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Newsletter: Where Service Meets Reader Approval. TMI Tax Updates - e-Newsletter August 25, 2012 Case Laws in this Newsletter: Income Tax Customs Corporate Laws Service Tax Central Excise Wealth tax Articles 1. China Acts Opportunist By: INDRANEEL SEN GUPTA Summary: China is leveraging the European recession as an investment opportunity, with Chinese banks expanding in the UK and Europe. Major banks like the Agricultural Bank of China and Bank of Communications are establishing subsidiaries in London, focusing on wholesale banking services. This expansion is driven by the weak state of European banks and aligns with China's broader economic strategies, including diversifying international investments and promoting the renminbi as a global currency. China's strategy involves integrating its financial markets with Hong Kong and Taiwan, enhancing regulatory frameworks, and developing domestic markets to sustain economic growth and transform into a global financial powerhouse. 2. NOTIFICATIONS RESCINDED RECENTLY By: DR.MARIAPPAN GOVINDARAJAN Summary: In 2012, significant changes occurred in the service tax regime in India, notably the introduction of a negative list system aimed at facilitating the transition to a Goods and Service Tax (GST). Notification No. 12/2012-ST exempted 34 services from service tax but was later replaced by Notification No. 25/2012-ST, which expanded exemptions to 39 services. Additionally, Notification No. 34/2012-ST rescinded 81 previous notifications dating from 1994 to 2012, covering a wide range of services such as insurance, transportation, construction, and various other sectors. These changes reflect a broader shift towards streamlining and updating the service tax framework. News 1. GST is More Effective and Efficient Substitute for Plethora of Indirect Taxes: FM Summary: The Union Finance Minister emphasized that the Goods and Services Tax (GST) serves as an efficient replacement for multiple indirect taxes, expressing optimism for the GST Bill's passage by the fiscal year's end. During a Consultative Committee meeting, discussions highlighted the unresolved but manageable issues surrounding GST and its Network (GSTN). The GSTN aims to provide a standardized interface and shared infrastructure for tax administration. Concerns raised included data security, state revenue losses, and decision-making processes within the GST Council. The meeting concluded with suggestions for enhancing the GST framework to benefit all stakeholders, including governments and businesses. 2. Chidambaram Appointed as Governor on the Board of Governors of African Development Bank and African Development Fund Summary: The Minister of Finance of India has been appointed as India's Governor on the Board of Governors of the African Development Bank and African Development Fund, effective from August 1, 2012, replacing the former appointee. Additionally, the Secretary of the Department of Economic Affairs has been named as India's alternate Governor on the same boards, also effective from August 1, 2012, succeeding the previous holder of the position. 3. Award of remaining Exploration Blocks under Ninth Bid Round of New Exploration Licensing Policy (NELP-IX) and cancellation of two blocks awarded earlier under NELP-IX Summary: The Cabinet Committee on Economic Affairs (CCEA) approved the cancellation of two exploration blocks awarded to a company under the Ninth Bid Round of the New Exploration Licensing Policy (NELP-IX) due to the company's refusal to sign production sharing contracts. Additionally, five blocks were awarded to other bidders. This decision aims to enhance exploration and production activities, boosting the country's energy security. The cancellation serves as a warning to non-serious bidders. Initially, 34 blocks were offered, with 74 bids received for 33 blocks. Some blocks remain under consideration due to ongoing legal proceedings. 4. National Mission on Food Processing Summary: The Cabinet Committee on Economic Affairs approved the National Mission on Food Processing (NMFP), a new Centrally Sponsored Scheme, to be implemented in collaboration with State Governments starting in 2012-13. The NMFP aims to enhance farm productivity and farmers' income by aligning state agriculture plans with the food processing sector, improving supply chains, and addressing infrastructural gaps. A National Food Processing Development Council will guide the scheme, promoting decentralization and increased state participation. The government allocated Rs. 29.81 crore for preparatory activities, with some central schemes remaining directly managed by the Government of India in 2012-13. 5. Additional financing from external funding agencies and continuance of 75:25 sharing pattern under the Rashtriya Madhyamik Shiksha Abhiyan Scheme Summary: The Cabinet Committee on Economic Affairs approved additional financing for the Rashtriya Madhyamik Shiksha Abhiyan (RMSA) scheme, securing external funds totaling approximately Rs. 3315 crore from the World Bank, DFID, and EU for 2012-2016. The scheme will continue with a 75:25 cost-sharing pattern between the central and state governments for 2012-13, excluding northeastern states and Sikkim. This funding aims to enhance secondary education access by establishing new schools and strengthening existing ones. The initiative benefits students, educators, and educational organizations, leveraging international expertise to support ongoing projects across all Indian states and union territories. 6. Proposal of M/s. Shriram Financial Ventures (Chennai) Pvt. Ltd., (i) to allot shares to M/s. Sanlam Emerging Markets (Mauritius) Limited, and (ii) M/s. Sanlam Emerging Markets (Mauritius) Limited to hold, through M/s. Shriram Financial Ventures (Chennai), a stake, not exceeding 26 per cent, in M/s. Shriram Capital Limited Summary: The Cabinet Committee on Economic Affairs approved a proposal by a financial company to allot shares to a Mauritius-based entity, allowing the latter to hold up to a 26% stake in another financial company through the former. This decision, recommended by the Foreign Investment Promotion Board, is expected to result in foreign direct investment of approximately Rs. 2000 crore in India. 7. Conversion of Optionally Convertible Debentures of Rs.923 Crore held by Government in Equity in IFCI Summary: The Union Cabinet approved converting Rs.923 crore of Optionally Convertible Debentures (OCDs) held by the Indian government in IFCI into equity, increasing the government's stake to 55.57% and, combined with banks and financial institutions, to 68.31%, thus making IFCI a government company. This move aligns with a 1992 Cabinet decision to maintain government control over IFCI. The conversion follows past financial assistance and restructuring efforts due to IFCI's financial challenges. A Committee of Secretaries recommended the conversion without requiring an open offer, seeking exemption from SEBI regulations. 8. Approval of change in the equity structure of the Delhi Mumbai Industrial Corridor Development Corporation (DMICDC) Summary: The Union Cabinet has approved a revised equity structure for the Delhi Mumbai Industrial Corridor Development Corporation (DMICDC), with the Government of India holding 49% or less, Japan Bank for International Cooperation (JBIG) holding 26%, and Indian government-owned financial institutions holding 25% or more. This change aims to strengthen the Indo-Japan strategic partnership, enhance Japanese confidence in the project, and facilitate long-term infrastructure lending at lower rates. The DMIC project, a symbol of Indo-Japan cooperation, is being developed as a global manufacturing hub along the 1483 km western Dedicated Railway Freight Corridor. 9. 10 FDI Proposals Amounting to Rs. 1259.92 Crore Approved Summary: The Government of India approved ten Foreign Direct Investment (FDI) proposals totaling approximately Rs. 1259.92 crore, following recommendations from the Foreign Investment Promotion Board. Approved proposals include equity acquisitions and investments in sectors such as commerce, economic affairs, pharmaceuticals, financial services, and information broadcasting. Notable approvals include significant investments by a Southeast Asian media company and an increase in foreign equity participation in various companies. Sixteen proposals were deferred, four were rejected, and one was deemed not requiring specific approval. Additionally, one proposal was withdrawn from the agenda. 10. Foreign and Domestic DEBTs Summary: As of March 2012, India's external debt stood at Rs. 17,67,702 crore, while the domestic debt of the Central Government was Rs. 32,02,411 crore. Over the past five years, both external and domestic debts have shown a rising trend. In March 2008, external debt was Rs. 8,97,290 crore, increasing to Rs. 17,67,702 crore by March 2012. Similarly, domestic debt rose from Rs. 17,99,651 crore in 2008 to Rs. 32,02,411 crore in 2012. These figures were provided by the Minister of State for Finance in response to a parliamentary question. 11. Tax on Film Artists Services Summary: A service tax of 12.36% has been imposed on taxable services provided by film artists in India as part of preparations for the nationwide Goods and Services Tax (GST). Effective from July 1, 2012, the tax applies to all services defined under section 65B (44) of the Finance Act, 1994, excluding those on the negative and exempt lists. Service tax, a consumption tax, is collected by service providers from receivers and paid to the government. A general exemption is available for low-value service providers with an annual aggregate value of up to ten lakh rupees. 12. Vacancies in Nationalized Banks Summary: There is no plan to reinstate the Banking Service Recruitment Board as nationalized banks individually manage recruitment based on the Institute of Banking Personnel Selection (IBPS) exam results. The staffing needs of these banks depend on factors like business volume, growth, and retirements. As of March 31, 2012, vacancies in various banks include 3,747 officer positions in UCO Bank, 2,854 in Central Bank of India, and 2,802 in Bank of India, among others. This information was provided by the Minister of State for Finance in a written response to a Rajya Sabha query. 13. Field Trial of Plastic Notes Summary: The Government of India and the Reserve Bank of India (RBI) plan to introduce Rs. 10 polymer/plastic notes on a trial basis. The trial will be conducted in five locations: Jaipur, Shimla, Bhubaneshwar, Mysore, and Cochin, chosen for their diverse geographical and climatic conditions. The expenditure for this trial will be determined according to existing guidelines. This initiative was announced by the Minister of State for Finance in a written response to a query in the Rajya Sabha. 