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TMI Tax Updates - e-Newsletter
January 24, 2012
Case Laws in this Newsletter:
Income Tax
Customs
Central Excise
Articles
By: DR.MARIAPPAN GOVINDARAJAN
Summary: The Companies Bill, 2011 introduces provisions for independent directors to enhance corporate governance and transparency. It defines an independent director as someone with integrity, relevant expertise, and no significant financial ties to the company or its affiliates. Listed companies must have at least one-third of their board as independent directors. These directors serve for up to five years, with potential reappointment after a three-year gap. Their roles include ensuring ethical standards, safeguarding stakeholder interests, and maintaining financial integrity. They must declare their independence annually and are liable only for acts involving their knowledge or consent. An audit committee must include a majority of independent directors.
By: DR.MARIAPPAN GOVINDARAJAN
Summary: Interest on loans and advances under the bills rediscounting scheme from banks governed by the Banking Regulation Act, 1949, is not subject to tax under the Interest Tax Act, 1974. The High Court ruled that such interest does not constitute chargeable interest as defined by the Act. This decision arose from a case involving a public financial institution engaged in various financial activities, including bill rediscounting. The court found that interest from loans and advances to other credit institutions is explicitly excluded from chargeable interest under Sections 5 and 6 of the Act, thus exempting it from taxation.
News
Summary: The Government of India announced the auction of government stocks, including the re-issue of 8.19% Government Stock 2020 for Rs.4,000 crore, 9.15% Government Stock 2024 for Rs.6,000 crore, and 8.97% Government Stock 2030 for Rs.3,000 crore. The Reserve Bank of India will conduct the auctions using a uniform price method on January 27, 2012. Up to 5% of the stocks will be allocated to eligible individuals and institutions under a non-competitive bidding scheme. Bids are to be submitted electronically on the Negotiated Dealing System, with results announced the same day and payments due by January 30, 2012.
Summary: The Union Minister of Commerce, Industry, and Textiles addressed the SAARC Business Summit, emphasizing the need to reduce credit costs to support investment and economic cooperation. He highlighted the progress of the South Asia Free Trade Agreement (SAFTA) and India's reduction of its Sensitive List for Least Developed Countries in SAARC, offering zero customs duty access. The Minister called for innovative credit mechanisms to support regional business models and improve customs infrastructure. The Foreign Secretary advocated for reducing non-tariff barriers and enhancing regional cooperation to boost economic growth within the SAARC region.
Circulars / Instructions / Orders
Income Tax
1.
4836 /15.02.001/2011-12 - dated
20-1-2012
Clarification on regulation of interest rates for Small Savings Schemes.
Summary: The circular clarifies the regulation of interest rates for Small Savings Schemes, aligning them with Government Security (G-Sec) rates of similar maturity plus a spread of 25 basis points (bps), with exceptions for the 10-year National Savings Certificate (50 bps) and the Senior Citizens Savings Scheme, 2004 (100 bps). Interest rates will be notified annually before April 1st. Contrary to some media reports, interest rates on these schemes, except for the Public Provident Fund, remain fixed for the investment's duration. Banks are instructed to inform branches and display this clarification regarding the PPF and SCSS schemes.
FEMA
2.
08 - dated
20-1-2012
Master Circular on Compounding of Contraventions under FEMA, 1999.
Summary: The Master Circular on Compounding of Contraventions under FEMA, 1999, issued by the Reserve Bank of India, outlines the voluntary process for compounding admitted contraventions under the Foreign Exchange Management Act. It consolidates existing instructions and provides a framework for compounding procedures, which include application submission, assessment, and issuance of compounding orders. The Reserve Bank and Directorate of Enforcement have designated roles, with the Reserve Bank handling most contraventions except those involving Hawala transactions. The circular specifies the process, prerequisites, and post-compounding procedures, emphasizing efficient resolution while addressing serious infringements through appropriate authorities. This circular is subject to annual updates.
3.
09 - dated
20-1-2012
Master Circular on External Commercial Borrowings and Trade Credits.
Summary: The Master Circular consolidates existing guidelines on External Commercial Borrowings (ECBs) and Trade Credits for residents under the Foreign Exchange Management Act, 1999, specifically clause (d) of sub-section 3 of section 6, and the associated regulations. It compiles all instructions and amendments up to January 5, 2012, providing a comprehensive reference for authorized dealer banks. The circular will be effective until July 1, 2012, after which it will be replaced by a revised version. The appendix includes a list of all circulars and notifications integrated into this document.
Highlights / Catch Notes
FEMA
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Master Circular on External Commercial Borrowings: Streamlined Guidelines for Cross-Border Financial Transactions under FEMA.
