Income tax update on 20th November 2015

INCOME TAX UPDATE ON 20TH NOVEMBER 2015

 

INCOME TAX ACT

SECTION 9

Income – deemed to accrue or arise in India

Where secondees under secondment agreement with foreign parent co are not ordinary employees but those in high level managerial/executive positions and draw salaries from foreign parent co.

The amount paid to foreign parent under secondment agreement is FTS under Explanation 2 to sec 9(1)(vii) in view of the fact that secondees were deputed because of their expertise and managerial skills in the field.

Further, FTS or royalty paid to non-resident attracts tax u/s 44D on gross amount irrespective of any profit element in the payment –[2015] (Bangalore – Trib.)

SECTION 11

Charitable or Religious trust – exemption of income from property held

Capital asset: Where assessee disposed of investments being its capital assets held under Trust wholly for charitable purpose and net consideration from such disposal was utilized for acquiring other capital assets for charitable purpose, assessee’s claim was to be allowed on capital gain arising from such disposal of original investments even though capital assets were not held till end of financial year – [2015 (Kolkata – Trib.)

SECTION 14A

Expenditure incurred in relation to income not includible in total income

Applicability of : Where Assessing Officer made disallowance in respect of dividend income by relying upon Rule 8D of Income-tax Rules, 1962, since said rule was applicable for assessment year 2008-09 while assessment year under consideration was 2007-08, impugned disallowance was to be deleted – [2015] (Delhi – Trib.)

Dividend : Where Assessing Officer did not record any finding that any expenditure incurred by assessee was attributable to earning exempt income, disallowance under section 14A was to be deleted – [2015]  (Delhi)

SECTION 28(i)

Business loss/deductions – allowable as

Foreign exchange fluctuation loss: Foreign exchange fluctuation loss incurred by assessee in respect of outstanding foreign currency term loan was to be allowed as business loss – [2015] (Delhi – Trib.)

SECTION 37(1)

Business expenditure – allowability of

Non-compete fee : Where assessee purchased business division of another concern which also included payment to non-compete fee restraining seller from carrying on similar business for three years, said payment was to be regarded as capital expenditure – [2015] (Delhi – Trib.)

SECTION 40A(2)

Business disallowance – excessive or unreasonable payments

Commission : Where assessee paid commission on export sales at same rate at which it had been paid by seller of business earlier, disallowance made by Assessing Officer taking a view that a part of commission payment was excessive, was to be deleted – [2015] (Delhi – Trib.)

SECTION 48

Capital gains – computation of

Shares : Where in order to give effect to business transfer agreement, assessee purchased shares of management staff, since impugned amount was non-recoverable and was a loss on account of business transfer, it was required to be deducted from capital gain in respect of slump sale of trading business – [2015] 62  284 (Delhi – Trib.)

SECTION 92C

TRANSFER PRICING – COMPUTATION OF ARM’S LENGTH PRICE

Dispute Resolution Panel : DRP cannot be absolved from its duty without going into merits of contention of assessee as to whether a comparable company is comparable to it or not – [2015] 62 taxmann.com 321 (Delhi – Trib.)

SECTION 145

METHOD OF ACCOUNTING – SYSTEM OF ACCOUNTING

Professional fees : In case of legal fees, only when legal matter is over and assessee advocate decides on quantum of fees, it becomes income in hands of advocate and entire advance amount that includes pocket payments would not bear any particular characterization for purpose of treating it as income – [2015] 324 (Delhi)

SECTION 172

NON-RESIDENT – SHIPPING BUSINESS OF

An order computing the taxable income is essentially an assessment order therefore, any order passed under section 172(4) is also an assessment order.

Since Assessing Officer failed to pass draft assessment order under section 172(4) as required under the DRP provisions contained under section 144C, Assessing Officer’s order was null and void.

Order under section 172(4) is an ‘assessment order’ so as to make DRP provisions under section 144C applicable. – [2015] (Rajkot – Trib.)

Demurrage charges : In view of difference of opinion between orders passed by co-ordinate Benches of Tribunal regarding applicability of section 172 in respect of demurrage paid to non-resident shipping company, matter was to be referred to Larger Bench for consideration – [2015] (Bombay)

SECTION 195

DEDUCTION OF TAX AT SOURCE – PAYMENT TO NON-RESIDENT

Under provisions of Section 10(15A) prior to 1st April 1996 payments made for acquisition of an aircraft or an aircraft engine on lease, were exempted from taxation but from 1st April 1996, the Legislature has excluded the payments made for providing spares, facilities or services in connection with the operation of the leased aircraft from the ambit of the exemption under Section 10(15A).

Supplemental rent did not fall within the ambit of the exclusionary provisions of Section 10 (15A) as revenue was unable to point out any clause in the agreement that required the lesser to provide facilities or services in connection with the leased aircraft.