14. 67500 Cases Pending in DRTs Summary: As of March 31, 2012, 67,524 cases were pending in 33 Debts Recovery Tribunals (DRTs) in India. Delays in case disposal are attributed to the rise in new case filings, debtor adjournments, and appeals under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The government, while not intervening in DRTs' judicial processes, has initiated measures to expedite case resolution. These include regular meetings and training for tribunal staff and a conference to enhance the tribunals' efficiency. The law mandates tribunals to aim for case resolution within 180 days. 15. Steps to Recover NPAs Summary: As of March 2012, Public Sector Banks (PSBs) in India reported Gross Non-Performing Assets (NPAs) totaling Rs. 112,489 crore, yet all PSBs remained profitable for the 2011-12 financial year. To manage and reduce NPAs, banks are required to implement recovery measures, monitored by the Reserve Bank of India (RBI) through inspections and regulatory submissions. Recovery channels include the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, Debt Recovery Tribunals, and Lok Adalats. The government has urged PSBs to enhance recovery efforts by appointing Nodal officers, implementing early warning systems, and using the Electronic Clearance System. 16. Proposal to Sell 10.82 Percent Stake in Sail Summary: The Government of India is considering selling a 10.82% stake in the Steel Authority of India Ltd. (SAIL) from its current 85.82% shareholding. This sale will be conducted through an Offer for Sale of Shares via the Stock Exchange Mechanism, adhering to SEBI Rules and Regulations. This information was disclosed by the Minister of State for Finance in a written response to a query in the Rajya Sabha. 17. Insurers Surpass Targets for Rural Areas in 2010-11 Summary: The Insurance Regulatory and Development Authority (IRDA) reported that state-owned life and non-life insurers exceeded their mandated targets for business in rural areas for the financial year 2010-11. Life insurers achieved 32.74% of total policies in rural areas, surpassing the 25% target, while non-life insurers reached 10.15% of gross direct premium income, exceeding the 7% target. These regulations, which do not apply to semi-urban areas, are part of the IRDA's obligations for insurers in rural or social sectors. Non-compliance results in regulatory action. This information was disclosed by a government official in response to a parliamentary question. 18. Measures to Check Inflation Summary: The Indian government and the Reserve Bank of India have implemented fiscal and administrative measures to curb inflation, including increasing policy rates. To address supply-side constraints, initiatives such as the National Mission for Protein Supplement and increased funding for aquaculture, poultry, piggery, and goat rearing have been launched. Storage capacity for food grains is set to expand by 5 million tonnes in 2012-13, and funding for the Green Revolution in Eastern India has been significantly increased. Despite these efforts, inflation remains high, impacting economic growth, with GDP growth slowing from 9.2% in Q4 2010-11 to 5.5% in Q4 2011-12. 19. CCI Order against Chemist and Druggist Association Summary: The Competition Commission of India (CCI) has penalized the Chemists and Druggists Association in Goa for violating the Competition Act, 2002, with a fine of Rs. 2 lakhs. The order was issued on June 11, 2012. Additionally, the CCI's Director General has been instructed to investigate five other similar associations. Reports have been submitted for four cases, but the Karnataka High Court has issued a stay in one case. This information was disclosed by the Minister of State in the Ministry of Corporate Affairs in response to a query in the Lok Sabha. 20. Institutional linkages for the gems & jewellery sector to be strengthened Measures to boost SEZ exports soon: Anand Sharma Summary: The Indian government is considering amendments to Special Economic Zone (SEZ) rules to maintain their appeal for investments, as SEZ exports have slowed. The Commerce and Industry Minister announced efforts to boost SEZ exports, including reconsidering certain taxes and improving access to affordable credit. The gems and jewellery sector, a major export contributor, is receiving attention with initiatives to enhance worker skills and encourage global partnerships. Training centers are being developed in West Bengal and Gujarat, and collaboration with the Antwerp World Diamond Centre is underway. Additionally, India is supporting diamond industry development in Africa, including establishing a diamond institute in Botswana. 21. Government Takes Several Policy Measures to Increase Availability of Institutional Credit to Farmers, Sets an Annual; Target of Rs.5,75,000 Crore for Credit to Agriculture Sector in 2012-13 Summary: The government has implemented several policy measures to increase institutional credit availability for farmers, setting a target of Rs. 5,75,000 crore for the agriculture sector in 2012-13, up from Rs. 4,75,000 crore in 2011-12. Domestic and foreign banks are mandated to allocate a portion of their credit to agriculture. The Interest Subvention Scheme provides short-term crop loans at a 7% interest rate, with additional incentives for prompt repayment. The Agricultural Debt Waiver and Debt Relief Scheme, 2008, has relieved Rs. 52,275.55 crore in farmer debt, benefiting 3.45 crore farmers, facilitating access to new loans. 22. Funds to NABARD Summary: The Government of India has approved a capital infusion of Rs 3,000 crore into the National Bank for Agriculture and Rural Development (NABARD) to enhance its borrowing capacity and support its developmental goals. In the fiscal year 2011-12, Rs 1,000 crore was released, followed by Rs 500 crore in 2012-13. Additionally, since 2006-07, the Interest Subvention Scheme has been implemented to provide short-term crop loans to farmers at a 7% interest rate. NABARD offers refinance to Cooperative and Regional Rural Banks at a rate of 4.5% to facilitate these loans. 23. Rs.52,275.55 Crore Released Under Agriculture Debt Waiver & Debt Relief Scheme to Give Benefit to 3.45 Crore Farmers Summary: The Agriculture Debt Waiver and Debt Relief Scheme, 2008, facilitated by various banks, released Rs.52,275.55 crore to benefit 3.45 crore farmers. The scheme's debt waiver ended on June 30, 2008, and the debt relief concluded on June 30, 2010. Specifically, Rs.18,305.55 crore was allocated to State Cooperative Banks, aiding 1.297 crore farmers. This information was disclosed by a government official in response to a question in the Lok Sabha. 24. Assessment of Agricultural Loan Burden Summary: The Reserve Bank of India has issued guidelines to provide relief to bank borrowers affected by natural calamities. These measures include converting outstanding crop and agriculture term loans into term loans with a repayment period of 3 to 10 years, depending on the severity of crop damage. The guidelines also allow for the treatment of rescheduled loans as current dues, prohibit the compounding of interest on these loans, and offer a moratorium period of at least one year. Additionally, relaxed security and margin norms are provided, along with fresh crop and consumption loans for affected farmers. Restructured loans due to natural calamities will maintain their asset classification. 25. Notices Issued by Enforcement Directorate to BCCI and its Officials for Contravention of FEMA Summary: The Enforcement Directorate issued Show Cause Notices to the Board of Control for Cricket in India (BCCI) and its officials for violating the Foreign Exchange Management Act, 1999 (FEMA). In 2011, 11 notices were issued involving Rs. 1317.20 crore, and in 2012, one notice involved Rs. 106 crore. Additionally, the passport of a former IPL Chairman was revoked in March 2011 under the Passport Act, 1967. This information was provided by the Minister of State for Finance in a written response to a question in the Lok Sabha. 26. Farm Credit to Uncovered Farmers Summary: The Government of India has established annual credit targets for the agriculture sector, achieving significant disbursements over the past years. In 2010-11, the target was Rs. 3,75,000 crore, with an achievement of Rs. 4,68,291.29 crore. For 2011-12, the target was Rs. 4,75,000 crore, and Rs. 5,11,029.09 crore was disbursed. In 2012-13, the target is Rs. 5,75,000 crore, with Rs. 1,35,956.49 crore achieved by June 30, 2012. The Kisan Credit Card (KCC) scheme, revised in May 2012, aims to provide timely credit to farmers, with banks instructed to issue KCCs to all eligible farmers. 27. High Level Committee on External Commercial Borrowings (HLCECB) takes Various Decisions; Permits Sidbi for Accessing ECB for on-lending to MSME Sector Subject to Certain Conditions Summary: The High Level Committee on External Commercial Borrowings (HLCECB) has permitted a financial institution to access external commercial borrowings (ECB) for lending to the MSME sector, subject to conditions set with the RBI. Eligible non-resident entities can credit enhance INR bonds, with reduced maturity from seven to three years, and FIIs can invest up to US$5 billion. ECBs are allowed for low-cost housing, with NHB and Housing Finance Companies as eligible borrowers. Refinancing of buyer's credit in infrastructure is under the automatic route with a five-year maturity. The ECB limit for infrastructure and manufacturing companies is increased to 75% of past forex earnings. 28. Delay in Banning Import of Chinese Milk Products Summary: The Indian government extended the ban on importing milk and milk products from China, including chocolates and confectionery containing milk, until June 23, 2013, or until further notice. This decision followed a recommendation from the Food Safety and Standards Authority of India, communicated on June 24, 2012, and officially notified on July 2, 2012. The information was disclosed by the Minister of State for Commerce and Industry in a written reply to the Rajya Sabha. 29. Trade Through FDI from Pakistan Summary: The Department of Industrial Policy and Promotion in India announced a policy change allowing Pakistani citizens and entities to invest in India, excluding sectors like defense, space, and atomic energy, through the government route. Concurrently, Pakistan replaced its Positive List with a Negative List, restricting only 1209 items from being imported from India. This change is anticipated to boost trade by increasing the range of exportable items from India to Pakistan, potentially enhancing exports in sectors such as agriculture, chemicals, textiles, and auto components. This update was shared by the Indian Minister of State for Commerce and Industry in a parliamentary session. 