Corporate and Professional Updates October 2015

Corporate tax Update for the Month of October

Amendment in Companies Act 2013 – Passed By Lok Sabha in 2015

The Bill, namely, the Companies (Amendment) Bill, 2014, inter alia, contains the amendments to the Companies Act, 2013 as under:-

1. To amend clauses (68), (71) of section 2 and section 11 of the said Act to omit the requirement for minimum paid-up share capital, and consequential changes;
2. To amend sections 9, 12, 22, 46 and 223 of the said Act for making common seal optional, and consequential changes for authorization for execution of documents;

• Insert a new section 76A to provide for punishment for deposits accepted in violation of the provisions of the said Act;

1. Amend clause (g) of sub-section (3) of section 117 to prohibit public inspection of Board resolutions filed in the Registry;
2. Amend sub-section (1) of section 123 of the said Act to include provisions for writing off past losses/depreciation before declaring dividend for the year;
3. To amend sub-section (6) of section 124 of the said Act for rectifying the requirement of transferring equity shares for which unclaimed/unpaid dividend has been transferred to the Investors Education and Protection Fund even though subsequent dividend(s) has been claimed;

• To amend sub-section (3) of section 134 and sub-section (12) of section 143 of the said Act to incorporate enabling provisions to prescribe thresholds beyond which fraud shall be reported to the Central Government (below the threshold, it will be reported to the Audit Committee). Disclosures for the latter category also to be made in the Board’s Report;
• Amend clause (iv) of sub-section (4) of section 177 of the said Act to provide provision empowering Audit Committee to give omnibus approvals for related party transactions on annual basis

Amendment in sections

1. To amend section 185 of the said Act to provide for exemption u/s 185 (Loans to Directors) provided for loans to wholly owned subsidiaries and guarantees/securities on loans taken from banks by subsidiaries;
2. To amend sub-section (1) of section 188 of the said Act for replacing ‘special resolution’ with ‘resolution’ for approval of related party transactions by non-related shareholders;
3. Amend subsection (1) of section 188 of the said Act to exempt related party transactions between holding companies and wholly-owned subsidiaries (WOS) from the requirement of approval of non-related shareholders’;

• To amend sub-section (6) of section 212 of the said Act to provide for bail restrictions to apply only for offence relating to fraud u/s 447;
• To amend sub-section (4) of section 419 of the said Act to provide for winding up cases to be heard by 2-member Bench instead of a 3-member Bench;
• Amend sections 435 and 436 of the said Act to provide for that Special Courts to try only offences carrying imprisonment of two years or more.

Importants News:-

1. Vijay a Bank invites online applications from the eligible Chartered Accountant firms for Empanelment of Concurrent Auditors for the year 2015-16.Last date May 15, 2015.
2. ICAI: Extension of SCHEME for Retrospective Restoration of MEMBERSHIP till May 15. File form 9 and all due fees along with restoration fee of Rs 1200/-.
3. Insurance: Now your bank will provide you two Insurance Plans.  Accident Cover Rs.2 lacs for 1 year for Rs.12/-+S.T. Age: 18 TO 70 Years. June to may. Life cover of Rs.2 lacs for Rs.330/- + S.T. for one year. Age:18 to 50 Years. June to may
4. LPG subsidy isn’t taxable as it is for welfare of people; Govt. clarifies provision in Finance Bill, 2015.
5. GST: LokSabha passes GST Bill amid a boycott by the opposition as it cries for referring Bill to the Standing Panel of the Parliament. RajyaSabha to be the real challenge for the Bill.

