TMI Tax Updates - e-Newsletter
January 13, 2012

Case Laws in this Newsletter:

Income Tax Service Tax

TMI SMS

• Levy of interest u/s 220(2) - fresh notices of demand need not be issued every time the total income undergoes a change due to appellate or revisional orders

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• Indo French DTAA - Having held that the PE did not exist on the facts of this case, it is not really necessary to deal with profit attribution in the case of PE

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• Demand of service tax in respect of services rendered for issue of PAN Cards on behalf of IT dept., not sustainable as 'Business auxiliary service'

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• The opinion of the Assessing Officer may have been legally erroneous but this cannot be a ground for initiation of re-assessment proceedings.

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• Block Assessment -the term 'Abatement' - If the interpretation given by the ITAT is to be accepted, the entire proceedings of penalty will also abate

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• CENVAT Credit -It is the obligation of the assessee to verify the service provider befroe taking credit. -Service provider not exists -penalty imposed

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• Review of the policy on Foreign Direct Investment- liberalization of the policy in Single-Brand Retail Trading.

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Articles

1. Extensions should be made for reasonable period to avoid repetitive extensions – second article .

   By: DEVKUMAR KOTHARI

2. SALE OF ADVERTISING SPACE OR TIME SERVICES

   By: Dr. Sanjiv Agarwal

3. Deduction of depericiation on machinery and tools from the works contract should be allowed.

   By: AMIT BAJAJ ADVOCATE

4. TRANSPORT OF GOODS THROUGH PIPELINE SERVICES

   By: Dr. Sanjiv Agarwal

News

1. Comments/Suggestions for future XBRL Implementation.

2. Finance Minister holds Moderation in Inflation Would Continue in Coming Months; Calls for need to build on IIP Recovery with a Stronger Performance of Capital Goods and Investments to recover the Growth Momentum in the Remaining Period of the Current Financial Year.

3. Wholesale Price Indices for Primary Articles and Fuel & Power in India (Base: 2004-05 = 100) Review for the week ended 31st December, 2011 (10 Pausha, 1933 Saka) .

4. Finance Minister Launches the Signature Tune of the Indian Customs – Pragati Ki Dhadkan.

5. Finance Minister Holds First Pre Budget Consultations with Agriculture Group; Calls for Suggestions to Increase Agriculture Productivity.

6. Press Note No.1 (2012 Series) - Review of the policy on Foreign Direct Investment- liberalization of the policy in Single-Brand Retail Trading.

Notifications

DGFT

1. 94 (RE – 2010)/2009-2014 - dated 11-1-2012 - FTP

Minimum Export Price of Onions.

Income Tax

2. 04/2012 - dated 6-1-2012 - IT

Section 90 of the Income-tax Act, 1961 - Double Taxation Agreement - Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with Foreign Countries - Georgia.

Service Tax

3. 03 /2011 – Service Tax - dated 29-12-2011 - ST

Extension of date of submission of service tax half yearly returns .

SEZ

4. S.O. 14(E) - dated 4-1-2012 - SEZ

Rescinds the sector specific Special Economic Zone for information technology and information technology enabled services at Mount Poonamalee High Road, Aiyappanthangal, Porur, Chennai .

Circulars / Instructions / Orders

FEMA

1. 65 - dated 12-1-2012

Foreign Exchange Management Act, 1999 – Export of Goods and Services - Forwarder’s Cargo Receipt .

2. 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.

Highlights / Catch Notes

Income Tax

• Court Rules No Need for New Demand Notices with Income Changes u/s 220(2) of Income Tax Act.

  Case-Laws - HC : Levy of interest u/s 220(2) - fresh notices of demand need not be issued every time the total income undergoes a change due to appellate or revisional orders.... - HC
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• Indo-French DTAA Case: No Permanent Establishment Found, No Profit Attribution Issues Addressed.

  Case-Laws - AT : Indo French DTAA - Having held that the PE did not exist on the facts of this case, it is not really necessary to deal with profit attribution in the case of PEs..... - AT
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• India and Georgia Agreement to Avoid Double Taxation and Prevent Fiscal Evasion u/s 90 of Income-tax Act.

  Notifications : Section 90 of the Income-tax Act, 1961 - Double Taxation Agreement - Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with Foreign Countries - Georgia. - Ntf. No. 04/2012 Dated: January 6, 2012
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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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DGFT

• DGFT Sets Minimum Export Price for Onions to Stabilize Domestic Market under 2009-2014 Export Policy Framework.