30. Breakthrough in Trade Relations with Pakistan Summary: The Commerce Ministers of India and Pakistan met in February 2012 to enhance bilateral trade relations, agreeing on a roadmap for normalizing trade. Pakistan shifted from a Positive List to a Negative List of 1209 items, allowing all other items to be exported, aiming to reduce third-country trade and move towards granting India Most Favoured Nation status by the end of 2012. Additional measures include a liberalized visa regime for businesspersons, joint efforts to explore trade in electricity and petroleum, plans for cross-border bank branches, and the opening of an Integrated Check Post at Attari to facilitate trade. 31. Additional items under Special Focus Market Schemes Summary: Under the Special Focus Market Scheme, exports to designated countries receive an additional 1% duty credit scrip, supplementing the 3% credit under the Focus Market Scheme. As of June 5, 2012, seven new markets-Belize, Chile, El Salvador, Guatemala, Honduras, Morocco, and Uruguay-have been included, raising the total to 48 markets. Export growth has been consistent since 2004-05, barring a decline in 2009-10. The latest incentives were introduced on June 5, 2012. This update was provided by the Minister of State for Commerce and Industry in a written statement to the Rajya Sabha. 32. Services Agreement with Asean Countries Summary: India has signed an Agreement on Trade in Goods under the Comprehensive Economic Cooperation Agreement (CECA) with ASEAN, which includes Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. Bilateral CECAs have also been signed with Singapore and Malaysia. India's exports to ASEAN were $25.628 billion in 2010-11 and $36.645 billion in 2011-12, while imports were $30.608 billion and $42.564 billion, respectively. Negotiations for a Trade in Services Agreement are ongoing, with thirteen meetings of the Working Group on Services conducted. This was reported by a government official in the Rajya Sabha. 33. Manufacturing Sector Performance Summary: The manufacturing sector in India experienced a significant decline in growth during the 2011-12 period, as measured by the Index of Industrial Production (IIP). Growth dropped from 7.7% in the first quarter to 0.3% in the last quarter. In response, the government implemented measures to boost the industrial climate, including the approval of the National Manufacturing Policy in October 2011. This policy aims to increase manufacturing's GDP share to 25% by 2022 and create 100 million jobs. Key initiatives include establishing National Investment and Manufacturing Zones and promoting foreign direct investment. 34. DMIC Project: Concept Note Ready for Eastern Corridor Summary: The Delhi Mumbai Industrial Corridor (DMIC) Project seeks to establish new industrial cities with a focus on manufacturing across six Indian states: Uttar Pradesh, Haryana, Rajasthan, Gujarat, Madhya Pradesh, and Maharashtra. The Perspective Plan for the DMIC region is complete, with land acquisition underway in all states except Uttar Pradesh. The financial and institutional framework was approved in September 2011. The Western Dedicated Freight Corridor is expected to be operational by March 2017. Additionally, a Concept Note for economic development along the Eastern Dedicated Freight Corridor has been prepared by the Ministry of Urban Development. 35. Notices under BIPA Summary: The Government of India has received notices from foreign investors under the Bilateral Investment Promotion and Protection Agreements (BIPAs). These investors include entities like Sistema Joint Stock Financial Corporation, Vodafone International Holdings BV, and others. The notices are being addressed according to the provisions of the BIPAs, which involve negotiations with the investors to reach amicable settlements. This information was disclosed by the Minister of State for Commerce and Industry in a written reply to the Rajya Sabha. 36. Pending List for Trademark Registration Summary: As of March 31, 2012, the Trademarks Registry in India had significant backlogs, with 2,38,944 applications pending at the examination stage, 2,74,963 at the objection stage, and 1,35,874 at the opposition stage. The trademark registration process is lengthy due to its quasi-judicial nature, compounded by a 100% increase in applications since 2001-02 and inadequate staffing. To address these issues, recruitment processes are being expedited, and measures like free search facilities, record digitization, and streamlined procedures are being implemented to enhance efficiency and transparency. This was reported by a government official in a Rajya Sabha session. Notifications Customs 1. 47/2012 - dated 21-8-2012 - Cus Regarding exemption of import duty on oil cakes thereby amending Notification 12/2012-Customs, dated 17-03-2012 Summary: The Government of India, through the Ministry of Finance, has issued Notification No. 47/2012-Customs, amending the earlier Notification No. 12/2012-Customs dated March 17, 2012. This amendment, effective from August 21, 2012, exempts certain oil cakes from import duties. The specified oil cakes include de-oiled soya extract, groundnut oil cake, sunflower oil cake, canola oil cake, and mustard oil cake, all of which will now have a nil duty rate. Additionally, a proviso has been added to apply these exemptions to goods specified under serial no. 104A starting April 1, 2013. DGFT 2. 12 (RE-2012)/2009-2014 - dated 22-8-2012 - FTP Policy for issue of import licenses of Rough Marble and Travertine Blocks for the Financial year 2012-13. Summary: The notification outlines the policy for issuing import licenses for Rough Marble and Travertine Blocks for the financial year 2012-13. It specifies eligibility criteria for applicants, including having a marble gangsaw machine installed by March 31, 2012, and a turnover of at least Rs. 5 crores from processed marble slabs/tiles over the previous five financial years. The import is subject to a quota of 6 lakh MT and a minimum import price of US$ 325 per MT. Licenses are valid until September 30, 2013, and are subject to actual user conditions and mandatory monthly reporting. Applications must be submitted by August 31, 2012. 3. 11(RE-2012) /2009-2014 - dated 22-8-2012 - FTP Amendment in para 4A.2.1 of FTP (RE-2012) / 2009-14 regarding Export of Cut & Polished Diamonds sent abroad for Certification/ Grading & re-import. Summary: The Government of India has amended paragraph 4A.2.1 of the Foreign Trade Policy (2009-2014) to include five additional laboratories authorized for the certification and grading of cut and polished diamonds of 0.25 carats and above. These laboratories are GIA Hong Kong Laboratory Ltd. in Hong Kong, Gemological Research (Thailand) Co. Ltd. in Bangkok, GIA Education and Laboratory (Pvt) Ltd. in Johannesburg, GIA Education and Laboratory in Goborone, Botswana, and Forevermark NV in Antwerp, Belgium. This amendment expands the list of authorized facilities for diamond certification and grading. FEMA 4. 232/2012-RB - dated 30-5-2012 - FEMA FEMA (Borrowing or Lending in Foreign Exchange) (Amendment) Regulations, 2012 - Amendment in Schedules I and II Summary: The Reserve Bank of India amended the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000. The amendments, effective from specified dates in 2011, involve changes to Schedules I and II. Non-Government Organizations and Micro Finance Institutions engaged in micro-finance can borrow in foreign exchange under specified terms, with a cap of USD 10 million per financial year. The maturity terms for borrowings are set at a minimum of 3 years for amounts up to USD 20 million and 5 years for amounts exceeding USD 20 million, with provisions for call/put options under certain conditions. 5. 231/2012-RB - dated 30-5-2012 - FEMA FEMA (Transfer or issue of any Foreign Security) (Second Amendment) Regulations, 2012 - Amendment in regulation 21 Summary: The Reserve Bank of India has amended the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004, through the Second Amendment Regulations, 2012. The amendment involves changes to Regulation 21, specifically increasing the threshold from USD 500 million to USD 750 million in sub-regulation (2) clauses (i) and (ii) and Schedule I, clause (ii). These changes are retroactively effective from September 23, 2011. The amendment is issued under the Foreign Exchange Management Act, 1999, and is officially documented as Notification No. FEMA 231/2012-RB, dated May 30, 2012. Circulars / Instructions / Orders VAT - Delhi 1. 14 - dated 22-8-2012 Online submission of Tax Rate Wise Stock held on 31st day of March Summary: The Department of Trade and Taxes of the Government of the National Capital Territory of Delhi mandates all registered dealers to submit online the Tax Rate Wise details of stock held on March 31st each year using form Stock-1. This submission must be completed by June 30th annually, with the 2012 stock details due by October 31, 2012. The online submission is accessible via the department's website. Failure to comply will result in the stock being recorded as NIL and may lead to penalties under the Delhi Value Added Tax Act, 2004. Dealers are urged to adhere to these requirements to avoid penalties. FEMA 2. 17 - dated 23-8-2012 Anti-Money Laundering (AML) / Combating the Financing of Terrorism (CFT) Standards - Money changing activities Summary: The circular addresses Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) standards concerning money-changing activities. It references a previous circular and a statement by the Financial Action Task Force (FATF) regarding AML/CFT deficiencies in certain jurisdictions. Authorised persons are advised to consider this information but are not prohibited from legitimate transactions with these regions. The guidelines apply to all agents/franchisees of authorised persons, with franchisers responsible for compliance. The circular's directives are issued under the Foreign Exchange Management Act and the Prevention of Money Laundering Act, emphasizing adherence to these legal frameworks. 3. 18 - dated 23-8-2012 Anti-Money Laundering (AML)/Combating the Financing of Terrorism (CFT) Standards - Cross Border Inward Remittance under Money Transfer Service Scheme (MTSS) Summary: The circular addresses Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) standards concerning cross-border inward remittance under the Money Transfer Service Scheme (MTSS). It references a Financial Action Task Force (FATF) statement from June 22, 2012, advising Indian agents and their sub-agents to adhere to guidelines for transactions with certain jurisdictions. These guidelines, issued under the Foreign Exchange Management Act and the Prevention of Money Laundering Act, are mandatory for compliance. Indian agents are responsible for ensuring their sub-agents follow these standards and must acknowledge receipt of the circular. 