Income Tax:-

1. Cash seized during the search can be adjusted against advance tax liability.
2. The addition on account of a notional income on advances is deleted – DHC in ShivnandanBuildcon Pvt. Ltd.,
3. IT/ILT : Where certain addition was made to assessee’s ALP in respect of rendering software development services to its AE on basis of difference in per hour rates charged by another provider of similar services, said finding being based on material on record, did not require any interference. (Mumbai – Trib.).
4. Section 143(2) uses the word service of the notice not issuing of the notice but since the Assessee has not rebutted this fact by filing Affidavit notice u/s 143(3) held as valid – ITAT Delhi in M/s. KIE Infrastructures & Projects Pvt. Ltd. Vs ITO.
5. Date of the original purchase contract and not the date of revised one would be considered for sec. 32A allowance.
6. CIT(A) couldn’t decide TP issue without discussing the appropriate method and comparable instances to determine ALP.
7. Loss arising on intra-day trading in shares wasn’t speculative if such transactions were in nature of jobbing. (Delhi).
8. Sum Received in lieu of relinquishment of the right to sue ‘Coca-Cola’ was capital receipt: ITAT. (Jaipur – Trib.).IT: Where searched person does not deny belonging of document found in course of search but Assessing Officer of such person records a satisfaction that documents searched belong to the assessee (another person), provisions of section 153C do not get attracted.

Income tax act:-

1. ITAT directs admission of additional evidence by the assessee to prove that its liaison office in India wasn’t its PE.
2. ITAT affirms a claim of depreciation on leasehold land acquired from State Government.

Service Tax and Excise:-

1. Excise duty exemption on goods subject to non- availment of credit has to be extended to the importer in respect of CVD.
2. CBEC clarifies that Dealer Registration is NOT mandatory for transit sale. vide Circular No. 1003/10/2015-CX dated May 5, 2015.
3. ST: Penalty u/s 77 non-submission of ST-3 return – reverse charge mechanism – situation of revenue neutrality – the imposition of penalty under section 77 shows the non-application of mind by the authorities below – penalty waived – CESTAT New Delhi in M/s Piramal Healthcare Ltd Vs CCE&ST, Indore.
4. ST: Mandap Keeper Service – benefit of Notification No. 1/2006-ST – Simultaneous availment of CENVAT Credit – Once CENVAT credit availed on common inputs/services are reversed is considered as good as non-availing of CENVAT credit – CESTAT Mumbai in Classic Citi Investments Pvt. Ltd. Vs CCE&ST, Pune–III.
5. Materials used in railway tracks meant for handing raw materials/finished goods inside the plant are capital goods.
6. In case of transit sales via a dealer, the consignee can take credit on basis of the invoice issued by the manufacturer/importer.
7. can invoke an extended period of limitation provided assessee’s action constitutes suppression of facts.
8. Cenvat credit could be used to pay service tax under reverse charge on GTA service prior to 01-03-2008.
9. Even use of other brand’s names on invoices rather than on goods would lead to denial of SSI exemption. 56 com406 (SC).
10. Excise exemption available to Indian manufacturers has to be extended to CVD payable by importers, rules Apex Court. 56 taxman.com404 (SC)

INCOME TAX ACT

Direct Taxes:

Penalty u/s 158BFA(2) – , where complete evidence has been found against the assessee on the basis of which addition of undisclosed income has been made in the hands of assessee, levy of penalty confirmed- (Deputy Commissioner of Income Tax Versus Vilas Ramchandra Bagad Prop Amruta Land Developers, ITAT PUNE).

Stay of demand – writ petition – Registration under section 12A denied – the petitioner shall not be treated as an assessee in default as contemplated under section 220(6) of the Act, subject to the petitioner depositing ten per cent of the amount stated in the demand notice within a period of four weeks from today –(Surat Urban Development Authority Versus Deputy Commissioner Of Income Tax (Exemption), GUJARAT HIGH COURT).

SECTION 2(15)

CHARITABLE/RELIGIOUS PURPOSE

Income received by ‘All India Football Federation’ from sponsorship and telecasting rights did not amount to carrying out any activity in the nature of trade, commerce or business but was incidental to main objective of promoting the game of football in India – [2015]  (Delhi – Trib.)

SECTION 13

CHARITABLE OR RELIGIOUS TRUST – DENIAL OF EXEMPTION

Conditions precedent : Provision of section 13(1)(c) can be invoked while making assessment only if there is a siphoning off of funds from assessee-trust for benefit of some trustees or related persons – [2015]  (Delhi – Trib.)

