TMI Tax Updates - e-Newsletter
January 12, 2012
Case Laws in this Newsletter:
Income Tax
Service Tax
TMI SMS
Articles
By: AMIT BAJAJ ADVOCATE
Summary: In works contracts, deductions for labor components are allowed to determine the material component subject to VAT or sales tax. The Supreme Court in Gannon and Dunkerley elaborated on permissible labor deductions, including charges for hiring machinery and tools. However, depreciation on machinery and tools owned by the contractor, used in executing the contract, should also be allowed as a deduction. This is because depreciation reflects wear and tear, akin to hire charges, and aligns with similar expenses related to labor and services. This view was supported in a Karnataka High Court decision, emphasizing the necessity of excluding all non-material components from the contract value.
By: Dr. Sanjiv Agarwal
Summary: Service tax on the transport of goods through pipelines or conduits was introduced by the Finance Act, 2005, effective from June 16, 2005. This tax applies to services rendered by any person to another, excluding water transport. The taxable service includes the transportation of gases, fuels, and chemicals through pipelines for a consideration. The service provider, who could be any individual or entity, is liable to pay the service tax upon receiving payment for these services. Notably, the transportation of water is excluded, and the tax is not applicable to goods sold through pipelines but only to the transportation service itself.
By: DR.MARIAPPAN GOVINDARAJAN
Summary: In a legal case involving a chemical export company, the High Court addressed a violation of natural justice principles. The company challenged a decision by the Customs Department, which finalized provisional assessments without granting them a hearing. The court found this to be a breach of natural justice, referencing a Supreme Court decision that emphasized the necessity of personal hearings in quasi-judicial proceedings. The High Court invalidated the initial orders and instructed the Customs Department to re-evaluate the assessments, ensuring the company is given a chance to be heard, thus upholding fundamental legal principles.
News
Summary: The Finance Minister launched the signature tune "Pragati Ki Dhadkan" for the Indian Customs, composed by a noted music director, marking the Golden Jubilee of the Indian Customs Act, 1962. The tune will accompany the Central Board of Excise and Customs' tableau during the Republic Day Parade. The Finance Minister highlighted the Customs Department's role in automating trade processes, reducing transaction costs, and protecting economic borders against smuggling. This year, the department will participate in the parade for the first time, showcasing its vigilance across various frontiers. Senior officials and the music director attended the launch event.
Summary: The Finance Minister held pre-budget consultations with agricultural representatives, emphasizing the sector's importance as it employs 58% of the workforce. Despite challenges like high food inflation and fiscal deficit concerns, the minister sought suggestions to boost agricultural productivity, reform pricing, and address food security. Attendees proposed rationalizing subsidies, enhancing edible oil production, and increasing investment in agriculture infrastructure. They also suggested tax exemptions for cooperatives, promoting agro-processing, and supporting FDI in multi-brand retail. The meeting included various government officials and agricultural sector representatives who contributed insights on improving agricultural output and sustainability.
Summary: The Government of India has revised its Foreign Direct Investment (FDI) policy in Single-Brand Retail Trading, allowing up to 100% FDI under the government approval route. This policy aims to attract investments, enhance product availability, and boost the competitiveness of Indian enterprises. Conditions include the sale of products under a single brand, international branding consistency, and mandatory sourcing of 30% of products from Indian small industries for FDI exceeding 51%. Applications for FDI must be submitted to the Secretariat for Industrial Assistance, with compliance ensured through self-certification and auditing. The decision is effective immediately.
Summary: Moody's Investor Services upgraded India's sovereign credit ratings on December 20, 2011, enhancing long-term government bonds and foreign currency bank deposits from speculative to investment grade (Baa3). The short-term government bonds and foreign currency bank deposits were also elevated from Not Prime to P-3, marking the first upgrade since 1998. Moody's acknowledged India's fiscal consolidation efforts, including subsidy reforms and tax simplification. This upgrade follows Dominion Bond Rating Service's positive action in June 2011 and Fitch's affirmation of India's strong economic growth prospects. India's debt is assessed by six international credit rating agencies, which regularly engage with India's Ministry of Finance and Reserve Bank.
Summary: The Indian government has announced a policy allowing 100 percent foreign direct investment (FDI) in single brand retail. This decision, made by the Department of Industrial Policy and Promotion under the Ministry of Commerce and Industry, aims to attract global retailers to the Indian market. For FDI exceeding 51 percent, there is a requirement to source at least 30 percent of the product value from Indian small industries, artisans, and craftsmen. This policy is expected to boost domestic manufacturing, enhance value addition, and support technical upgrades in local small industries.