4. 16 - dated 22-8-2012 Foreign Direct Investment by citizen / entity incorporated in Pakistan Summary: The circular addresses the Foreign Direct Investment (FDI) regulations concerning citizens or entities from Pakistan. Initially, such individuals or entities were prohibited from purchasing shares or convertible debentures of Indian companies under the FDI scheme. However, the circular now allows them to do so with prior approval from the Foreign Investment Promotion Board of India, provided the Indian company is not involved in defense, space, atomic energy, or other prohibited sectors. Authorized Dealer banks are instructed to inform their clients about these changes. The circular is issued under the Foreign Exchange Management Act, 1999. 5. 15 - dated 21-8-2012 Overseas Direct Investments – Rationalisation of Form ODI Summary: The circular addresses the rationalization of Form ODI, requiring Indian parties to submit an Annual Performance Report (APR) for their overseas investments. Amendments to the Foreign Exchange Management Regulations necessitate updates to Form ODI, specifically Sections 'E' and 'F', to ensure compliance with Regulation 15(iii). The circular mandates that Authorized Dealer banks inform their clients about these changes. It emphasizes the need for Indian parties to adhere to investment regulations, including submitting the APR for all Joint Ventures and Wholly Owned Subsidiaries abroad, and complying with specified financial and regulatory standards. Companies Law 6. 26/2012 - dated 23-8-2012 Constitution of a Committee for Reforming the Regulatory Environment for doing Business in India. Summary: The Ministry of Corporate Affairs in India has established a committee to improve the regulatory environment for business, following a low ranking in the World Bank's "Doing Business 2012" report. The committee, chaired by a prominent figure and comprising industry leaders and government representatives, is tasked with conducting a comprehensive study on regulatory reforms. It aims to enhance India's business climate and improve its global ranking. The committee will consult stakeholders, gather public input, and suggest policy changes. The Indian Institute of Corporate Affairs will support the committee, which must submit its report within six months. Highlights / Catch Notes Income Tax Merger with parent company not exempt from capital gains tax under Income Tax Act, section 47(via) interpretation. Case-Laws - AAR : Merger with the parent company - no capital gain chargeable to tax under the Act in terms of section 45 read with section 48 can be said to arise. - it cannot be postulated that section 47(via) takes the transaction out of the clutches of section 45 - The merger involved in this case, is not exempt from capital gains tax under section 47(via). - AAR Visit to Get Source India-Mauritius DTAC exempts capital gains from share buybacks from Indian taxation under Article 13, Paragraph 4. Case-Laws - AAR : The capital gains arising out of the proposed buyback of shares is not taxable in India in view of paragraph 4 of Article 13 of the DTAC between India and Mauritius. - AAR Visit to Get Source India-Germany DTAA: Key Distinctions Between "Copyright Right" and "Copyrighted Article" Affecting Taxation of Royalties and License Charges. Case-Laws - AT : India - Germany DTAA - Receipt of license charges / royalty - Distinction has to be made between the acquisition of a 'copyright right" and a "copyrighted article". - AT Visit to Get Source Business losses cannot offset unexplained cash credits taxed u/s 68, which are treated as taxable income. Case-Laws - AT : Business loss assessed by the AO cannot be set off against the amount taxed u/s 68 as unexplained cash credits taxed under section 68 cannot be pegged to any head of income- - AT Visit to Get Source High Court Rules Mistaken Advance Payment Not to Be Added to Assessee's Income for Tax Purposes. Case-Laws - HC : Income - receipt of advance payment - due to inadvertence the amount was credited to the accounts of the assessee in the balance-sheet - no addition - HC Visit to Get Source Assessing Officer's 3-Year Composite Notice u/s 148 Faces Legal Scrutiny for Not Meeting Statutory Requirements. Case-Laws - HC : Reassessment proceedings – Notice for 3 years - AO has not issued separate notice under section 148 and instead had issued a composite notice which does not meet the requirement of section 148 of the Act - HC Visit to Get Source High Court Rules Computer Data Processing and Stationery Sales Qualify as "Manufacture" u/s 80-I for Tax Benefits. Case-Laws - HC : Computer data processing services and sale of computer stationery held as industrial undertaking engaged in the business of "manufacture" within the meaning of section 80-I - HC Visit to Get Source Revenue Department Missed Chance to Contest High Court Judgment; Section 263 of Income Tax Act Not Applicable. Case-Laws - HC : If the judgment passed by High Court is erroneous, the revenue should have challenged the said order. - At any rate that cannot be a ground for invoking Section 263 of the Act - HC Visit to Get Source Assessment Additions Based on Under-Invoicing Claims Unjustifiable Without More Than Just a Show Cause Notice by Commissioner. Case-Laws - AT : Alleged Under invoicing and suppression of additional turnover - merely on the basis of SCN issued by the Commsisioner, of Central Excise, additions made by the AO cannot be sustained - AT Visit to Get Source Dispute Over TDS Deduction on Wheeling and Transmission Charges: Section 194J vs. Section 194C Interpretation. Case-Laws - AT : Dis-allowance u/s 40(a)(ia) - non-deduction of TDS from wheeling and transmission charges - applicability of Section 194J or 194C - No TDS - AT Visit to Get Source Section 80-IA Deduction: Clarification on Loss Carry Forward Limits to Initial Assessment Year Onward Only. Case-Laws - AT : Denial of deduction u/s 80-IA - When the assessee exercises the option, only the losses of the years beginning from the initial A.Y. are to be brought forward and not the losses of the earlier years which have been already set off against the income of the assesseec - AT Visit to Get Source Joint Venture's Books Rejected, Profit Estimated at 10% of Gross Receipts Due to Best Judgment Assessment. Case-Laws - AT : Best judgement assessment - rejection of books of account - joint venture is making profit without executing any work. - Estimation of profit at 10% of the gross receipts directed. - AT Visit to Get Source Annual Value of House Property Income Uses Municipal Rateable Value per Section 23(a) of the Income Tax Act. Case-Laws - AT : Income from house property - determination of annual value - the rateable value under the Municipal law has to be adopted as annual value u/s. 23(a) - Held - AT Visit to Get Source High Court confirms companies can deduct anticipated leave salary expenses, aiding financial planning and tax compliance. Case-Laws - HC : Provision made for leave salary allowed as deduction - HC Visit to Get Source Capital gains deductions denied for REC bond investments u/s 54EC; maturity proceeds don't determine ownership. Case-Laws - AT : Capital gains - Denial of Deduction u/s. 54EC of the Act – investment in REC bonds - payment of the maturity proceeds to any one of the bond holders is not a material factor for deciding the ownership of the bonds - AT Visit to Get Source Penalty for Non-Deduction of Tax Overturned Due to Genuine Belief in Tax Obligation, Says Appellate Tribunal. Case-Laws - AT : Penalty for non deduction of tax at source - bona fide belief proved - penalty set aside - AT Visit to Get Source Commission Payment Discharges Obligation Post-Income Receipt, Not by Overriding Title, Per Franchisee Receipt. Case-Laws - AT : TDS u/s 194H - The payment of commission though mentioned in receipt issued by the franchisee/commission agent does not amount to discharge an obligation by an overriding title rather the said payment amounts to discharge an obligation after such income reaches to the assessee. - AT Visit to Get Source Customs Import Duty Exemption on Oil Cakes Announced to Support Agriculture and Livestock Sectors with Reduced Costs. Notifications : Regarding exemption of import duty on oil cakes thereby amending Notification 12/2012-Customs, dated 17-03-2012 - Notification Visit to Get Source Gum Arabic Waste Exempt from Countervailing Duty per Board Clarification on June 28, 2007. Case-Laws - AT : Levy of CVD on Gum Arabic waste imported – the gum arabic waste/reject is only a natural gum and as per the Board s clarification dated 28/06/2007 CVD is not leviable on gum arabic in raw form. - AT Visit to Get Source DGFT Import License Policy for Rough Marble & Travertine: Eligibility, Application Process, and Allocation Limits for 2012-13. Notifications : Policy for issue of import licenses of Rough Marble and Travertine Blocks for the Financial year 2012-13. - Notification Visit to Get Source Foreign Trade Policy Update: Streamlining Export and Re-import of Certified Cut and Polished Diamonds Under Paragraph 4A.2.1. Notifications : Amendment in para 4A.2.1 of FTP (RE-2012) / 2009-14 regarding Export of Cut & Polished Diamonds sent abroad for Certification/ Grading & re-import. - Notification Visit to Get Source FEMA New AML/CFT Standards for Money-Changing Activities under FEMA: Compliance Updates for Financial and Tax Stakeholders. Circulars : Anti-Money Laundering (AML) / Combating the Financing of Terrorism (CFT) Standards - Money changing activities - Circular Visit to Get Source New AML/CFT Standards for Cross-Border Remittances: Financial Institutions Must Monitor and Report Suspicious Transactions Under MTSS. Circulars : Anti-Money Laundering (AML)/Combating the Financing of Terrorism (CFT) Standards - Cross Border Inward Remittance under Money Transfer Service Scheme (MTSS) - Circular Visit to Get Source 2012 Amendment to FEMA Regulations Updates Schedules I and II for Better Compliance with Economic Policies. Notifications : FEMA (Borrowing or Lending in Foreign Exchange) (Amendment) Regulations, 2012 - Amendment in Schedules I and II - Notification Visit to Get Source 2012 Amendment to FEMA Regulations Alters Foreign Security Transfer Procedures Under Regulation 21. Notifications : FEMA (Transfer or issue of any Foreign Security) (Second Amendment) Regulations, 2012 - Amendment in regulation 21 - Notification Visit to Get Source FEMA 2012 Amendment Updates Schedule II for Foreign Exchange Derivative Contracts, Aims to Enhance Compliance and Streamline Processes. Notifications : FEMA (Foreign Exchange Derivative Contracts) (Amendment) Regulations, 2012 - Amendment in Schedule II - Notification Visit to Get Source FEMA 2012 Amendment Alters Regulations 2 and 22 on Foreign Security Transfers, Affecting Tax and Compliance for Entities. Notifications : FEMA (Transfer