SECTION 36(1)(iii)

INTEREST ON BORROWED CAPITAL

Interest free loans : Where mixed funds are diverted towards interest-free advances, disallowance should be made up to level of average cost of debt to assessee and not on basis of interest rate of any particular transaction – [2015]  (Punjab & Haryana)

SECTION 36(1)(viia)

BAD DEBTS

In case of banks : Where Assessing Officer completed assessment in case of assessee under section 143(3), he could not initiate reassessment proceedings merely on basis of objection raised by audit party that assessee had debited certain amount which was not allowable under section 36(1)(viia) – [2015]  (Allahabad)

SECTION 69A

UNEXPLAINED MONEYS

Jewellery : Where assessee had filed VDIS certificate to show that jewellery found during search had been declared under VDIS and Assessing Officer accepted such certificate, there was no error in order of Assessing Officer so as to invoke jurisdiction under section 263 – [2015]  (Chandigarh – Trib.)

SECTION 79

LOSSES – CARRY FORWARD AND SET OFF, IN CASE OF CERTAIN COMPANY

During the relevant Assessment year holding company of assessee reduced its shareholding from the 51% to 6% by transferring its shares to another subsidiary company. The revenue refused to allow carry forward and set-off of business losses – [2015]  (Karnataka)

SECTION 80G

DEDUCTIONS – DONATION TO CERTAIN FUNDS, CHARITABLE INSTITUTION

Sub-section (5) : Merely because some of vouchers were not found complete, it could not be concluded that activities of assessee-trust were not genuine, particularly when it was apparent from records that objects of assessee-trust were clearly charitable in nature and there was no discrimination on account of religion, caste, language, etc. – [2015]  256 (Delhi – Trib.)

SECTION 80P

DEDUCTIONS – INCOME OF CO-OPERATIVE SOCIETIES

Labour society : Where assessee-society having collected toddy from its members as well as non-members, sold same through its shops on profit basis, assessee’s income had nothing to do with collective disposal of labour of its members and, therefore, claim raised by it under section 80P(2)(a)(vi) was to be rejected – [2015]  (Kerala)

SECTION 92C

TRANSFER PRICING – COMPUTATION OF ARM’S LENGTH PRICE

Comparables and adjustments/Comparables – Illustrations : A captive unit of a comparable company which assume only a limited risk cannot be compared with a giant company in area of development of software who assumes all types of risks leading to higher profits – [2015] 62 taxmann.com 253 (Delhi – Trib.)

Comparables and adjustments/Comparables – Illustrations : A company engaged in BPO activities under single segment cannot be excluded from comparables on ground of insufficient segmental information – [2015]  (Delhi – Trib.)

SECTION 120

INCOME TAX AUTHORITIES – JURISDICTION OF

Additional Commissioner of Income Tax can perform the functions and, exercise the powers of an Assessing Officer only if he is specifically directed under section 120(4)(b) – [2015]  (Delhi – Trib.)

SECTION 149

INCOME ESCAPING ASSESSMENT – TIME-LIMIT FOR ISSUANCE OF NOTICE

SLP dismissed against High Court’s ruling that where assessee did not have any asset outside India and there was no question of having any income in relation to such an asset, notice issued under section 148 after expiry of six years from end of relevant year relying upon provisions of section 149(1)(c) was not sustainable – [2015] 212 (SC)

SECTION 199

DEDUCTION OF TAX AT SOURCE – CREDIT FOR TAX DEDUCTED

Where due to an inadvertent mistake of vendor, TDS related to assessee’s sister concern was credited to assessee’s TDS account, assessee could claim credit of such TDS, provided its sister concern had not availed benefit of such TDS certificates – [2015]  (Delhi)

SECTION 263

REVISION – OF ORDERS PREJUDICIAL TO INTEREST OF REVENUE

Scope of jurisdiction : If there was an enquiry, even inadequate, that would not, by itself, give occasion to Commissioner to pass order under section 263, merely because he has a different opinion in matter – [2015] (Chandigarh – Trib.)