Summary: The Government of India has formed a committee to draft the National Competition Policy, aiming to achieve sustainable economic growth and enhance living standards. The proposed policy focuses on creating a regulatory framework to promote market competition, protect consumer interests, and maximize social welfare. Key features include reviewing existing laws for anti-competitive practices, ensuring fair market regulation, and maintaining competitive neutrality. The policy also emphasizes fair pricing, third-party access to essential facilities, and cooperation at various governmental levels. A National Competition Policy Council is proposed for oversight, with stakeholder feedback currently being solicited.
Summary: India has committed to supporting Zimbabwe's economic development, with plans to provide a $100 million line of credit for health infrastructure. Indian PSUs such as IRCON, RITES, and WAPCOS are expected to participate in infrastructure projects. Discussions between Indian and Zimbabwean ministers also covered concerns about Zimbabwe's Indigenization and Economic Empowerment Act, which could impact Indian investment. India proposed simplifying business visa processes to encourage investment and plans to assist in reviving Zimbabwe's textile sector. Additionally, India will establish a Rural Technology Park and a Food Testing Laboratory in Zimbabwe, enhancing bilateral trade and investment relations.
Summary: The Commerce, Industries, and Textiles Minister of India announced a US$ one million project to empower rural African craftswomen through design intervention in basketry. This initiative, part of the India-Africa Forum Summit Action Plan, will be executed by the National Institute of Design over three years in five African countries. The project, starting in Zimbabwe, will involve training 25 craftswomen in India with support from the New Basket Workshop Foundation. Additionally, the initiative aims to enhance women's skills and market their crafts through Indian brands. The Indian Minister also pledged support for reviving Zimbabwe's textile sector and enhancing bilateral trade.
Summary: The Indian government has approved 20 foreign direct investment (FDI) proposals totaling approximately Rs. 1935.24 crore based on recommendations from the Foreign Investment Promotion Board. These approvals span various sectors, including retail, financial services, broadcasting, telecommunications, and renewable energy. Notable approvals include a French company setting up retail operations in India, a UK company in the pipe support business, and a microfinance demerger in Chennai. Additionally, 23 proposals were deferred, 10 rejected, and one withdrawn. The approved investments reflect a diverse range of industries, highlighting India's appeal as a destination for foreign investors.
Notifications
Service Tax
1.
F. No. 137/99/2011 - dated
9-1-2012
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ST
Seeks to extend date of submission of half yearly return for the period April 2011 to September 2011, from 6th January 2012 to 20th January 2012.
Summary: The Central Board of Excise and Customs, under the Ministry of Finance, has extended the deadline for submitting half-yearly service tax returns for the period from April 2011 to September 2011. Initially set for January 6, 2012, the new deadline is January 20, 2012. This extension is granted due to challenges faced by assessees in electronic filing. The directive is issued by the Director of Service Tax and communicated to relevant authorities, including Chief Commissioners of Central Excise and Customs and the Director General of Service Tax.
2.
03 /2011 – Service Tax - dated
29-12-2011
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ST
Extension of date of submission of service tax half yearly returns .
Summary: The Central Board of Excise and Customs has extended the deadline for the submission of half-yearly service tax returns for the period from April 2011 to September 2011. The original deadline of 26th December 2011 has been moved to 6th January 2012. This extension is granted due to difficulties faced by assessees in electronically filing their returns. The directive is issued under the authority of Rule 7(4) of the Service Tax Rules 1994, in conjunction with a prior notification. The order is communicated to relevant tax authorities and officials for implementation.
Circulars / Instructions / Orders
FEMA
1.
Press Note No.1 (2012 Series) - dated
10-1-2012
Review of the policy on Foreign Direct Investment- liberalization of the policy in Single-Brand Retail Trading.
Summary: The Government of India has revised its Foreign Direct Investment (FDI) policy for Single-Brand Retail Trading, allowing up to 100% FDI under government approval. This aims to boost investment in production and marketing, enhance product availability, and improve competitiveness through global practices. Conditions include selling products of a single brand, maintaining the same brand internationally, and mandatory sourcing of 30% of products from Indian small industries for FDI beyond 51%. Applications for FDI must be submitted to the Department of Industrial Policy & Promotion, and compliance will be verified through self-certification and statutory audits. These changes are effective immediately.
Highlights / Catch Notes
Income Tax
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Delhi Rent Control Act Not Applicable: Use Municipal Rateable Value for ALV in Income Tax u/s 23(1)(a.
Case-Laws - HC : Determination of annual value where premises are not regulated by Delhi Rent Control A/C - income from house property - Standard Rent Cannot be adopted" - the rateable value, if correctly, determined, under the municipal law can be taken as ALV under Section 23(1)(a) of the Act.... - HC
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ITAT's interpretation of "abatement" in block assessment may halt penalty proceedings, potentially benefiting the assessee unfairly.