or Issue of Any Foreign Security) (Amendment) Regulations, 2012 - Amendment in regulations 2 and 22 - Notification Visit to Get Source FEMA 2012 Amendment Updates Regulations on Securities Issuance by Non-Residents, Adds Regulation 13 for Compliance Clarity. Notifications : FEMA (Transfer or issue of security by a person resident outside India) (Second Amendment) Regulations, 2012 - Amendment in regulations 2 & 5 and insertion of regulation 13 - Notification Visit to Get Source New Guidelines for Pakistani Investors on Foreign Direct Investment Under FEMA: Compliance, Approvals, and Transparency Emphasized. Circulars : Foreign Direct Investment by citizen / entity incorporated in Pakistan - Circular Visit to Get Source FEMA Circular Updates Form ODI to Simplify Overseas Direct Investments, Enhance Transparency and Compliance for International Entities. Circulars : Overseas Direct Investments – Rationalisation of Form ODI - Circular Visit to Get Source Corporate Law Tender Bidder Net Worth: Exclude Contingent Liabilities, Focus on Actual Financial Position for Accurate Evaluation. Case-Laws - HC : How to calculate / determine 'Net Worth' of the bidder for the purpose of tender - Contingent Liability on Revenue Account - HC Visit to Get Source Wealth-tax Residential House Deemed Exempt Under Wealth Tax Despite Owner's Long Absence, Meeting Rule 3 Proviso Conditions. Case-Laws - AT : Valuation - exempted asset under wealth tax - residential house - even though the assessee did not stay in the house so long, this house is exclusively for residential purpose, the condition as enumerated in the third proviso to Rule 3 are satisfied - AT Visit to Get Source Service Tax Service Tax Implications on Exported Services: Key Case Laws and Recent Updates on Taxation of Overseas Services. Case-Laws - AT : Export of services - various issues - provided outside India - Delivered Outside India - Services rendered in India - Used in India etc. - AT Visit to Get Source Service Tax Waiver Approved for Exported Customized Software; Recognized as Tax-Exempt Export Activity Under Revenue Neutrality Principles. Case-Laws - AT : Demand of service tax - development of customized software which they are exporting - it is a case of revenue neutrality – waiver of pre-deposit allowed - AT Visit to Get Source Service Tax Demand Confirmed for Money Transfers; Delivery Complete Only Upon Recipient's Receipt in India. Case-Laws - AT : Demand of Service Tax was confirmed on account of money transfer services - delivery in the instant case, is complete only when it is received by the recipient in India. - AT Visit to Get Source Service Tax Non-Payment Penalty Waived After Prompt Payment Before Show Cause Notice Issued. Case-Laws - AT : Penalty - non-payment of service tax – Appellants paid the Service Tax promptly as soon as it was pointed out before issue of show cause notice and taking registration also - penalty waived - AT Visit to Get Source SIM Card Sale Value Excluded from Service Tax; No Mala Fide Intent, Extended Limitation Period Not Applicable. Case-Laws - AT : Non-incaution of value of the sale of SIM card in gross taxable value – no mala fide can be attributable to the appellant so as to invoke the extended period of limitation - AT Visit to Get Source Central Excise Cenvat Credit Approved for Cab Services Used to Transport Employees to Factory Premises Under Input Services Rules. Case-Laws - AT : Input services - Rent a cab services - for transportation of their employees from their residence to the factory premises - Cenvat Credit allowed - AT Visit to Get Source CENVAT Credit Eligibility Extended to Cable Distribution Boards and Accessories for Poly Machines, Including MS Channels and Angles. Case-Laws - AT : Cable distribution boards are accessories for poly machines and that the MS channels and angles used are accessories to the said cable boards - eligible for CENVAT credit - AT Visit to Get Source EOU misses 90-day deadline for re-warehousing certificate, duty demand confirmed but penalty dismissed. Case-Laws - AT : Failure to furnish the re-warehousing certificate within stipulated period of 90 days - 100% EOU - demand of duty confirmed - penalty set aside - AT Visit to Get Source Appellant's Non-Compliance with Central Excise Rules: Failed to Opt for SSI Exemption at Financial Year Start. Case-Laws - AT : SSI Exemption - The appellant did not opt for availing the benefit of Notification No. 8/2003-CE dated 01.3.2003 at the beginning of the financial year thus option for the availment is not in accordance with the Central Excise Rules - AT Visit to Get Source VAT New Circular Requires Online Submission of Stock Details by Tax Rate for VAT and Sales Tax Compliance. Circulars : Online submission of Tax Rate Wise Stock held on 31st day of March - Circular Visit to Get Source Case Laws: Income Tax 2012 (8) TMI 623 Merger with the parent company - Article 8 of the Swiss Merger Act - the applicant had set up a wholly owned subsidiary in India of Switzerland company - Held that:- As the merger and consequent transfer of all assets and liabilities did not generate any gain & on a merger, the transferor is effaced. The transaction undertaken is apparently one sanctioned by Swiss law. The gain if any in this case is not determinable within the scope of section 45 and section 48 of the Act as postulated in the Ruling in Dana Corporation (2009 (11) TMI 32 - AUTHORITY FOR ADVANCE RULINGS ) - no capital gain chargeable to tax under the Act in terms of section 45 read with section 48 can be said to arise. As condition no. (iii), to satisfy that definition what has taken place is amalgamation as defined in section 2(1B), is not satisfied as the shareholders of the applicant merging with ‘company C’ do not or cannot become shareholders of company ‘C’ as company ‘C’ is the only shareholder of the applicant,relaxation of section 47 (via) will be granted but that may be in respect of the shareholders proportion, reduced from 75% to 25%, but the condition itself is not dispensed with. Therefore, in this case, it cannot be postulated that section 47(via) takes the transaction out of the clutches of section 45 - The merger involved in this case, is not exempt from capital gains tax under section 47(via). No obligation on ‘Company C’, parent company to withhold taxes under section 195. 2012 (8) TMI 622 India Mauritius DTAC - buy back of shares from Indian subsidiary/applicant by AWIL United Kingdom - taxability - Held that:- No adequate material has been disclosed to justify a finding that the applicant or its principal has resorted to the devising of a scheme for avoidance of tax. It may be true that the applicant was incorporated in Mauritius and the investment made through it for acquiring shares of the Indian company to take advantage of the Indian Mauritius DTAC but that by itself is no ground to discard the claim of the applicant for benefit under the India Mauritius DTAC - . Once it is held that the applicant is entitled to invoke the India Mauritius DTAC, then it is clear that Article 13 of the said DTAC is attracted - the capital gains arising out of the proposed buyback of shares is not taxable in India in view of paragraph 4 of Article 13 of the DTAC between India and Mauritius. Applicability of Section 47 - Held that:- Section 47 (iv) has to be read as conferring benefit in three situations, one, when the parent company holds the whole of the share capital of the subsidiary, two, when the nominees of the principal hold the whole of the share capital of the subsidiary and three, when the principal and the nominee together hold the whole of the share capital of the subsidiary - There appears to be no justification in reading “or” as “and” to hold that when a principal and its nominee hold the whole of the share capital, that case will also come within the ambit of the provision thus the proposed transaction is not exempt by virtue of section 47 (iv) Whether sections 92 to 92F will apply to the transaction ? - Held that:- As the present is an international transaction between related parties, and income arises out of it. Hence, sections 92 to 92F of the Act are attracted. 2012 (8) TMI 621 Reduction of Arm's Length Price by TPO - CIT(A) allowed the appeal of assessee - ITAT set aside the order of the CIT (A) and remanded the matter to the AO for fresh adjudication - Held that:- The Tribunal does not state that the material, including the comparables, furnished by the appellant was inadequate & the department/respondent also do not contend that the comparables were inadequate. They have analyzed the same in a particular manner whereas the CIT(A) has analyzed the same in a different manner. Although the order very fairly permits the appellant an opportunity of filing fresh comparables the appellant is willing to proceed before the Tribunal on the basis of the existing material including the comparables already furnished no purpose would be served by remanding the matter to the AO or for that matter, even before the CIT(A) for a fresh decision on the existing material - as the Tribunal has not held that it is not possible to arrive at the ALP on the basis of the existing material it must therefore now decide the matter - in favour of assessee. 2012 (8) TMI 620 Receipt of Gift as remission of liability and hence taxable u/s. 41(1) - Held that:- The gift is given by a person to another person who is personally related to him, the remission of trading liability takes place in business relationships taking place only due to adverse business situation faced by a business concern. In the instant case, nothing was brought on record by the department to show that the assessee's business was in critical condition, which would warrant remission of liability for its survival - assessee has declared an income of Rs. 16,13,228/- during the year under consideration, which fact shows that the business of the assessee was in healthy condition - in favour of assessee. 