Thus, there was no obligation of assessee to deduct tax at source on supplementary lease rentals – [2015] (Delhi)

SECTION 271AAA

PENALTY – WHERE SEARCH HAS BEEN INITIATED

Illustration : Where no question was asked during statement recorded under section 132(4), in respect of manner of earning income surrendered, assessee could not be expected to substantiate same later on; penalty could not be levied under section 271AAA – [2015] (Chandigarh – Trib.)

COMPANIES ACT

SECTION 100

SHARE CAPITAL – REDUCTION OF

Where reduction of share capital did not affect normal operation of company or its ability to honor commitments and to pay its debts in ordinary course of business, reduction of paid-up share capital was to be allowed – [2015] 316 (Madras)

NEGOTIABLE INSTRUMENTS ACT

SECTION 138

DISHONOUR OF CHEQUE FOR INSUFFICIENCY ETC., OF FUNDS IN ACCOUNT

Accused convicted for cheque bouncing as he failed to rebut belief that cheque was issued for legally enforceable debt – [2015] (Madras)

SEBI ACT

REGULATION 6A OF SECURITIES & EXCHANGE BOARD OF INDIA (STOCK BROKERS AND SUB-BROKERS) REGULATIONS, 1992

CONDITIONS OF REGISTRATION

Where to do business as a broker with NSE, a subsidiary of Vadodara Stock Exchange (a company limited by guarantee) is amalgamated with another subsidiary (company limited by shares) to meet the SEBI Policy that “only one subsidiary of a Stock Exchange can be member of another stock exchange and that subsidiary has to be a company limited by stocks” .

The amalgamated company registered afresh with BSE, the amalgamated company is not entitled to “Fee Continuity benefit” under SEBI Regulations available to “amalgamation under the compulsion of law” as the first subsidiary could have been wound up instead of amalgamating it with second subsidiary to qualify for “only one subsidiary” policy.

In such a case, amalgamated company will have to pay registration fees afresh to BSE and cannot claim “fee continuity benefit” for fees paid by the amalgamating company – [2015] (SC)

 

REGULATION 10C OF SECURITIES & EXCHANGE BOARD OF INDIA (STOCK BROKERS AND SUB-BROKERS) REGULATIONS, 1992

PAYMENT OF FEES AND THE CONSEQUENCES OF FAILURE TO PAY FEES

Stock brokers who have converted their individual/partnership membership into a corporate entity prior to 1-4-1997 to Securities & Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 are entitled to fee continuity benefit in terms of paragraph 4 of Schedule III – [2015] 44 (SC)

SERVICE TAX

SECTION 65(47)

TAXABLE SERVICES – FRANCHISE SERVICES

Training/Course fee shared in ratio of 25:75 between assessee and centres providing training, is akin to revenue sharing model for training services and therefore, 25 per cent retained by assessee cannot be taxed under franchise services – [2015] (Mumbai – CESTAT)

SECTION 65(102)

TAXABLE SERVICES – STORAGE AND WAREHOUSING OF GOODS SERVICES

Unclaimed auction proceeds, retained by a warehouse from out of sale proceeds of auctioned goods, cannot be taxed under Storage & Warehousing services – [2015] (Mumbai – CESTAT)

CENTRAL EXCISE ACT

SECTION 3

CHARGE/LEVY – EXCISE DUTY ON DTA CLEARANCES BY 100 PER CENT EOU

Catalyst, which is not consumed in manufacture, cannot be regarded as ‘raw material’; hence, concessional duty conditional upon use of ‘domestic raw materials’ cannot be denied merely because of use of imported catalyst –[2015] 315 (SC)

STATUTES

CORPORATE LAWS

Draft of Insolvency and Bankruptcy Bill, 2015 – PRESS RELEASE, DATED 4-11-2015

Report of Bankruptcy Law Reforms Committee – PRESS RELEASE, DATED 4-11-2015

Format for Quarterly Holding Pattern, Disclosure Norms for Corporate Governance Report and manner for Compliance with Two-Way Fundability of Indian Depository Receipts (IDRS) – CIRCULAR NO.CFD/CMD/9/2015, DATED 4-11-2015

Format for Business Responsibility Report (BRR) – CIRCULAR NO.CFD/CMD/10/2015, DATED 4-11-2015

Sovereign Gold Bonds, 2015-16 – Operational Guidelines – CIRCULAR IDMD.CDD.NO.968/14.04.050/2015-16, DATED 4-11-2015

Motor Third Party premium rates for e-Carts [A3/A4], e-Rickshaws (C1(B)]And passenger premium for motorized two wheeler carrying passengers for hire or reward [C4] – CIRCULAR NO.IRDA/NL/CIR/MOTP/196/11/2015, DATED 4-11-2015

Section 396 of the Companies Act, 2013 – Registration Offices – Notified Regional Directors for purpose of section 396(1) – NOTIFICATION NO. GSR 832(E) [F.NO.1/16/2013-CL-V], DATED 3-11-2015

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