TMI Tax Updates - e-Newsletter
March 27, 2012
Case Laws in this Newsletter:
Income Tax
Wealth tax
Articles
By: DEVKUMAR KOTHARI
Summary: The article discusses the issue of unnecessary litigation initiated by revenue authorities, highlighting cases where appeals were pursued without merit, leading to wastage of public resources. It cites a Supreme Court case involving a tax exemption dispute, where the revenue's appeal was dismissed due to procedural negligence. The author criticizes such litigation for contributing to brain drain and resource erosion, urging accountability for government authorities to prevent unwarranted legal actions. The article emphasizes that proper assessment of tax liabilities could significantly reduce appeals and unnecessary legal proceedings, ultimately benefiting the nation's intellectual and financial capital.
By: AMIT BAJAJ ADVOCATE
Summary: A lump sum scheme for paying service tax on works contracts was introduced through an amendment to Rule 2A of the Service Tax (Determination of Value) Rules, 2006, via Notification No. 11/2012. Previously, contractors could choose between paying service tax on the actual service involved or a composite scheme at 4.8% of the total contract value. The new lump sum scheme allows service tax to be calculated as a percentage of the total contract value: 40% for original works and 60% for other works. This amendment provides an alternative for contractors without detailed accounting records.
By: CSSwati Rawat
Summary: The article discusses significant budgetary changes in service tax effective from April 1, 2012. The service tax rate increased to 12%, with adjustments in composition rates for specific sectors. A new Negative List approach exempts certain services from taxation, reducing exemption notifications. The definition of "service" is expanded, excluding certain transactions. The Place of Provision of Services Rules, 2012, will replace existing rules upon enactment. Changes include revised tax determination rules, extended time limits for notices, and new audit provisions. Amendments to Cenvat Credit Rules simplify credit processes, and a reverse charge mechanism is introduced for select services. Penalty waivers and retrospective exemptions are also addressed.
By: AMIT BAJAJ ADVOCATE
Summary: The 2012-13 budget introduced a Reverse Charge Mechanism in service tax, shifting the tax liability from service providers to recipients for certain services. Under this mechanism, both service receivers and providers are liable for tax in specific percentages for services like hiring of transport, construction, and manpower supply. Notification 15/2012 specifies the tax percentages for various services, with recipients often bearing the full tax burden. In works contracts, the tax is split equally between contractor and contractee. However, clarification is needed on handling different tax schemes within a single works contract, as the current guidelines are unclear.
News
Summary: 928 hospitals have joined the Preferred Provider Network (PPN) to offer cashless healthcare services, an initiative launched by four Public Sector General Insurance Companies in July 2010. The PPN aims to provide affordable healthcare and optimize insurance benefits by standardizing hospital empanelment and procedure rates. Initially implemented in Delhi, Mumbai, Chennai, and Bangalore, the network expanded to Ahmedabad, Hyderabad, Chandigarh, and Kolkata. The expansion followed successful negotiations with hospitals that initially hesitated to join. The initiative's growth was reported by the Minister of State for Finance in a written reply to the Lok Sabha.
Summary: Public sector general insurance companies in India do not charge service tax on cashless hospitalization claims. From July 1, 2010, to April 30, 2011, hospitals imposed service tax on such claims under the Finance Act, 2010. Insurance companies covered this tax if claims were within the insured sum. The service tax on cashless payments was abolished effective May 1, 2011, as per a government notification. This update was provided by the Minister of State for Finance in a written response to a parliamentary question.
Summary: The Insurance Regulatory and Development Authority (IRDA) has mandated that all new training institutes must register as either a company under the Companies Act, 1956, or as a society/trust according to guidelines issued on December 7, 2011. Existing accredited Agents Training Institutes have been given a six-month period from this date to comply with the new registration requirements. This update was provided by the Minister of State for Finance in a written response to a question in the Lok Sabha.
Summary: The Government of India has revised the interest rates for small savings schemes effective from April 1, 2012, following recommendations from the Shyamala Gopinath Committee. The new rates for the financial year 2012-13 include increases for various schemes: 1-year Time Deposit from 7.7% to 8.2%, 2-year from 7.8% to 8.3%, 3-year from 8.0% to 8.4%, and 5-year from 8.3% to 8.5%. Other schemes such as the 5-year SCSS, MIS, NSC, and PPF also see rate increases. Notifications for rule amendments will be issued separately.