COMPANIES ACT

SECTION 456

WINDING UP – CUSTODY OF COMPANY’S PROPERTIES

A subsequent higher offer is not valid ground for refusing confirmation of a sale or offer already made – [2015]  (SC)

COMPETITION ACT

SECTION 4

PROHIBITION OF ABUSE OF DOMINANT POSITION

Where CCI had not argued that there was any impediment to legal issues raised by appellant DDA, to jurisdiction of CCI being decided in first instance, CCI was to decide questions of jurisdiction of CCI over DDA first – [2015] (Delhi)

CENTRAL EXCISE ACT

SECTION 32F

SETTLEMENT OF CASES – PROCEDURE ON RECEIPT OF APPLICATION

Where Settlement Commission rejected assessee’s application observing ‘Settlement not possible without going into lot of details’, High Court remanded matter back to Commission expressing its annoyance against reluctance of Commission to take up matters involving considerable efforts – [2015] (Bombay)

SECTION 35B

APPEALS – BY DEPARTMENT ON REVIEW OF ORDERS – APPELLATE TRIBUNAL

Chief Commissioner, being higher authority, is empowered to exercise powers conferred on subordinate authorities; hence, Chief Commissioner may also file appeal before Tribunal against order of Commissioner (Appeals) – [2015]  (Madras)

CENVAT CREDIT RULES

RULE 4

CENVAT CREDIT – JOB-WORK

Where job-worker foregoes exemption under Notification No. 214/86-CE and pays duty on semi-processed goods returned to principal manufacturer, duty so paid by job-worker is eligible for credit in hands of principal manufacturer – [2015]  (Madras)

SECTION 2(14)

CAPITAL GAINS – CAPITAL ASSET

Agricultural land : Where assessee transferred land as his capital contribution to a firm, land being outside jurisdiction of Municipal Corporation it could not be treated as capital asset and no capital gain tax would be leviable – [2015] 61  281 (Amritsar – Trib.)

SECTION 9

INCOME – DEEMED TO ACCRUE OR ARISE IN INDIA

Royalties : Remuneration paid in foreign currency by assessee-company, for services rendered outside India to a US-resident for product designing services, was not liable to be taxed in India – [2015] 62  15 (Chennai – Trib.)

SECTION 36(1)(iii)

INTEREST ON BORROWED CAPITAL

Interest free advances : Where due to restrictions imposed by Land Acquisition Act, assessee had given interest-free advances to group companies for development of land, in absence of any finding recorded by Assessing Officer that said advances were not for business purposes, matter was to be readjudicated – [2015] 62 40 (Delhi – Trib.)

SECTION 41(1)

REMISSION OR CESSATION OF TRADING LIABILITY

Outstanding liabilities : Since assessee had not adduced any material or evidence or even explanation as to why impugned amounts were not paid in normal course and outstanding for 3 to 25 years, same amounted to cessation or remission of liability under section 41(1) – [2015] 61  297 (Mumbai – Trib.)

SECTION 48

CAPITAL GAINS – COMPUTATION OF

Deductions/Interest : Where interest or borrowed capital to invest in shares, for period prior to financial year 1997-98, was claimed and allowed as revenue expenditure, it could not transform its character from financial year 1997-98 onwards to become a capital cost without any change in underlying facts, and hence, same could not be treated as cost of acquisition and/or improvement in computation of capital gains – [2015] 61  297 (Mumbai – Trib.)

SECTION 50C

CAPITAL GAINS – SPECIAL PROVISION FOR FULL VALUE OF CONSIDERATION IN CERTAIN CASES

Valuation : Where assessee sold a plot and Assessing Officer for purpose of computing capital gains under section 50C adopted valuation of plot as per SRO records and Commissioner (Appeals) after considering objections of assessee concluded that there was no need for adopting valuation as per SRO, matter required to be sent back to Assessing Officer for de novo assessment – [2015] 62  31 (Hyderabad – Trib.)

