entire Continental Shelf of India and Exclusive
Economic Zone of India.

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Adding entries to Medical Device Notification : Notification No. VAT-1509/CR-81-C/Taxation-1, dated 29-6-2009.

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Part B : Indirect taxes

Updates in VAT and Service Tax :

MVAT UPDATE

Mvat Notifications

  1. Adding entries to Medical Device Notification :
    Notification No. VAT-1509/CR-81-C/Taxation-1, dated 29-6-2009.

By this Notification the Commissioner has amended
Notification No. VAT-1505/CR-233/Taxation-1, dated 23-11-2005 by adding
certain entries to medical device list w.e.f. 1-7-2009.

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Entry for solar energy devices deleted : Notification No. VAT-1509/CR-81-B(2)/Taxation-1, dated 29-6-2009.

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Part B : Indirect taxes

Updates in VAT and Service Tax :

MVAT UPDATE

Mvat Notifications

  1. Entry for solar energy devices deleted : Notification No.
    VAT-1509/CR-81-B(2)/Taxation-1, dated 29-6-2009.

By this Notification the Commissioner has deleted list of
solar energy devices from Entry C-82 w.e.f. 1-7-2009.

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