Case-Laws - HC : Block Assessment - Interpretation of Word 'Abatement' - If the interpretation given by the ITAT is to be accepted, the entire proceedings of penalty will also abate giving an unreasonable advantage to the assessee, insptie of adverse findings inviting penalty..... - HC
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University's Tax Deduction Case on Payments to Coordinator Colleges Sent Back for Re-evaluation u/s 194J.
Case-Laws - AT : Non-deduction of tax at source u/s 194J - payment made by the University to the coordinator colleges to be paid to evaluation staff for conducting the evaluation of copy books of the examinees - matter restored to CIT(A) for fresh decision.... - AT
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Re-assessment proceedings unjustified due to potentially erroneous officer opinion; revision option not pursued by Revenue.
Case-Laws - HC : The opinion of the Assessing Officer may have been legally erroneous but this cannot be a ground for initiation of re-assessment proceedings. An erroneous decision which is prejudicial to the Revenue can be revised but the said option was not exercised. .... - HC
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Deduction Eligibility: Count Workers Across All Units for Section 80IB Compliance in Total Worker Calculation.
Case-Laws - AT : Eligibility of deduction u/s 80IB – Workers engaged in all the units are required to be considered while computing total number of workers employed by the assessee. .... - AT
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Peak Theory Invalidated in Block Assessment for Undisclosed Investments; Highlights Need for Valid Tax Assessment Methods.
Case-Laws - AT : Undisclosed investment - Block Assessment - The peak theory worked out by the A O for the purpose of making addition on account of undisclosed investments was not valid .... - AT
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Foundation's Section 12A Registration Denied for Failing to Justify Member-Benefit Object Clause; Deemed a Paper Company.
Case-Laws - HC : Registration u/s 12A - the assessee has not explained as to why the object clause specifically provides that the benefit of the foundation goes to the members in a narrow sense - applicant remains a paper company - no registration u/s 12A .... - HC
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Interest-Free Advances Between Sister Concerns Justified by Commercial Expediency, Allowing Interest Deduction.
Case-Laws - AT : Commercial Expidency:- Non-charging of interest on advances by the sister concern, particularly in the situation where both the concerns having benefits of such mutual accommodation, could indeed be justified on the ground of commercial expediency in a particular fact situation. - claim of deduction of interest allowed..... - AT
FEMA
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India Eases FDI Rules in Single-Brand Retail to Attract Foreign Investment and Boost Economic Growth (Press Note No.1 2012.
Circulars : Review of the policy on Foreign Direct Investment- liberalization of the policy in Single-Brand Retail Trading. - Cir. No. Press Note No.1 (2012 Series) Dated: January 10, 2012
Service Tax
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Free After-Sale Services Exempt from Service Tax; No Taxable Event for Complimentary Services Under Regulations.
Case-Laws - AT : Levy of Service Tax on free after sale service - Service Tax cannot be charged on free after sale services.... - AT
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Revenue authorities can penalize Rs. 100/day for unpaid duty from Sept 10, 2004, onward; no prior penalties apply.
Case-Laws - HC : Penalty - Revenue is empowered to levy penalty at the rate of Rs. 100/- per day if the assessee fails to pay duty only in respect of the period from 10-9-2004 onwards and not prior to the said date..... - HC
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Cenvat Credit Allowed for Repair and Maintenance of Office Air-Conditioning in Factories.
Case-Laws - AT : Cenvat Credit - 'Repair and Maintenance' Services on air-conditioning plant for the office space of the factory - credit allowed .... - AT
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Penalty Upheld u/s 78; No Reinstatement u/s 76 Despite Appeal Error in Penalty Reduction Decision.
Case-Laws - AT : Inasmuch as a penalty under Section 78 is being sustained, there is no justification for restoring the penalty under Section 76 as sought for by the department. However, the Commissioner (Appeals) has clearly erred in reducing the penalty imposed by the original authority under Section 78 without any valid reasons..... - AT
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Refund Claim Period Set by Notification No. 41/2007-ST Is Final; Section 11B Cannot Extend It.
Case-Laws - AT : Refund in terms of notification No. 41/2007-ST - Period of limitation - When a notification itself provides the period for claiming the exemption in terms of the said notification, such period cannot be extended by taking recourse to the provisions of section 11B.... - AT
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Service Tax Return Deadline for September 2011 Extended to January 20, 2012.
Notifications : Due date for filing of Service Tax Return for the period ending September, 2011 extended till 20-1-2012
Central Excise
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Assessee Must Verify Compliance Before Claiming CENVAT Credit to Avoid Penalty u/s 11AC for Non-Compliance.
Case-Laws - AT : CENVAT Credit - It is the obligation of the assessee that he takes precautions under Rule and then only take credit. Availment of credit without such verification would lead to a conclusion that there was suppression of facts of non-verification/non-compliance with the provisions of rule and therefore mandatory penalty u/s 11AC is attracted..... - AT
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Duty Demand Based on Arbitrary Power Norm Overturned; Emphasizes Need for Accurate Unit-Specific Standards in Excise Cases.