2012 (8) TMI 619 Denial of deduction u/s 80-IB(10) - the first plan was approved on 23.6.2003 and the project has not been completed before 31.3.2008 as per sub-clause (i) section 80-IB(10) - Held that:- The assessee firm acquired further land of 20 R on the same date and revised the building lay-out, which were originally prepared by the erstwhile holder of rights and the plan so revised (inclusive of the additional land of 20R) got sanctioned by the PCMC on 31.7.2004 only. It is only after that date, the assessee thus commenced the development and construction of the housing project in question. Quite clearly, the project in question is quite distinct and separate from the project reflected by the PCMC sanction dated 23.6.2003, in view of the above features AO has been unduly influenced by the remark ‘revised sanction’ contained in 11 PCMC approval dated 31.7.2004. In fact, the Explanation to section 80- IB(10)(a) pressed into service by the Revenue refers to the approval granted to the same housing project more than once and the said Explanation is not relevant in a case where the approval is granted to different housing projects. As project in question reflected by the sanction of PCMC dated 31.7.2004 is different than the project intended under PCMC approval dated 23.6.2003, the Explanation to section 80-IB(10) cannot be invoked so as to reckon the period of completion of construction as contained in clause (i) or (ii) clause (a) to section 80-IB(10) and the appellant is justified in asserting that it commenced development and construction of housing project on 31.7.2004 and not on 23.6.2003 and accordingly, the last date for completion of construction has to be calculated as per sub-clause (ii) of clause (a) to section 80-IB(10) in terms of which the assessee is required to complete the construction within four years from the end of the financial year in which the project was approved by PCMC, i.e. upto 31.3.2009 - in favour of assessee. 2012 (8) TMI 618 India - Germany DTAA - Receipt of license charges from Indian Joint venture entities - right to use Opus software was treated as Royalty income by Revenue - Held that:- In order to qualify as royalty payment, within the meaning of Section 9(1) (vi) and particularly clause (v) of Explanation-II thereto, it is necessary to establish that there is transfer of all or any rights (including the granting of any license) in respect of copy right of a literary, aliistic or scientific work. Section 2 (0) of the Copyright Act makes it clear that a computer programme is to be regarded as a 'literary work' - Thus, in order to treat the consideration paid by the cellular operator as royalty, it is to be established that the cellular operator, by making such payment, obtains all or any of the copyright rights of such literary work. In the presence case, this has not been established. It is not even the case of the Revenue that any right contemplated under Section 14 of the Copyright Act,1957 stood vested in this cellular operator as a consequence of Article 20 of the Supply contract. Distinction has to be made between the acquisition of a 'copyright right" and a "copyrighted article". Even assuming the payment made by the cellular operator is regarded as a payment by way of royalty as defined in Explanation 2 below Section 9(1) (vi), nevertheless, it can never be regarded as royalty within the meaning of the said term in article 13 para 3 of the DTAA - the consideration received by the assessee in that case allowing the use of the software was not considered as a royalty and instead, it was held as business receipts in the hands of the assessee - in favour of assessee. 2012 (8) TMI 617 Penalty under section 158BFA(2) of the Act for concealing the income – Held that:- alleged items was examined, thoroughly and in detail, by the Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal and by a reasoned order, both came to a conclusion that additions are based on estimation only – A fact or allegation based on estimation, cannot be said to be correct only, it can be incorrect also - penalty was wrongly imposed by the Assessing Officer – addition deleted 2012 (8) TMI 616 Unexplained Cash credit – Held that:- Amounts are taxed under the provisions of Chapter VI for the reason that their nature and source are not known - what is taxed under the specific provisions of Chapter VI cannot be pegged to any of the sources/heads of income as specified in Chapter IV - unexplained cash credits have to be brought to tax under section 68 and not under section 56 Set off of loss from business against the income being unexplained cash credits u/s 68 – Held that:- Income assessable u/s 68 cannot be assessed under any particular head of income including income from other sources u/s 56 - business loss assessed by the AO cannot be set off against the amount taxed u/s 68 as unexplained cash credits taxed under section 68 cannot be pegged to any head of income - appeal filed by the department is allowed. 2012 (8) TMI 615 Income - advance payment remitted by M/s. India Gems and Beads, USA, for supply of goods, but due to inadvertence the amount was credited to the accounts of the assessee in the balance-sheet – Held that:- Nature of any payment received cannot be decided with the accounting treatment given - even if due to mistake or mis understanding if the accountant has credited the said money into the capital account of the appellant it cannot become the part of capital and then obviously it shall be in the nature of advance payment which certainly cannot be part of revenue receipts because looking to the nature of business the revenue receipt shall be the export proceeds only and not the advance amount received - addition made by the Assessing Officer was not in accordance with the accounting principles 2012 (8) TMI 614 Reopening the assessment - assessment is sought to be opened beyond a period of four years of the end of the relevant assessment year – Held that:- Assessing Officer did not hear the objections of the assessee nor did he pass a separate order on those objections - Assessing Officer has acted arbitrarily and in a manner clearly contrary to law in passing an order without disposing of the objections of the assessee - order of reassessment quashed and set aside 2012 (8) TMI 613 Reassessment proceedings – Held that:- Each assessment year is taken to be an independent unit of assessment and the provisions of the Act applies separately, even where there has been escapement of income, the Assessing Officer is obliged to issue separate notice for each assessment year - Assessing Officer in the present case admittedly has not issued separate notice under section 148 of the Act and instead had issued a composite notice which does not meet the requirement of section 148 of the Act - entire reassessment proceedings are wholly without jurisdiction 2012 (8) TMI 612 Reopening the assessment - assessment is sought to be opened beyond a period of four years of the end of the relevant assessment year – Held that:- Assessing Officer did not hear the objections of the assessee nor did he pass a separate order on those objections - Assessing Officer has acted arbitrarily and in a manner clearly contrary to law in passing an order without disposing of the objections of the assessee - order of reassessment quashed and set aside 2012 (8) TMI 611 Charitable purpose within the meaning of section 2(15) of the Income-tax Act – Held that:- Assessee is providing sports facilities as a part of its activities consisting of badminton, table tennis, billiards, cricket and skating among others - assessee provides service to its members does not detract from the position that it advances a general public utility. The advancement of any object of benefit to the public or a section of the public as distinguished from a benefit to an individual or a group of individuals would be a charitable purpose - Assessing Officer did not determine whether the requirements of section 11 were fulfilled - matter remanded back to the Assessing Officer 2012 (8) TMI 610 Disallowance of loss - Tribunal allowed the appeal and granted the benefit to the assessee – Held that:- Once the Tribunal accepted the explanation of assessee and accordingly, deleted the additions in question made by the Assessing Officer and the Commissioner of Income-tax (Appeals), then it would not involve any substantial issue of law as such - court in its appellate jurisdiction under section 260A ibid, would not again de novo hold yet another factual inquiry with a view to find out as to whether the explanation offered by assessee and which found acceptance to the Tribunal is good or bad, or whether it was rightly accepted, or not – appeal dismissed 2012 (8) TMI 609 Deduction under section 80-I of the Act - computer data processing services and sale of computer stationery – Held that:- Activity undertaken by the assessee can be termed as industrial undertaking engaged in the business of "manufacture" within the meaning of section 80-I of the Act 2012 (8) TMI 608 Power under Section 263 of the Act - assessee has income from capital gains and has claimed exemption under Section 54F of the IT Act for the investment made in a new asset - Assessing Officer accepted the return filed by the assessee - revisional Authority issued a notice under Section 263 of the Act and after hearing the assessee passed an order taking away the benefit on the ground that investment made beyond the time period – Held that:- Tribunal accepted that Investment made by the assessee being within the time specified under sub-section (4) of Section 139 of the I.T.Act, the assessee is eligible for exemption under Section 54F of the I.T.Act - If the judgment passed by this Court is erroneous, the revenue should have challenged the said order. At any rate that cannot be a ground for invoking Section 263 of the Act 2012 (8) TMI 594 Interest expenditure on borrowed funds - assessee engaged in the business of construction and development following “completed contract method” - Revenue contended that interest identifiable with the project should be allowed only in the year when the project is completed and the income from that project is offered for taxation - Held that:- Since the assessee follows project completion method and recognises revenue on completion of contract method and all costs relatable to individual project is shown as work in progress, therefore, interest attributable to the project should be allowed only in that year when the project is completed and the income from that project is offered for taxation. In present case, since only 1 project is completed, matter is restored to the file of the AO to determine and allow the proportionate interest attributable to the said project completed. Dis-allowance of development charges and extra payments - Revenue contended that same will be allowable only against the particular project in respect of which the same has been incurred and not as overhead expenses - AY 08-09 - Held that:- It is undisputed that plot in question for which the expenditure has been incurred was sold during AY 2006- 07 and no provision what so ever has been provided for future obligation on account of sale of the said property. Transaction has been completed and profit has already been booked during AY 2006-07. Hence, in absence of any legal or contractual obligation to incur any further expenditure the said expenses cannot be allowed as a revenue expenditure during the impugned assessment year. Dis-allowance u/s 40(a)(ia) on account of non-deduction of TDS from Audit fees - Held that:- Though assessee contended that TDS on audit fees was made on the basis of the bills issued by the Auditors subsequently, however, no proof for this has been produced by the assessee either before the AO or before the CIT(A) and even before us. Hence, dis-allowance upheld. 