Circulars : Master Circular on External Commercial Borrowings and Trade Credits. - Cir. No. 09 Dated: January 20, 2012
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FEMA, 1999 Master Circular Simplifies Compounding of Foreign Exchange Violations, Promotes Compliance and Business Ease.
Circulars : Master Circular on Compounding of Contraventions under FEMA, 1999. - Cir. No. 08 Dated: January 20, 2012
Case Laws:
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Income Tax
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2012 (1) TMI 65
Unexplained cash credit deposit received Revenue contending it to be adjustment entry & lender party to be non existing firm Held that:- Tribunal has observed that lender company was having sufficient cash in hand, deposited the same in bank account and issued cheque in favor of assessee. lender company is an income tax assessee. Books of accounts together with Financial statements were produced. All these were taken sufficient by the Tribunal to prove the identity and source of the creditor. No infirmity is found in the order Decided against the Revenue.
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2012 (1) TMI 60
Transfer Pricing adjustment in ALP Working Capital Adjustment to the unadjusted margins of the comparable companies Held that:- Working capital is a factor which influence the price in the open market and constitutes a subject matter for adjustments in the matters relating to ALP in Transfer Pricing. It is the duty of the TPO to apply the provisions of rule 10B(1)(e). Net profit margin arising out of the comparable uncontrolled transactions should be adjusted to take into account differences, if any between the international transactions and filtered comparables of uncontrolled transactions or enterprises entering into such transactions, which could materially affect the amount of the net profit margin in the open market. Therefore, working capital adjustment is to be allowed while determining the Arm's Length operating Margin of the Comparables. Non granting of adjustments related to import expenses Held that:- No doubt, a higher import content of raw material by itself does not warrant an adjustment in operating margins, but what is to be really seen is whether this high import content was necessitated by the extraordinary circumstances beyond assessee's control. Therefore, the issue should be set aside to the files of the TPO with direction to examine the claim of the assessee relating to the import cost factor and eliminate the difference if any. Applicability of proviso to section 92C(2) Held that:- Tribunal in case of Cummins India LTD vs CIT (2011 - TMI - 207660 - ITAT PUNE) has decided in favor of the assessee in support of grant of deduction of 5%, when multiple prices in establishing the arithmetic mean are involved. Thus the assessee's ground on this issue is allowed. Incorrect computation of TP adjustment on the entire manufacturing segment sales instead of computing it sales relatable to the import of the components and spares procured from the AEs only principle of proportionality - Held that:- TP adjustments are to computed not considering the entity level sales. Rather it should be done ideally considering the relatable sales drawing the quantitative relationship to the imports from the AEs, i.e. controlled cost. Issues related to International transaction pertaining to export of components and spares, short grant of TDS/SA and charging of interest u/s 234B and 234C of the Act Held that:- Matters are remitted back to file of A.O. to grant necessary relief. Issues being decided in favor of assessee for statistical purpose. We remand these grounds with the direction to the AO to rework the addition.
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2012 (1) TMI 59
Minimum Alternative Tax - computation of Book profit for the purpose of MAT reduction of book profit by deduction allowable u/s 80HHC (Export Benefit) - whether deduction under clause (iv) of the Explanation to Section 115JB to be computed on the basis of the book profits and not on the basis of profits computed under the provisions of the Act Held that:- The issue is no more res integra and has been decided in case of Ajanta Pharma Limited versus CIT (2010 - TMI - 77381 - Supreme Court).
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2012 (1) TMI 58
Exemption u/s 10(10C) - ex-gratia payment received under VRS scheme Revenue contending dis-allowance of exemption on ground that employer itself has not given any exemption U/s.10(10C) to its employees Held that:- Similar controversy is settled by the two Division Bench decisions of this Court in case of CIT vs Harendra Natah Tripathi and CIT vs Subhash Chand Goyal (2010 -TMI - 208707 - ALLAHABAD HIGH COURT) and their being no decision to the contrary, the present appeal does not raise any question of law which requires to be decided by this Court. Further, relief u/s 89(1) is also admissible in such a case Decided in favor of assessee.
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2011 (12) TMI 179
Demand for A.Y. 2003-04 was raised on the petitioner by A.O. in reassessment proceedings A.O. declined to follow the ITAT order in the petitioners own case for A.Y. 2004-05 with respect to the computation of benefit u/s 10A - adjustment of demand against refund due of A.Y. 2010-11without issuing notice u/s 245 appeal questioning validity of initiating re-assessment proceedings decided in favor of assessee Held that:- Such a recovery of demand relating to an issue covered by the judgment in favour of the petitioner is directly contrary to CBDT Circular No.1914 of 1993 which provides that a stay of demand could be granted in such situations. Thus, demand made by the A.O. on re-assessment itself becomes invalid and, therefore, no question of adjustment thereof arises. A.O. is directed to release the aforesaid amount. - Decided in favor of assessee.