SECTION 80-IB

DEDUCTIONS – PROFITS AND GAINS FROM INDUSTRIAL UNDERTAKING OTHER THAN INFRASTRUCTURE DEVELOPMENT UNDERTAKING

Housing projects : Where assessee had completed construction of its entire housing project and applied for Building use permission/completion certificate within prescribed time-limit, it would be entitled to deduction under section 80-IB(10) notwithstanding fact that it could not receive permission for its entire project – [2015] 62 38 (Gujarat)

SECTION 92C

TRANSFER PRICING – COMPUTATION OF ARM’S LENGTH PRICE

Comparables and adjustments/Adjustments – Depreciation : While computing margins of comparable companies, no adjustment for differential rate of depreciation is to be made on account of uncommon assets between assessee and comparables – [2015] 62  32 (Pune – Trib.)

SECTION 115A

FOREIGN COMPANIES – TAX ON DIVIDENDS, ROYALTY AND TECHNICAL SERVICES

Where Assessing Officer formed opinion that taxation of advertisement and distribution revenue of US company was to be governed by MAP resolution and 10 per cent of total revenue generated would be treated or business income and he completed assessment after verifying detailed reply to huge questionnaire and all supporting documents, reopening of assessment on basis of same material, taking plea of taxing total revenue at 10 per cent as per section 115A, would not be permissible – [2015] 62  120 (Delhi)

SECTION 145

METHOD OF ACCOUNTING – REJECTION OF ACCOUNTS

Gross profit rate : AO couldn’t prove suppressed production on basis of sample of electricity consumed in one hour – [2015] 62  41 (Punjab & Haryana)

SECTION 151

INCOME ESCAPING ASSESSMENT – SANCTION FOR ISSUE OF NOTICE

Sanction from Commissioner : Where notice under section 148 was issued after obtaining sanction from Commissioner instead of Joint Commissioner who is competent authority to approve issuance of notice, assessment framed consequent thereto was not valid and same was void ab initio – [2015] 61  320 (Lucknow – Trib.)

SECTION 254

APPELLATE TRIBUNAL – POWERS OF

Additional evidence : Parties to appeal cannot produce additional evidence of their own but if Tribunal so requires, same can be produced on recording of reasons by Tribunal – [2015] 61  281 (Amritsar – Trib.)

SECTION 293

BAR OF SUITS IN CIVIL COURT

Where Income-tax department appropriated amount deposited by assessee with a firm towards income-tax dues of firm, in absence of any allegation of fraud against Income-tax department, civil court had no jurisdictions to entertain recovery suit filed by assessee against Income-tax department – [2015] 62  36 (Punjab & Haryana)

COMPANIES ACT

SECTION 433

WINDING UP – CIRCUMSTANCES IN WHICH A COMPANY MAY BE WOUND UP

Where company had admitted its indebtedness to petitioner to extent of Rs. 119 lakh, company was to be directed to pay that amount with interest and on its failure to do so winding up petition would be advertised -[2015] 62  34 (Calcutta)

SECTION 468

WINDING UP – CUSTODY OF COMPANY’S PROPERTY

Sale of property of company-in-liquidation in auction without proper publicity through advertisement or fixing any reserve price for assets could not be sustained particularly when property put in auction was of much higher valuation than price at which it was sold – [2015] 62  11 (SC)

Indirect taxes: 

Abatement of duty – manufacturing activity of Pan Masala – the communications are violative of the provisions of sub-rule (2) of rule 6 of the Pan Masala Rules, inasmuch as, the Annual Production Capacity of the petitioner’s factory has been determined without following the procedure as provided under those rules- (M/s Vishnu Pouch Packing Pvt. Ltd. Versus Union Of India, GUJARAT HIGH COURT).

Prohibition on working as Customs House Agent – great confidence is reposed in a CHA – when, by such malpractices, there is loss of revenue to the custom house, there is every justification for the Respondent in treating the action of the Petitioner Applicant as detrimental to the interest of the nation and accordingly, final order of revoking his licence has been passed- (M/s. Cappithan Agencies represented by its Authorised Signatory Liza Sathish Versus The Commissioner of Customs, Chennai-VIII, MADRAS HIGH COURT).

