TMI Tax Updates - e-Newsletter
January 17, 2012
Case Laws in this Newsletter:
Income Tax
Central Excise
Articles
By: DEVKUMAR KOTHARI
Summary: Investing in shares is considered a business activity under the Income-tax Act, 1961, with shares being capital assets. Income from shares can include dividends, classified as 'income from other sources,' and capital gains from sales. Dividends are typically taxed at the distribution stage, not in shareholders' hands. The article argues that earning dividends is not the primary purpose of share investments, as most companies do not pay significant dividends. Section 14A, which disallows expenses related to earning exempt income, should not apply to dividends since they form part of the taxable income.
News
Summary: The Finance Minister of India held pre-budget consultations with trade union groups to discuss measures for safeguarding workers' interests. The meeting addressed economic challenges such as inflation, the euro-zone crisis, and a current account deficit. Trade union representatives suggested aligning contract labor wages with regular labor, amending company laws for profit sharing, revising personal income tax ceilings, and improving the MGNREGA scheme. They also emphasized tackling issues like child malnutrition, child labor, and farmers' suicides, and proposed assured pensions for all workers. The consultation aimed to incorporate these suggestions into the 2012-13 budget to enhance worker welfare.
Summary: The Government of India announced the re-issue of three government stocks through price-based auctions: 7.83% Government Stock 2018 for Rs.4,000 crore, 8.79% Government Stock 2021 for Rs.7,000 crore, and 8.83% Government Stock 2041 for Rs.3,000 crore. The Reserve Bank of India will conduct the auctions on January 20, 2012, using a uniform price method. Up to 5% of the stocks will be reserved for eligible individuals and institutions under a non-competitive bidding scheme. Bids must be submitted electronically, with results announced the same day and payments due by January 23, 2012.
Summary: The Finance Minister expressed confidence that inflation moderation would persist in the coming months, predicting headline inflation to range between 6% and 7% by March 2012. The decline in December 2011's inflation rate to 7.47% from November's 9.11% was attributed to reduced inflation in primary articles, particularly food. Although manufactured goods' price softening might be gradual, overall macro-economic conditions showed improvement in late 2011. Despite marginal declines in manufactured and power group item inflation, these areas remain concerning. The annual inflation rate for December 2011 decreased to 7.4% from 9.11% in November and 9.45% in December 2010.
Summary: The Ministry of Corporate Affairs in India plans to establish the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT), replacing the Company Law Board and other financial reconstruction boards. These tribunals were initially included in the Companies (Second Amendment) Act, 2002, but faced legal challenges in the Madras High Court. The Supreme Court resolved the matter in a judgment dated May 11, 2010. The revised Companies Bill, 2011, introduced in Parliament, incorporates the Supreme Court's guidelines from this judgment.
Summary: Abu Dhabi Investment Authority (ADIA) is exploring investment opportunities in India, with a focus on infrastructure projects. A meeting between ADIA's Managing Director and India's Minister of Commerce discussed forming a Joint Working Group to expedite investment processes. India plans to invest $1 trillion in infrastructure over the next five years, presenting lucrative opportunities, particularly in the Delhi Mumbai Industrial Corridor. Both parties emphasized diversifying investments into sectors like pharmaceuticals, services, and agro-processing. They also discussed enhancing trade relations and the potential for a Free Trade Agreement between India and the Gulf Cooperation Council. Bilateral trade has significantly increased, yet remains underexploited.
Summary: India's exports from April to December 2011 grew by 25.8%, reaching $217.6 billion, according to the Commerce Secretary. During this period, imports totaled $350.9 billion, marking a 30.4% increase, resulting in a trade deficit of $133.3 billion. In December 2011, exports were $25 billion, while imports were $37.8 billion, leading to a $12.8 billion trade deficit for the month. Key export sectors included engineering, petroleum products, gems and jewelry, and pharmaceuticals. Significant import growth was seen in petroleum, gold and silver, machinery, electronics, fertilizers, and coal. The figures are preliminary and may be revised.