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2011 (12) TMI 178
Transfer Pricing - additions on account of GP rate and transfer pricing adjustment - benefit of 5% adjustment not given - adjustments made in relation to the entire sales A.Y. 2007-08 - Held that:-The adjustments on account of transfer pricing are to be restricted only to the international transactions with the AE, and not to the entire turnover of the assessee as held in case of Dy. CIT v. Starlite [2010 (4) TMI 704 - ITAT, MUMBAI]. Similarly, in the pre 01.10.2009 position, the benefit of 5% is to be allowed to the assessee, even in cases where difference in value of international transactions and its ALP is more than 5% as held in case of Emersons Process Management India (P.) Ltd. v. Add CIT ([2011 (8) TMI 427 - ITAT MUMBAI]). The computation made by the AO is, therefore, required to be reworked. As regards the GP rate, addition was made due to fall in G.P. Rate the reason for which was explianed by assessee. The AO has not pointed out any defects in the books of accounts. In relation to international transactions with the AE, there is provision for separate TP adjustments, and merely because there is TP adjustment, entire books cannot be rejected in the absence of any defects. Further, while computing the GP rate for the year, for the purpose of comparison with the earlier year, the AO had not made any allowance for TP adjustments, which would also have impact on the GP rate and, therefore, making the additions on both the counts would result in double addition. Therefore, the order is set aside and restored back to A.O. for passing a fresh order .- Decided in favor for assessee for statistical purpose.
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Customs
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2012 (1) TMI 56
Power of Commissioner(Appeals) to remand the matter u/s 122A of the Customs Act, 1962 - refund claim Held that:- The power to remand the matter is specifically withdrawn u/s 122(A) of the Customs Act, 1962 and it is also upheld in case of Mil India Ltd. vs. CCE (2007 - TMI - 1196 - Supreme Court Of India). Thus, the impugned order is not sustainable. It is found that claim of refund was rejected by the adjudicating authority and documents produced before the Commissioner (Appeals) requires verification. Therefore, the matter is remanded to the adjudicating authority who will decide the matter afresh after taking into consideration the documents produced by the respondent. Appeal is disposed of by way of remand.
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Central Excise
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2012 (1) TMI 55
Commissioner (Appeals) dismissed the appeal on ground of time bar - delay of 180 days Held that:- Section 35F of the Central Excise Act, 1944, provides that appeal is to be filed within 60 days from the date of receipt of the order and the Commissioner (Appeals) is empowered to condone further delay of 30 days. Supreme Court in the case of Singh Alloys held that Commissioner (Appeals) has no power to condone the delay beyond the period prescribed under the Central Excise Act, 1944. In the present case, there is a delay of 180 days in filing the appeal before the Commissioner (Appeals) which is beyond the condonable period. - Decided against the assessee.
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2012 (1) TMI 54
CENVAT credit on own final product returned by buyers returned goods were remelted by using same machinery and fresh products emerged duty paid on such goods Held that:- As per Rule 16, as clarified in Chapter 18 of the Supplementary Instructions issued by CBEC, where the returned goods are subjected to a process amounting to manufacture, the manufacturer shall pay duty at the appropriate rate on the goods so manufactured, and for payment of such duty, the CENVAT credit of the duty paid on the returned goods could be utilized. - Decided in favor of assessee.
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2012 (1) TMI 53
Rejection of application for condonation of delay consequently dismissal of appeal on ground of limitation by Tribunal papers of appeal were misplaced by counsel of assessee - Held that:- Tribunal ought to have taken a lenient view in the matter after all the appellant was not going to gain anything by not filing the appeal and the reasons given by the appellant was the mistake of its counsel who had also filed his personal affidavit. Therefore, Tribunal is directed to decide the appeal in accordance with law Decided in favor of assessee.
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2011 (12) TMI 175
Non- requirement of show-cause notice before recovery of excise duty refunds u/s 154 of the Finance Act, 2003 - Section 154 of the Finance Act,2003, retrospectively withdrew the exemption granted u/s 5-A of the Central Excise Act, 1944 - manufacturer of Pan Masala assessee contending validity of order issued for recovery of the amount of exemption availed by the assessee - Held that:- The correctness and validity of the said order has already been presented before this Court and it was held that absence of show cause notice u/s 11A did not affect the validity of the order dated 6.6.2003. The said judgment has admittedly become final and the finding recorded therein is res- judicata. The same, therefore, cannot be allowed to be re-agitated. No argument whatsoever has been raised by assessee on the issue of interest. - Decided against the assessee.
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