Summary: The Insurance Regulatory and Development Authority (IRDA) has confirmed that there is no proposal to transition the insurance sector to a fully paperless model. Insurance companies will continue issuing paper policies, with electronic policies available at the policyholder's discretion through licensed insurance repositories. These repositories aim to enhance efficiency, transparency, and cost-effectiveness in managing insurance policies electronically. Entities like NSDL Database Management Limited and CDSL Ventures Limited have received approval to serve as insurance repositories. This approach ensures that the paperless model will not inconvenience individuals in remote or rural areas. This information was provided by the Minister of State for Finance in a written response to the Lok Sabha.
Summary: The Security Printing and Minting Corporation of India Limited (SPMCIL) signed a Memorandum of Understanding with the Indian government's Department of Economic Affairs, setting a sales target of Rs. 3050 crores for the 2012-13 fiscal year. The MoU, negotiated by a Department of Public Enterprises Task Force, emphasizes growth, profitability, and resource optimization. It includes commitments to customer satisfaction, innovative practices, and environmental safety. SPMCIL, a Miniratna Category-I CPSE, has shown significant growth since its inception in 2006, achieving high production and profitability. The company also engages in CSR activities, focusing on education and social development.
Summary: Security Printing and Minting Corporation of India Limited (SPMCIL) has become a debt-free company after repaying a Rs. 700 crore interest-free loan to the Central Government in four equal installments, concluding with a Rs. 175 crore payment in March 2012. Established in 2006, SPMCIL, a Miniratna Category-I CPSE, oversees the minting of coins and printing of banknotes and other security documents. The company has seen significant production and profitability growth, achieving record production levels and a net profit of Rs. 577 crores in FY 2010-11. SPMCIL has also implemented a capital expenditure plan of Rs. 2500 crores over five years.
Summary: The Government of India, through the Ministry of Corporate Affairs, announced a proposal to amend the Companies Act, 1956, to include provisions for the mandatory registration of foreign companies engaged in online business practices. This initiative aims to regulate foreign entities conducting business electronically in India. The Companies Bill, 2011, introduced in the Lok Sabha, seeks to define a foreign company as any entity incorporated outside India with a business presence in the country, either physically or electronically. The Bill outlines disclosure and compliance requirements for such companies, and is currently under review by the Parliamentary Standing Committee on Finance.
Summary: The Indian Chartered Accountant firms are regulated by the Institute of Chartered Accountants of India (ICAI) under the Chartered Accountants Act, 1949. Both Indian and foreign CA firms must register with the ICAI to operate in audit/assurance services in India. Multinational Accounting Firms may work in India through registered Indian Audit Firms. Disciplinary action has been taken against auditors of Satyam Computer Services Limited, with several members permanently removed from the ICAI register and fined. Further disciplinary decisions are pending for other involved members. The regulation of foreign CA firms in India is under scrutiny.
Summary: The Ministry of Corporate Affairs in India has established a committee to oversee the phased implementation of eXtensible Business Reporting Language (XBRL). Formed in November 2011, the committee includes XBRL experts, corporate sector representatives, and members of the Institute of Chartered Accountants of India. Its responsibilities include identifying companies for XBRL filing, developing taxonomies, and creating an assurance framework. The committee also focuses on training and capacity building. Public suggestions on new accounting concepts, taxonomy development, and technical issues have been solicited, reviewed, and shared with the committee for potential integration into the implementation roadmap.
Summary: The Indian Minister of Commerce and the U.S. Commerce Secretary reaffirmed their commitment to strengthening the India-U.S. economic partnership. They expressed satisfaction with the recovery of economic growth in both countries and emphasized the importance of global economic stability. Bilateral trade now exceeds USD 100 billion, with significant growth in infrastructure, aviation, defense, and other sectors. They welcomed a USD 2 billion Infrastructure Debt Fund in India and agreed to renew the Commercial Dialogue for two more years. The dialogue aims to facilitate exchange on commercial issues, focusing on manufacturing, innovation, and sustainable practices. Further discussions are planned in Washington, D.C.
