corporate and professional update february 1, 2016

CORPORATE AND PROFESSIONAL UPDATE FEBRUARY 1, 2016

INCOME TAX ACT

SECTION 2(47)

CAPITAL GAINS – TRANSFER 

Sweat equity Stock option : Where sweat equity shares were offered to assessee by employer was accepted immediately and assessee exercised option after three years and on same date shares were also sold, gains would be short-term capital gain or, in alternative, income from other sources, not liable for exemption under section 10(38) or section 54EC – [2016] 65  120 (Mumbai – Trib.)

Settlement amount received by FIIs who had invested in company’s shares/ADS for giving up right to sue the company for damages caused by fraud in financial statements is capital receipt and is not taxable.

Settlement amount is a compensation for not pursuing the suit and involves surrender of capital asset of “right to sue”. The capital asset “right to sue” cannot be transferred in terms of section 6(e) of the Transfer of Property Act.

Even if surrender of right to sue can be treated as transferable in terms of section 2(47)(ii)(extinguishment of any rights) of the Income-Tax Act,1961, its cost of acquisition cannot be determined and the computation provisions failed and capital gains cannot be calculated and hence cannot be taxed as capital gains u/s45. Nor can it be taxed as income from other sources. These are capital receipts which are not taxable. – [2016] 65 246 (AAR – New Delhi)

 

SECTION 10(10)

GRATUITY

Computation of benefit of gratuity and leave encashment under sections 10(10) and 10(10AA) to be governed by definition of ‘salary’ as per Rule 2(h) Part A, Fourth Schedule – [2016] 65 235 (Punjab & Haryana)

SECTION 32

DEPRECIATION 

Fee paid to ROC  increasing capital : Where amount for of fees paid to Registrar of Companies for increasing authorized share capital was capitalized against plant and machinery, assessee was entitled to depreciation at rate of 15 per cent on said amount – [2016] 65 125 (Punjab & Haryana)

SECTION 50C

CAPITAL GAINS – SPECIAL PROVISIONS FOR COMPUTATION OF FULL VALUE CONSIDERATION

Assessee’s objections regarding valuation made by DVO had no meaning where in terms of section 50C(3) assessment was made by adopting valuation made by stamp valuation authorities as full value of consideration as against valuation made by DVO – [2016] 65 123 (Punjab & Haryana)

SECTION 80P

INCOME FROM CO-OPERATIVE SOCIETIES

Reassessment : Where reassessment order passed by Assessing Officer denying deduction under section 80P to assessee-bank was disallowed by Commissioner (Appeals) as well as Tribunal, special leave petition filed by assessee against High Court’s order allowing reassessment proceeding, became infructuous – [2016] 65 118 (SC)

SECTION 92C

TRANSFER PRICING – COMPUTATION OF ARM’S LENGTH PRICE

Comparables and adjustments/Comparables – Illustrations : A company owning significant intangibles, earning revenue from sale of licences and subscription and owning intellectual property in form of registered patents cannot be compared to software development service provider – [2016] 65 119 (Hyderabad – Trib.)

SECTION 195

DEDUCTION OF TAX AT SOURCE – PAYMENT TO NON-RESIDENT

Where Indian company CTIL purchases turbocharger components directly from third party in UK and US and in relation to such purchases, applicant provides supply management services which ensure CTIL market competitive pricing from suppliers and applicant is not imparting its technical knowledge and expertise to Indian company based on which Indian company will acquire such skills and will be able to make use of it in future, Supply Management Services fees received by applicant is not FTS or royalties under India-UK Tax Treaty and in view of fact that applicant has no PE in India, fees received are not taxable in India and Indian company CTIL is not required to withhold tax under section 195 of Indian Income-tax Act – [2016] 65 247 (AAR – New Delhi)

SECTION 234B

INTEREST, CHARGEABLE AS SCOPE OF PROVISION

Scope of provision : In terms of section 234B(1), interest liability would end on date of determination of total income under section 143(1) or, in case of regular assessment, date of such assessment and there is no scope for extending such liability to a later date and relate it to a revisional, appellate or a rectification order –[2016] 65  124 (Gujarat)

RDDBFI ACT

SECTION 30

APPEAL AGAINST ORDER OF RECOVERY OFFICER

Where DRT decree was passed by Recovery Officer in favour of PSB in respect of disputed property though arbitral award had already been passed in favour of MMTC in respect of that property, earlier mortgage would take prior claim by virtue of section 48 of TPA and matter was to be remanded to Recovery Officer to determine whether mortgage claim existed in favour of PSB – [2016] 65 126 (Delhi)

SERVICE TAX

SECTION 65(101)

TAXABLE SERVICES – STOCK BROKER’S SERVICES

Where service tax had been paid on total brokerages by main broker under ‘stock-broker services’, no tax could be demanded from sub-broker under same category – [2016] 65 122 (Allahabad – CESTAT)

CENVAT CREDIT RULES

RULE 2(l)

CENVAT CREDIT – INPUT SERVICE 

Services meant for maintenance of green-belt to reduce pollution are eligible for input service credit, as control of pollution in factory area is an indispensable necessity – [2016] 65121 (Chennai – CESTAT)

STATUTES

CORPORATE LAWS

Section 5 of the Limited Liability Partnership Act, 2008 – Partners – Whet her Hindu Undivided Family (HUF)/its Karta can become Partner/Designated Partner (DP) in Limited Liability Partnership (LLP) – GENERAL CIRCULAR NO.2/2016, DATED 15-1-2016

Section 1 of the Scheduled Castes and Scheduled Tribes (Prevention of Atrocities) Amendment Act, 2015 – Act – Enforcement of – Notified date on which Provisions of said Act shall come into force – NOTIFICATION NO. SO 152(E) [F.NO.11012/1/2002-PCR (DESK)], DATED 18-1-2016

Guidelines on Cross Border Reinsurers – CIRCULAR NO.IRDAI /NL /GDL / RIN/017/01/2016, DATED 19-1-2016

Frequently Asked Questions (FAQs) on SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 – PRESS RELEASE, DATED 19-1-2016

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