Case-Laws - AT : Demand and Penalty - Clandestine removal of M.S. Ingots - adopting of power consumption norm of another unit is arbitrary and the confirmation of duty demand on this basis would not be sustainable.... - AT
Case Laws:
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Income Tax
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2012 (1) TMI 6
Validity of re-opening of assessment – erroneous deduction u/s 80HHC & 80IA – change in opinion – Held that:- The question of deductions u/s 80IA and 80HHC were specifically examined at the time of original assessment proceedings. Assessee had justified the claim and furnished documentary evidence or proof. The quantification of the claim was justified. This is a case of change of opinion. The opinion of the Assessing Officer may have been legally erroneous but this cannot be a ground for initiation of re-assessment proceedings. An erroneous decision which is prejudicial to the Revenue can be revised but the said option was not exercised. - Decided against the Revenue.
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2012 (1) TMI 5
DTAA with AUSTRALIA – Fees for technical services (FTS) or inclusive contracts of technical nature - applicability of Articles 7 or 12 of the DTAA – assessee having PE in India – whether income to be construed as 'business income' or gross receipts to be taxed without any deduction – assessee opted to be taxed as per the provisions of the DTAA - Held that:- The payment in the present case is for furnishing of evaluation report. The assessee undertook certain tests, mapping and studies. Drilling for tests as to evaluate is to gain information and knowledge. The payment made is to acquire technical information. Therefore, it is fee for technical services. As per articles of DTAA, once an assessee has a PE in the contracting state of which he is not resident, then paragraphs 1 and 2 of the Article 12 of DTAA would not apply. In such cases Article 7 or 14 would apply. Thus, it is held that Article 12 of the DTAA is not applicable. Article 7 deals with business profits and will apply. Expenses incurred by the assessee can be claimed as a deduction but only in accordance with and subject to limitation stipulated in the Act. Section 44D postulates non-applicability of Sections 28 to 44C in case of foreign company earning income by way of royalty or fees from technical services. Thus, Section 44D is applicable to compute taxable Income. - Decided against the Revenue
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2011 (12) TMI 152
Non-deduction of tax at source u/s 194J - payment made by the University to the coordinator colleges to be paid to evaluation staff for conducting the evaluation of copy books of the examinees - evaluation work deemed to be technical in nature by A.O. - assessee did not filed replies before the AO nor ascribed any reasons as to why tax was not deducted at source – demand imposed - Held that:- CIT(A) deleted the addition on the basis of additional material submitted before him, without following the principles of natural justice. Since CIT(A) has not recorded any findings on the applicability or otherwise of provisions of sec. 194J of the Act nor the relevant documents, explaining the exact nature of payments made by the University to the Principals of aforesaid colleges are presented, therefore, the issues raised in appeal are restored to file of CIT(A) for fresh adjudication in accordance with law, in the light of aforesaid observations, bringing out clearly as to whether or not provisions of sec. 194J are applicable in this case.- Decided in favor of Revenue for statistical purposes.
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2011 (12) TMI 150
Eligibility of deduction u/s 80IB – rejected on basis that the number of workers working in the manufacturing process was less than 10 – deduction of expenses towards salary & wages – benefit of indexation on UTI-deep discount bonds - Held that:- A.O. has not considered workers engaged in another washing unit of same activity. Workers engaged in all the units are required to be considered while computing total number of workers employed by the assessee. Though the name of workers engaged in bottle washing unit were not entered into muster roll but were in the wages register and attendance register. This issue has been decided by the Tribunal in Cavour of the assessee in his own case thereby, assessee is eligible for deduction u/s 80IB and expenses towards salary & wages are also allowed. - Decided against the Revenue It is also held that UTI-MIP-99 is a bond & hence, the assessee is not eligible for indexation in view of 3rd proviso to Section 48. - Decided in favor of Revenue.
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Service Tax
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2012 (1) TMI 4
Penalty imposed u/s 76, 78 of Finance Act 1994 deleted by Tribunal – service tax liability established on payments/commission received by assessee from banks/financial institutions on cars sold under finance schemes - Business Auxiliary Service – two corrigendums were issued calling upon and asking the assessee to defend the penalty - Held that:- The order of Tribunal specifically states that the corrigendums were issued invoking Section 78 of the Act hence, penalty u/s 78 cannot be deleted on the ground that the show cause notice did not grant any opportunity of rebuttal to the respondent to defend the penalty under the said Section. Therefore, the matter is remitted to the Tribunal for a fresh decision. The Tribunal while deleting the penalty u/s 76 has not discussed and stated the stand of the assessee only. Thus, matter is restored back to the Tribunal to decided whether or not there was any reasonable cause. - Decided in favor of Revenue.
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