Summary: Since December 2008, the Board of Approval on Special Economic Zones (SEZs) in India approved 46 requests for de-notification of SEZs, with developers either not availing duty benefits or agreeing to refund them. Reasons for de-notification include economic challenges, poor market response, labor shortages, lack of demand, and tax impositions. Out of 587 formally approved SEZ proposals, 380 have been notified, and 154 are exporting. The SEZ rules are reviewed regularly to improve project implementation. The state-wise distribution of SEZs shows varying levels of approvals, notifications, and export activities across different regions.
Summary: The Government of India is actively promoting the export of agro products, including basmati rice, through various incentives and schemes under the Export Promotion Plan. The Agricultural and Processed Food Products Export Development Authority (APEDA) is providing financial assistance to eligible exporters and organizing trade delegations and Buyer-Seller Meets to enhance market penetration. The Basmati Development Fund supports these efforts. There is no plan to abolish the minimum export price for basmati rice. Notably, basmati rice exports to Iraq have significantly increased from 6,071 MT in 2008-09 to 31,240 MT in 2010-11.
Summary: The Central Government of India, under its 2009-14 foreign trade policy, proposed establishing a Directorate of Trade Remedy Measures to support Indian industry and exporters, particularly MSMEs, using WTO-sanctioned trade remedy instruments. This directorate is tasked with conducting anti-dumping and anti-subsidy investigations, implementing anti-circumvention measures, handling litigation, and organizing workshops to inform stakeholders about trade remedies. The goal is to provide a level playing field for Indian industries and exporters to compete against imported goods in the domestic market. This initiative was announced by the Minister of State for Commerce and Industry in a Lok Sabha session.
Summary: The Government of India has been actively promoting the export of vegetables and fruits, with significant exports recorded over the past three years. Key exported vegetables include onions, potatoes, and tomatoes, while fruits like mangoes, grapes, and bananas are also significant. The Agricultural and Processed Food Products Export Development Authority (APEDA) supports exporters through various schemes, including financial assistance and infrastructure development. Additional initiatives such as Market Development Assistance and trade delegations aim to penetrate foreign markets and improve quality management. These efforts have enhanced the export infrastructure, opened new markets, and stabilized existing ones for Indian agricultural products.
Summary: India has engaged in consultations under the WTO's Dispute Settlement Understanding against the European Union (EU) and Turkey for breaching WTO obligations. In Dispute DS 408, India challenged the EU's detention of Indian generic medicines, citing violations of GATT Article V and the TRIPS Agreement. An interim settlement was reached in July 2011, with the EU agreeing not to suspect patent infringement solely based on medicines in transit. In Dispute DS 428, India contested Turkey's safeguard measures on cotton yarn, which were inconsistent with the WTO's Agreement on Safeguards. Consultations with Turkey occurred in March 2012, and further response is pending.
Summary: Major minerals exported by Indian enterprises include iron ore, chrome ore/concentrate, and manganese ore. Iron ore exports are managed by MMTC Limited and 100% Export Oriented Units, with high-grade iron ore being exported through these channels. Low and medium-grade iron ore exports are under an Open General Licence. The export of chrome ore/concentrate and manganese ore is canalized through MMTC Limited and MOIL. The Foreign Trade Policy regulates iron ore exports with Fe content of 64% and above. The government is examining a nodal agency operation to ensure compliance with mining regulations.
Summary: A peer evaluation conducted in 2005 on Agricultural Export Zones (AEZs) in Rajasthan revealed several issues: lack of ownership by government authorities, insufficient awareness of the scheme among stakeholders, inadequate project orientation, poor coordination and monitoring, insufficient public investment from central and state governments, and excessive proliferation of AEZs. Based on these findings, it was decided not to approve new AEZs unless there were compelling reasons. This information was provided by the Minister of State for Commerce and Industry in a written response to a question in the Lok Sabha.