  Notifications : Minimum Export Price of Onions. - Ntf. No. 94 (RE – 2010)/2009-2014 Dated: January 11, 2012
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SEZ

• New IT Special Economic Zone Established in Chennai under Notification No. S.O. 14(E.

  Notifications : Set up a sector specific Special Economic Zone for information technology and information technology enabled services at Mount Poonamalee High Road, Aiyappanthangal, Porur, Chennai . - Ntf. No. S.O. 14(E) Dated: January 4, 2012
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FEMA

• FEMA 1999: Key Updates on Export Regulations and Forwarder's Cargo Receipt from Circular No. 65 for Compliance.

  Circulars : Foreign Exchange Management Act, 1999 – Export of Goods and Services - Forwarder’s Cargo Receipt . - Cir. No. 65 Dated: January 12, 2012
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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
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Indian Laws

• Secondary Packaging for Transport Not a 'Wholesale Package' u/r 2(x) Regulations.

  Case-Laws - SC : Secondary outer packing for transportation or for safety of the goods being transported or delivered cannot be described as a wholesale package within the definition of the expression 'wholesale package' under Rule 2(x) of the Rules.. .... - SC
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Service Tax

• Service Tax Not Applicable on PAN Card Issuance Services; Not Classified as 'Business Auxiliary Service'.

  Case-Laws - AT : Demand of service tax in respect of services rendered for issue of PAN Cards on behalf of the Income Tax department under the category 'Business auxiliary service' - Activities are not taxable... - AT
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• Income Discrepancy: Balance Sheet vs. ST-3 Returns; Case Remanded for Fresh Review by Adjudicating Authority.

  Case-Laws - AT : The balance sheet figures are the income figures on accrual basis while the figures shown in ST-3 return were of actual receipt of payment. - Matter remanded back to adjudicating authority to reconsider the issue afresh..... - AT
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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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Central Excise

• SSI Exemption Limit Not Extendable Separately to Each Partner or Multiple Firms by Same Individual.

  Case-Laws - AT : SSI exemption - There is no question of extending separate SSI exemption limit to each partner of a firm or to different firms being run by the same person especially in a situation where goods are manufactured by one firm and sold in the name of different firms..... - AT
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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
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Case Laws:

• Income Tax

• 2012 (1) TMI 10
  Levy of interest u/s 220(2) - requirement of notice – Held that:- (a) fresh notices of demand need not be issued every time the total income undergoes a change due to appellate or revisional orders - (b) a case where the assessee has paid the full amount of tax demanded by the AO pursuant to the assessment order stands on a different footing from a case where such demand was not satisfied in full and different considerations shall apply to such a case; (c) the original demand made by the AO on the basis of the assessment order is merely kept in abeyance or suspension during the entire proceedings by way of appeal or revision taken against the assessment and gets revived from inception once the assessment gets finally confirmed in those proceedings; (d) when the assessment order is finally affirmed, the doctrine of merger also applies and interest being compensatory in nature, the revenue is entitled to charge the same from the date of the original order which merged with the final appellate order; (e) as a corollary to the above, it follows that where an assessment is restored and the original demand gets revived from inception, the assessee is liable to pay interest u/s.220(2) of the Act from that date on the unpaid amount and any variation in the amount of the demand favourable to the assessee which was directed by any of the appellate authorities in the interregnum has no effect on the liability of the assessee to pay the interest.

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• 2012 (1) TMI 9
  Indo French DTAA - foreign company s business of operations of ships in international traffic carried out through agents s fixed place in India question of existence of a Permanent Establishment Dependent Agent Permanent Establishment(DAPE) or independent agent - Article 5, 7 9 of Indo French DTAA - determination of profits attributable to PE Relief under article 9 levy of interest u/s 234B - Held that:- Permanent establishment in the present case will be governed by Article 5(5) read with Article 5(6) of Indo French DTAA. Since there are no findings by the A.O., or the DRP, to the effect that the transactions between the agent and the assessee are not at an arm s length price, the agent is treated to be an independent agent in view of the provisions of Article 5(6). Such a finding by the revenue is a sine qua non for existence of DAPE. Thus, it is held that the assessee did not have any PE in India. Having held that the PE did not exist on the facts of this case, it is not really necessary to deal with profit attribution in the case of PEs. With respect to relief under Article 9 in respect of freight earnings it is held that the issue is covered against the assessee by a coordinate bench s decision in assessee s own case for the assessment year 2001-02 therefore, the assessee may take up the issue before Hon ble Courts. Levy of interest under section 234 B A.O. is directed to grant necessary relief. - Decided partly in favor of assessee.

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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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• Service Tax

• 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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