Summary: The Wholesale Price Index (WPI) for all commodities in India for December 2011 remained at 156.9, unchanged from the previous month. The annual inflation rate based on the WPI was 7.47%, down from 9.11% in November 2011. Primary articles saw a decline of 1.6%, with food articles dropping by 3.1%. The fuel and power index increased by 0.6%, while manufactured products rose by 0.6%. Notable price changes included decreases in fruits and vegetables and increases in non-food articles and minerals. The inflation rate for the financial year to date was 4.95%, compared to 7.12% the previous year.
Circulars / Instructions / Orders
Customs
1.
02/2012 - dated
16-1-2012
Refund of 4% CVD (SAD)-Extension of time upto 31st March 2012, for using re-credited 4% CVD (SAD) amount in DEPB-Regarding.
Summary: The circular issued by the Ministry of Finance, Department of Revenue, extends the deadline for using re-credited 4% CVD (SAD) amounts in DEPB scrips until March 31, 2012. This extension follows requests from trade and industry stakeholders who were unable to utilize the re-credited DEPB/Reward Scheme scrips by the previous deadline. The circular emphasizes that no further extensions will be granted and instructs relevant authorities to issue public notices and standing orders to guide the trade and staff accordingly.
Highlights / Catch Notes
Customs
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Customs Extends Deadline for Utilizing Re-credited 4% CVD (SAD) in DEPB Scheme to March 31, 2012.
Circulars : Refund of 4% CVD (SAD)-Extension of time upto 31st March 2012, for using re-credited 4% CVD (SAD) amount in DEPB-Regarding. - Cir. No. 02/2012-Customs Dated: January 16, 2012
Central Excise
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Flexible Plastic Films Used in FandS Machines Qualify for Modvat Credit as Manufacturing Inputs Under Central Excise Rules.
Case-Laws - SC : Cenvat / Modvat Credit - the flexible plastic films used for testing the FandS machines are inputs used in relation to the manufacture of the final product and would be eligible for Modvat credit.... - SC
Case Laws:
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Income Tax
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2011 (12) TMI 162
Whether the brought forward loss from the earlier years can be set off against the income from "capital gains" u/s 72 – land, building and bore well used for business purposes being sold – assessee claiming it to be business assets - Held that:- Only the business loss can be carried forward u/s 72 of the Act and it can also be set off only against the business income of the assessee. In present case, assets sold were capital assets and capital gains on sale of capital assets is not to be set off against the brought forward loss of earlier years. Case is posted before the Division Bench to give effect to the order of the special Bench - Decided against the assessee.
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2011 (12) TMI 161
100% EOU – software development – sale of software to its subsidiary company - computation of Arm Length Price in respect of interest free loans given to its wholly owned subsidiary in USA - Revenue charging notional interest on the loan – TNMM method vs CUP method - deduction u/s 10(B) – assessee claiming positive income of profitable units as deduction & carrying forward the loss of other units – Held that:- The international transaction of interest free loan to the AE is an independent transaction, requiring determination of ALP. Since neither the assessee nor TPO/AO and CIT(A) have examined the applicability of CUP method as the most appropriate method in order to determine ALP of the international transaction of interest free foreign currency loan to its subsidiary by the assessee, the matter is restored to the file of the AO for fresh adjudication and to recompute the ALP of the aforesaid international transaction following CUP method. In respect of deduction u/s 10B, order of CIT(A) providing total income arrived at by setting off loss of units against profits of other units allowed as deduction is set aside and matter is restored back to the file of the AO for deciding the issue afresh. - Decided in favor of assessee for statistical purposes.
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Central Excise
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2012 (1) TMI 17
Cenvat / Modvat Credit - plastic films/poly paper used for testing machines - for forming commercial/technical opinion as to their marketability/ excisability - whether plastic films/poly paper would be eligible for credit - whether use of plastic films/poly paper used for testing machines would be held as used in the manufacture of or use in relation to the manufacture of the final products - held that:- the process of testing the customised FandS machines is inextricably connected with the manufacturing process, in as much as, until this process is carried out in terms of the afore-extracted covenant in the purchase order, the manufacturing process is not complete; the machines are not fit for sale and hence not marketable at the factory gate. - the manufacturing process in the present case gets completed on testing of the said machines and hence, the afore-stated goods viz. the flexible plastic films used for testing the FandS machines are inputs used in relation to the manufacture of the final product and would be eligible for Modvat credit under Rule 57A of the Rules. - Decided in favor of assessee.
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