Summary: India has established Comprehensive Economic Cooperation Agreements with Singapore and Malaysia and signed a Trade in Goods Agreement with ASEAN in 2009. Between 2009-2011, India's exports to ASEAN increased from $18.11 billion to $27.28 billion, while imports rose from $25.80 billion to $30.61 billion. India and ASEAN are negotiating a Trade in Services Agreement, with revised offers exchanged in November 2011. These agreements aim to boost bilateral trade, providing Indian exporters with greater market access and enabling competitive sourcing for manufacturers. They are expected to enhance investments and offer Indian professionals opportunities in the services sector, fostering closer economic ties.
Summary: The Marine Products Export Development Authority (MPEDA) under India's Ministry of Commerce and Industry promotes marine exports. From April 2011 to January 2012, marine product exports reached 704,952 tons, valued at Rs. 13,753.43 crore, earning USD 2,930.93 million. MPEDA implements subsidy schemes for modernizing processing facilities, infrastructure development, aquaculture, and promotional activities. These include financial assistance for fish curing, chilled fish export facilities, technology upgrades, ice plant renovations, tuna processing, refrigerated transport, cold storage, and insulated fish boxes. The subsidies aim to enhance export capabilities and boost foreign exchange earnings.
Summary: The Government of India reported state-wise export data for fresh and dried fish from 2008 to 2012. Gujarat, Maharashtra, Kerala, Karnataka, Tamil Nadu, West Bengal, and Assam were key contributors, with Karnataka showing significant quantities in dried fish exports. Meanwhile, Maharashtra and West Bengal led in fresh fish exports. The Marine Products Export Development Authority initiated a project in Kerala to improve pre-processing conditions, particularly for women, with funds allocated in 2009-2012. The project aims to enhance hygiene and working conditions for fish processing intended for export. This information was provided by the Minister of State for Commerce and Industry in a Lok Sabha session.
Summary: The developer of a Special Economic Zone (SEZ) in India can transfer surplus power generated in their plants to Domestic Tariff Areas (DTA) after applying to the Development Commissioner and paying applicable duties. The Development Commissioner, in consultation with relevant agencies, will review such requests under the Electricity Act, 2003. SEZ developers are deemed distribution licensees under the SEZ Act, 2005. Power supplied to DTA or non-processing areas must be priced as agreed with regulators. Duties are determined by the Department of Revenue and other relevant ministries. These guidelines cover licensing, tariff determination, and duty levies.
Summary: The Competition Commission of India (CCI) is advocating for government policies that align with competition principles outlined in the Competition Act. This legislation addresses anti-competitive practices, abuse of dominance, and merger regulations. CCI is facilitating competition assessments of government rules and policies that may inadvertently hinder competition. Senior government officials have been appointed as Nodal Officers in 50 central ministries and departments, with similar initiatives in states and union territories. The CCI's role is advisory, focusing on evaluating and redesigning policies to balance socio-economic objectives without unnecessarily impeding competition.
Summary: The Finance Bill, 2012, introduced a "Negative List of Services," which outlines services exempt from taxation. This initiative, clarified by the Central Board of Excise and Customs (CBEC), aims to streamline tax regulations by explicitly defining services that are not subject to tax. The list, part of broader amendments, is intended to provide clarity and consistency in service taxation.
Notifications
Customs
1.
Corrigendum - dated
23-3-2012
-
Cus
4th Corrigendum of notification number 21/2002-customs.
Summary: The 4th corrigendum to notification number 21/2002-customs, dated 23rd March 2012, issued by the Ministry of Finance, Department of Revenue, amends conditions in the Annexure of the previous notification No. 12/2012-Customs from 17th March 2012. Specifically, Condition No. 21 is revised to replace "73" with "75", and Condition No. 22 is revised to replace "75 or 76" with "76 or 77". These changes are to be published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i).
Circulars / Instructions / Orders
Income Tax
1.
01/FT&TR/2012 - dated
31-1-2012
Section 144C of the Income-tax Act, 1961 - Dispute Resolution Panel (DRP) - Reference to - Constitution of DRP at specified places.
Summary: The Board, under section 144C of the Income-tax Act, 1961, has constituted a Dispute Resolution Panel (DRP) at specified locations, comprising three Commissioners or Directors of Income-tax. The DRP members will perform these duties alongside their regular responsibilities effective immediately. The locations include Delhi-I, Delhi-II, Mumbai-I, Mumbai-II, Pune, Kolkata, Ahmedabad, Hyderabad, Bangalore, and Chennai, with specific individuals assigned to each panel. This order supersedes previous orders and has been approved by the Chairman of the Central Board of Direct Taxes (CBDT).