2012 (8) TMI 593 Alleged Under invoicing and suppression of additional turnover - assessee contended that Revenue assumed under invoicing on the basis of SCN issued by the Commissioner of Customs & Central Excise and order passed by Settlement Commission for Customs and Central Excise - AY 02-03, 03-04, 04-05 - Held that:- There is no case of additional turnover warranting any addition to the turnover disclosed. As such, the allegation of under-invoicing is also not fully supported by the orders of the Excise authorities. Prima facie, we are not agreeing with the CIT(A)‘s decision in relying on the order of the Settlement Commission, as merely on the basis of SCN issued by the Commsisioner, of Central Excise, additions made by the AO cannot be sustained. There is requirement of going into factual calculations. Further, proceedings under Central Excise laws do not have a direct bearing on the proceedings under the Income-tax Act, inasmuch as the proceedings under the Excise laws determine the correct duty leviable to goods of the traded, whereas the objective of the proceedings under the Income-tax Act is to arrive at the correct income of the assessee. Therefore, matter restored to the file of the AO, for fresh examination Estimation of G.P. without rejection of books of accounts - alleged low G.P. - AY 05-06 - Held that:- It is not permissible to resort to estimation of the income of the assessee in terms of S.145(3), without rejecting the books of account maintained, a decision that follows the discovery of incompleteness, inaccuracy, etc. in the said books. Further, AO has not pointed out any defects in the books. Also, material seized at the time of search in the case of the assessee, has no bearing or relevance to the determination of the income of the assessee for the year under appeal. There is no scope for estimated additions in matters of search assessment s made u/s 153A of the Act. Addition made is deleted - Decided in favor of assessee. 2012 (8) TMI 592 Assessment framed u/s 153A - search or requisition - addition u/s 68 of long term capital gain on sale of shares on ground of them being sham transactions - Held that:- After perusing the orders of Lucknow bench in the cases of Members of Arora group, we have held that order of the FAA in deleting the addition made u/s. 68 needs no interference. Since orders passed by the AO and FAA for the AYs under consideration are same as in the case of Smt. Pooja Arora and Sh. Praveen Kumar (Individual). Therefore, following the said orders we uphold the order of the FAA. Same is held in respect of addition made on ground of low withdrawals for house-hold expenses and gift received by Assessee HUF since additions made on aforesaid ground has been restricted or deleted by Lucknow bench while assessment of group - Decided against Revenue 2012 (8) TMI 591 Dis-allowance u/s 40(a)(ia) - non-deduction of TDS from wheeling and transmission charges - applicability of Section 194J or 194C - Held that:- Applicability of Section 194J and also Section 194C was examined in the case of Jaipur Vidyut Vitaran Nigam Ltd (2009 (4) TMI 489 - ITAT JAIPUR-A) wherein it was held that such payments by the assessee are not liable for deduction of tax either u/s 194J or 194C. It is clear that all the parties involved with generation, transmission and distribution of electricity are to comply with the direction of State Load Dispatch Centre and the Regulatory Commission for achieving the economy and efficiency in the operation of power system and therefore question of any person rendering service to another does not arise. Since there are no major difference between the terms of the agreement and facts considered in that case and the terms of contract in the present case and there being no contrary decision brought on record, contentions of the department that these charges should be held liable for deduction of tax under either of the sections 194C/194J are rejected - Decided in favor of assessee Depreciation - reduction - receipt of contribution/grant subsidies towards cost of capital asset - Revenue contended that contribution should be reduced from the cost of the assets for the purpose of computing allowable depreciation in accordance with the provisions of Explanation 10 to sec. 43(1) - Held that:- Applying the provisions of Explanation 10 to Section 43(1), we decline to interfere in the dis-allowance sustained by the CIT(A) - Decided against assessee. Alleged Understatement of revenue - income offered on estimated basis pertaining to the remaining days of March for which the bills were issued in April - Held that:- CIT(A) rightly observed that there was no case that the revenue pertaining to the electricity supplied in March 2007, was not accounted for by the appellant in the year under consideration or in subsequent year. In absence of the issue of bills, the appellant offered the revenue on estimate basis in accounts for the electricity supplied in March 2007. Also, this practice was being followed by the appellant regularly and prior period income / expenses were being accounted for regularly. Such estimation was based on scientific basis i.e. based on actual bill/ consumption of power by the consumer in the past. Appellant has also explained that as per binding nature of accounting policies and principals under ESSAR 1985, it was mandatory to recognize revenue only when the right to collect the revenue arose. Thus, the estimation of revenue was not arbitrary - Decided in favor of assessee assessee remained liable to refund the security deposit of Rs.50.60 lakhs to its customers and hence the AO was not justified in considering the unpaid security deposit of Rs.50.60 lakhs the 2012 (8) TMI 590 Transfer pricing - adjustment to international transaction in the nature of marketing support services, consultancy services and low end services to group companies - assessee contesting adjustment on various grounds - assessee contended exclusion of companies who are earning extraordinary profits - objection to arbitrary rejection of comparable - objection to inclusion of certain companies viz CMC Ltd. for having 58.82% related party transactions, ICC International Agriculture Ltd. & TSR Darashaw for having significantly higher operating margin than the average margin - Held that:- It is observed that specific issues raised by the assessee before DRP have not been addressed and decided by way of a speaking order. It can be seen from the list of comparables selected by TPO that none of the other parties except ICC, TSR and CMC Ltd. have margin of more than 26.67%. If out of 13 comparables except three comparables do not have margin of the magnitude which ICC & TSR have then there is a merit in the contention of the assessee that these comparables should not be taken as comparable on account of their having super normal profits. Nothing contrary to this has been demonstrated by Revenue Further, contention of the assessee that the loss making companies which have been excluded being not persistent loss making companies should be excluded is also required to be examined in detail. Hence, matter should be restored back to the file of DRP with a direction to pass a speaking order. It is also held that appropriate relief should be given to assessee for safe harbour of 5% as per laws. Dis-allowance of marketing expenses incurred in foreign currency - business expediency - Held that:- It is observed that assessee has furnished chart to show that all these expenses have been recovered as cost has also been able to show that most part of the cost is incurred on the media covering Indian territory. Since DRP has passed non-speaking order hence matter restored back to the file of DRP with a direction to bring all these facts on record and re-decide this issue. Dis-allowance of travelling expenses incurred in respect of travel to countries like USA, UK, Hong Kong , Sri Lanka etc, except Singapore where AE of the assessee is situated - Held that:- When complete details are filed, dis-allowances cannot be made on adhoc basis as it has to be brought out that a particular expenditure was not incurred for the purpose of business of the assessee. Matter restored back - Decided in favor of assessee for statistical purposes 2012 (8) TMI 589 Denial of deduction u/s 80-IA - Held that:- As it is only during the assessment year under consideration, i.e. 2007-08 that the assessee company exercised the option of claiming deduction under section 80-IA and, therefore, losses suffered in the earlier years cannot be considered by wrongly interpreting section 80-IA(5) as application of section 80-IA(5) is canvassed to be applicable only after the option is exercised by the assessee in terms whereof losses of the period prior to the exercise of option are not liable to be set off while computing deduction under section 80-IA. As decided in Velayudhaswamy Spinning Mills P. Ltd. & Others Versus ACIT (2010 (3) TMI 860 - MADRAS HIGH COURT) holding that as per Sub-section (5) of Section 80IA, profits are to be computed as if such eligible business is the only source of income of the assessee. When the assessee exercises the option, only the losses of the years beginning from the initial A.Y. are to be brought forward and not the losses of the earlier years which have been already set off against the income of the assessee - there is no question of setting off notionally carried forward loss against the profits of the units and the assessee is entitled to claim deduction under section 80-IA on the current assessment year on the current year profit - in favour of the assessee 2012 (8) TMI 588 Rejecting the claim of agricultural income - Held that:- Exactly for this reason the ITAT earlier has set aside the assessment specifically directing the AO to examine the MRO and the person responsible for maintaining the Adangal register and thereafter decide the issue after giving an opportunity of cross examination to the assessee but the ITAT’s direction has not been complied - AO ignored the assessee's submission of certified true copy of the revenue records (pahani) which clearly proves ownership of land in the name of assessee - also the copy of sale deed reveals that the assessee had purchased the land with standing crop and mandava evidencing that the assessee was having some income from agriculture - restore the assessment back to the file of the AO to examine the MRO or the person maintaining Adangal register - in favour of assessee for statistical purpose. 