CENTRAL EXCISE ACT

SECTION 4

VALUATION UNDER CENTRAL EXCISE – TRANSACTION VALUE – RELATED PERSON

Where assessee’s entire sales are below cost owing to international market prices being very low, sales to related parties cannot be value on basis of ‘cost plus method’ and are to be valued as per best judgment principle at ‘price charged from unrelated parties’ – [2015] 62  7 (SC)

VALUATION UNDER CENTRAL EXCISE – TRANSACTION VALUE – EXCLUSION OF COST OF TRANSPORT/TRANSIT INSURANCE

Transit freight/insurance is includible in value only upto ‘place of removal’ and ‘Place of removal’ is dependent upon facts and where said place of removal was not examined by Tribunal on facts, matter was remanded back -[2015] 62  6 (SC)

CENTRAL EXCISE RULES

RULE 16

RETURN OF DUTY-PAID GOODS TO FACTORY

Credit of duty-paid returned goods can be allowed only if invoice is in name of person availing credit or invoice is endorsed in favour of assessee; credit cannot be taken on invoice in name of a third party – [2015] 62 28 (Madras)

STATUTES

DIRECT TAX LAWS

Income-tax (Fifteenth Amendment) Rules, 2015 – Amendment in Rule 11DD and omission of Form 10-I -NOTIFICATION NO.78/2015 [F.NO.142/20/2015-TPL]/SO 2791(E), DATED 12-10-2015

CORPORATE LAWS

Rule 10 of the Official Language (Use for Official Purposes of the Union) Rules, 1976 – Working Knowledge of Hindi – More than Eighty Per Cent Staff Members of Competition Appellate Tribunal under Ministry of Corporate Affairs acquired working knowledge of Hindi – NOTIFICATION NO. SO 2761(E) [NO.E-11016/1/2010-HINDI], DATED 14-5-2015

Appointment of New Executive Director of SEBI – PRESS RELEASE NO.242/2015, DATED 9-10-2015

INDIRECT TAX LAWS (ST./EX./CUS. & (CST & VAT)

Levy of Service Tax on Transportation of Passengers by Rail – COMMERCIAL CIRCULAR NO.32 OF 2015, DATED 26-5-2015

Introduction of Facility of Payment of Rebate/Refund claims amount directly to Assessee/Exporters’ Bank Account – TRDE NOTICE NO.19/2015-ST, DATED 23-6-2015

Withdrawal of order under Section 37B of Central Excise Act, 1944 on classification of Coconut Oil packed in small containers – CIRCULAR NO.1007/14/2015-CX, DATED 12-10-2015

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors.

Company Law:

Query: Can one & same person be appointed as CS and CFO of a company at the same time? Is there any provision under CA 2013 that specifically prohibit this?

Answer: One person can be appointed as CS and CFO at the same time as there is no restriction being imposed in the Act but as per spirit of sec.203 it is advisable to appoint different person in single capacity as a CS, or CFO.

Further, while filing DIR 12 with Registrar of Companies, there shall be technical problem in filing form DIR 12 for the CFO appointment, when he is already showing as a CS of the company in the MCA portal.

STATUTES

DIRECT TAX LAWS

Section 139A of the Income-tax Act, 1961 – Permanent Account Number – Inauguration of Pan Camps by Finance Minister at Remote Locations – LETTER, DATED 26-10-2015

AayakarSampark Kendra (ASK) – Redressal of Grievances Received from Taxpayers by Email at said Kendra –LETTER F.NO.DGIT(S)/DIT(S)-V/ASK/2015-16/11972, DATED 20-10-2015

Development of an Analytical Model for Widening of Taxpayer’s Base – PRESS RELEASE, DATED 27-10-2015

CORPORATE LAWS

Section 137 of the Companies Act, 2013 – Accounts of companies – Copy of financial statement – Relaxation of additional fees and extension of last date of filing of Forms AOC-4, AOC-4 XBRL and MGT-7 under said Act –GENERAL CIRCULAR NO.14/2015 [F.NO.01/34/2013-CL.V], DATED 28-10-2015 

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