Customs
2.
09/2012 - dated
23-3-2012
Applicability of exemption under Sr. No. 4 of the Notification 4 / 2006 - CE dated 1/3/2006 on import of Ore Concentrates - regarding.
Summary: The circular addresses the applicability of an exemption under Serial Number 4 of Notification 4/2006-CE dated 1/3/2006 concerning the import of Ore Concentrates. It clarifies that the exemption benefit granted to "Ore" does not extend to "Concentrates" due to their classification as distinct products following the insertion of Chapter Note 4 in Chapter 26 of the Central Excise Tariff Act, 1985. Consequently, Concentrates are subject to Central Excise duty as manufactured products. The circular instructs relevant authorities to ensure that the exemption applies only to imported Ores and not to Concentrates, and to finalize any pending assessments accordingly.
3.
F. No.450/24/2012-Cus.IV - dated
14-3-2012
‘Handling of Cargo in Customs Areas Regulations, 2009’ - regarding.
Summary: The circular addresses issues related to the detention of containers by various customs intelligence and investigation branches, leading to significant demurrage charges for shipping companies. It emphasizes the need for adequate storage space for detained goods as per the Handling of Cargo in Customs Areas Regulations, 2009. Customs Cargo Service Providers are instructed not to charge rent or demurrage on detained goods. The circular also urges customs investigation wings to expedite their processes to alleviate the burden on shipping lines and manage resource constraints effectively. Instructions are to be disseminated through standing orders or notices.
Highlights / Catch Notes
Case Laws:
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Income Tax
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2012 (3) TMI 291
Disallowance - TDS u/s 194C - why the assessee had not deducted TDS from Rs.50 lakhs for work, which was sub-contracted and paid to Rishikesh Properties Pvt. Ltd - that the total contract value assigned made by the M/s. PGF Limited to the respondent assessee amounted to Rs.4,85,00,000/- while a separate contract was made with M/s. Rishikesh Properties by M/s. PGF Limited only amounting to Rs.4,25,00,000/- which was also running almost at the same time and with the same management as directors who are working on behalf of both the companies are common - It is apparent that there is an inherent contradiction between the findings recorded by the Tribunal and the findings recorded by the Assessing Officer with reference to the letter of the assessee dated 5.12.2008, which had not been adverted to by the Tribunal. Letter dated 5.12.2008, which was quoted in the assessment order has not been considered - If there is violation of Section 194C, then Section 40 (a)(ia) may be attracted and the expenditure incurred on which tax has not been deducted is to be disallowed as per the terms of the said section - Decided in favor of the revenue by way of remand to Tribunal
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2012 (3) TMI 290
Writ petition for quashing of notice under Section 148 of the Income Tax Act - the petitioner had filed its return of income with provisional tax audit report - the petitioner filed audited accounts with the tax audit report in lieu of notice under Section 139(9) - return filed by the assessee was not taken up for scrutiny and no notice under Section 143(2) was issued - the impugned notice under Section 148 was issued - petitioner informed that the return filed may be treated as return filed in response to notice - the petitioner asked for furnishing of “reasons to believe” recorded in writing before issue of notice under Section 148 of the Act - contention of the petitioner is that there was delay and failure to supply the exact reasons recorded by the Assessing Officer - reasons recorded by the AO for reopening was that the assessee is not offering its income earned on infrastructure utilization Fund (IUF) and interest earned thereon in its income chargeable to tax - The contention of the petitioner is that the amount deposited in the aforesaid fund is not income of the assessee and reasons to believe are a mere reason to suspect or surmise and do not disclose or state that there has been under assessment of income - Held that :- there were no original assessment proceedings and no notice under section 143(2) was issued. The time for issue notice under Section 143(2) had lapsed. The AO, therefore, could have only examined the question/aspect after issue of notice under Sections 147/148 of the Act. Whether or not notice can be issued in such cases is no longer res integra [Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers Private Limited, (2008) 14 SCC 208 ] - writ petition is dismissed
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2012 (3) TMI 289
Exemption u/s 10(23C)(vi) - the aforesaid institute was not directly imparting education and had not employed teachers who were teaching or giving lectures to the students - Madhya Pradesh High Court in CIT v. M.P. Rajya Pathya Pustak Nigam, (2009) 226 CTR (MP) 497 examined a similar question and after referring to several decisions has held that the term educational purpose was not restricted merely to holding of teaching class or lectures but educational purpose was equally served when educational text books were published - Decided in favor of the assessee
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2012 (3) TMI 288
Application for stay - There is a demand of Rs.5.76 Crores, based on the orders of assessment of which the principal amount due on account of tax is Rs.4.53 Crores and interest in the amount of Rs.1.23 Crores - Revenue has submitted that the Petitioner should be required to pay the balance of the demand and no case for stay has been made out - Assessing Officers and the Appellate Authorities are duty bound to act in accordance with binding precedent and there is no reason or justification to act in the manner in which the applications for stay have been disposed of in this case - it is not in dispute that many of these issues would be governed by the proceedings which are pending before the CIT (Appeals) for Assessment Years 200607 and 200708 which have been heard, but where orders are awaited - Petitions are accordingly disposed of
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2012 (3) TMI 287
The assessee returned an income of approximately Rs.19 crores - original order of assessment demand of Rs.2 crores but reduced upon rectification to Rs.1.30 crores initially and thereafter, to Rs.1.18 crores. – assessee filed an appeal that additions have been made by the Assessing Officer on three counts: (i) Interest paid to HDFC Bank; (ii) The annual letting value of house property; and (iii) Sales promotion expense - Of the total demand of Rs.1.18 crores, an amount of Rs.78 lakhs has been adjusted against the refund due and payable AY 2010-11- Since the refund has already been adjusted, and the balance of the demand was Rs.40.54 lakhs stay on the recovery of balance until the disposal of the appeal before the CIT (Appeals) - we direct that the CIT (Appeals) shall expedite the disposal of the appeal and endeavour to do so within a period of three months from order date -make the rule absolute by modifying the order passed by the Commissioner of Income Tax by staying the recovery of the balance amount of Rs.40.54 lakhs pending disposal of the appeal.
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2012 (3) TMI 286
Addition u/s.40(a)(ia) - non Deduction of TDS - 'Reimbursement of manpower cost' - assessee contented that the amounts paid were reimbursement of advances against salaries and was not a sum chargeable to tax u/s.195 - According to the assessee, its agreement to recruit the employees on behalf of the assessee on the condition that the assessee would be reimbursing the payments made to them - Held that :- If the bona fide belief of the payer is that no part of the payment has any portion chargeable to tax, he will not enter into any procedure under s.195. However, if the Department is of the view that the payer ought to have deducted tax at source, it will have recourse under Section 201 of the Act - the assessee could be justified in reaching a bona fide impression that payments effected by it to CMS RDC was not sums on which tax was chargeable in India and was not at default of Chapter XVII-B and therefore, could not have been fastened with the consequences of the nature specified in Sec.40(a)(i) of the Act- appeals of the Revenue stand dismissed.
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Wealth tax
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2012 (3) TMI 292
Addition - Search operations were conducted during the relevant year but no incriminating material/ document regarding understatement sale transaction was found - Assessing Officer, estimated fair market value of the property as on 1.1.1964 by adopting the rent capitalization method as provided in Schedule III to the Wealth Tax Act, 1957 - Assessing Officer held: - “The perusal of details submitted by the assessee company, indicate that sale consideration shown by the assessee company is absurd when compared with the rentals, these properties were fetching - The claim of the assessee is primarily based on the argument that its sale considerations are supported by sale deed/ other agreements etc - Held that: Assessing Officer failed to conduct a detailed enquiry and verification, which may have justified their stand regarding understatement or non-declaration of the actual sale consideration - Once it is shown that consideration has been understated, it may be open to the Assessing Officer to quantify the same by reference to the market value arrived at by the rent capitalization method in the absence of any material to show the precise extent of understatement - Revenue appeal dismissed
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