2012 (8) TMI 587 Best judgement assessment - rejection of books of account - low profits - assessee being Joint Venture executing major portion of work awarded to it by NHAI through sub-contractor - deduction of 10 to 20% from the gross value of work and paying the remaining amount to the sub-contractor at the stage of awarding work to the sub-contractors - Held that:- It is evident that joint venture is making profit without executing any work. Therefore, considering such modus operendi, profit disclosed at 4.68% is abnormally low compared to the actual profit derived from such type of work. It is also a fact found on record that the assessee’s final accounts were qualified by a report of an Auditor which raises a doubt regarding correctness of the accounts. Hence, AO was justified in rejecting the books of account. Estimation of profit at 10% of the gross receipts without allowing any further deduction towards depreciation and interest is directed. Status of the joint venture held as an AOP charging tax at the maximum marginal rate - Held that:- Assessee has failed to produce any evidence to show the existence of partnership between the members of the joint venture. Therefore, treating the joint venture as AOP cannot be faulted. However, it is seen from the Article25(4) of DTAA between India and Korea that the foreign company should not be subjected to tax which is more burdensome than tax imposed on similar entities of the concerned State. Thus, sole issue of determining whether such nature of income is within the purview of DTAA between India and Korea is restored to the file of CIT(A) 2012 (8) TMI 585 50% disallowance of depreciation - Held that:- The facts are not clear in the period for which the machinery had been used by the assessee. The discussion in assessment order and date of acquisition of machines is non-speaking - remitted back to A.O. to work out the period eligible for depreciation. Disallowance made under section.40 (a) (ia) - Held that:- Considering assessee' s submission that question of TDS arise only to that payment made against ‘service’ of labour and he is making payments regarding ‘conversion charges’ as well as payments against supply of ‘material’ and ‘labour’ the issue of deciding the nature of payments is remitted back to AO for afresh consideration & disallowance to the amount ‘payable’ by the end of previous year need to be warranted & there cannot be a disallowance in the case of amounts already paid by assessee before 31st of March of previous year - in favour of assessee for statistical purposes. Disallowance of foreign exchange fluctuation loss, partial disallowance of foreign travel and sales promotion expenses, disallowance of partners’ remuneration - Held that:- All the grounds involving question of facts are not maintainable as they were not raised by assessee before CIT(A)as the grounds not raised and adjudicated before CIT (A) are not maintainable before Tribunal. 2012 (8) TMI 584 Revising the estimated cost of construction by CIT(A) - cost of construction assessed by Departmental Valuation Officer (DVO) - revenue contested against CIT(A) in allowing further relief over and above the ‘in toto’ relief allowed - Held that:- CIT(A)has not made any fundamental interference in the valuation made by the DVO and accepted by the assessing authority as modifications granted is in valuation of swimming pool were not on any technical ground, but on an accounting ground as the assessee had constructed the swimming pool and other structures in the subsequent year, and this modification worked out to Rs. 9,89,425/-. Modification in granting 3% reduction towards direct purchase of materials as direct and bulk purchase of materials normally yield a reasonable discount in the procurement price. Therefore, relief of 3% granted by CIT(A) is justifiable. Modification granted by reduction of 15% from CPWD rates which have been adopted by the DVO is not unreasonable as comparing it to CPWD rates, State PWD rates are less. On the basis of this difference, reliefs have been granted to the assessees in a number of cases both by the Tribunal as well as by the High Courts. Therefore the reduction of 15% is only just and proper - contention of the assessee that CIT(A) has not considered the entire amount spent by the assessee on the construction of the swimming pool is not acceptable as the CIT(A) has considered the same in his rectification proceedings - against revenue & assessee. 2012 (8) TMI 583 Assuming jurisdiction u/s. 263 by CIT(A) - deduction u/s.10A allowed by AO which includes deduction on unrealised export proceeds - Held that:- As decided in Morgan Stanley Advantage Services (P.) Ltd. Versus Income-tax Officer, 15(3)(2), Mumbai [2009 (3) TMI 640 - ITAT MUMBAI ]the case in favour of the assessee in which the assessee had applied for extension of time for remittance of foreign exchange but no formal approval from RBI was received for the purpose of section 10A - As no dispute to the fact that the assessee had applied to the RBI vide letter dated 11-09- 2006 requesting for extension of time for realisation of export proceeds and after receiving a reply from the RBI directing the assessee to approach the authorised dealer in this regard the assessee vide letter dated 06-11-2006 applied to ICICI Bank Ltd. for extension of time for realisation of export proceeds - Since in the instant case the AO has allowed deduction u/s.10A on the basis of the report of the Auditors as well as the various documents furnished before him, therefore the same is a possible view and cannot be termed as erroneous for invoking jurisdiction u/s. 263 by CIT(A)- in favour of assessee. 2012 (8) TMI 582 Addition of income from house property - AO stated that Annual Value as offered by the assessee was understated - CIT (A) deleted the addition - Held that:- As decided in DCIT Versus Reclamation Realty India (P) Ltd. [2010 (11) TMI 477 - ITAT, MUMBAI] the rateable value under the Municipal law has to be adopted as annual value u/s. 23(a) 1,20,00,000/- ignoring the fact that the Municipal Rateable Value given by the Government Authority i.e Mumbai Municipal Corporation at 1,58,372/- - against revenue. Treating the monies advanced to assessee as deemed dividends - Held that:- Deemed dividend can be assessed only in the hands of a person who is a shareholder of the lender company and not in the hands of a person other than shareholder & the expression ‘shareholder’ referred to in section 2(22)(e) refers to both a registered shareholder and beneficial shareholder - It is not in dispute that the assessee company is not holding any share in the company who provided advances i.e. neither the assessee company is a registered share holder nor beneficial share holder in the said company the provisions of section 2(22)(e) are not applicable - inclined to uphold the findings of the ld. CIT (A) in deleting the addition made by the A.O - against revenue. 2012 (8) TMI 581 Disallowance of dividend income u/s 14A r.w.r. 8D - CIT(A) curtailed the disallowance - Held that:- As decided in GODREJ AND BOYCE MFG. CO. LTD. Versus DCIT AND ANOTHER [2010 (8) TMI 77 - BOMBAY HIGH COURT] the provisions of rule 8D would apply with effect from assessment year 2008-09 and prior to assessment year 2008-09, when rule 8D was not applicable AO must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record - thus the matter is remitted back to the file of the AO with a direction decide the issue afresh in the light of the said judgment after providing reasonable opportunity of being heard to the assessee - in favour of assessee. 2012 (8) TMI 580 Disallowance on account of provision made for leave salary – Held that:- Provision made by the appellant-company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by the employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability – In favor of assessee Decision of apex court in Bharat Earth Movers's case [2000 (8) TMI 4 - SUPREME COURT] followed. 2012 (8) TMI 579 Disallowance was also made on account of claim of loss in the paddy account – unexplained sundry creditors - Held that:- Certain statements of certain farmers were recorded by the Inspector of Income-tax, but it were recorded behind the back of the assessee - appellant had submitted bills and necessary documents to the Assessing Officer - transactions were made through the mandi system, an independent market mechanism to ensure that all transactions are conducted at fair market prices - in a situation where the appellant had discharged its responsibility by furnishing necessary details - onus was on the Assessing Officer to bring on record the evidence to show that motive behind the two transactions was evasion of income-tax – in the absence of such evidence – disallowance is deleted – in favor of assessee 2012 (8) TMI 578 Capital gains - Denial of Deduction u/s. 54EC of the Act – investment in REC bonds, out of the amount received - wife of the assessee, was the main-holder of the certificate and the assessee alongwith his son are only the nominees of the first beneficial owner – Held that:- Requirement for claiming deduction u/s. 54EC of the Act was fulfilled in the instant case by virtue of the fact that the funds invested emanated from the sum received out of the transfer of long term capital asset and that it was invested within a specified time - payment of the maturity proceeds to any one of the bond holders is not a material factor for deciding the ownership of the bonds - Assessing Officer was directed to allow claim of deduction u/s. 54EC of the Act. Denial of Deduction under section 54F of the Act – on the ground that assessee called for the municipal approved plan and the assessee could not furnish the same - claimed to have purchased two flats – Held that:- Assessing Officer directed to give the assessee one more opportunity to prove that the sale deeds with reference to which assessee claims to have purchased the property was the same which was occupied by the assessee and it is legally permitted to be constructed by the municipal authorities - assessee is at liberty to show that he is legally entitled to claim deduction under section 54F - claim of deduction under section 54F of the Act is set aside to the file of the Assessing Officer. 2012 (8) TMI 577 Penalty - Deduction of tax at source - Payment to non-residents - Penalty u/s 271C of the IT Act - lower deduction of tax - assessee contended that it received 'Nil deduction certificate' issued by DDIT (International Taxation), being the Assessing Officer of the Contractor Company - assessee company obtained confirmation letter from the DDIT (International Taxation), confirming the above certificate – Held that:- Assessee acted bona fidely and not deducted tax from payment made to the Contractor Company under the specific contract - section 273B of the Act does not make a levy of penalty under section 271C of the Act mandatory - assessee would not be liable to penalty if he is able to prove that there was a reasonable cause for failing to deduct the tax - certificate earlier issued u/s 194C (4) of the IT Act and clarification thereof issued by DDIT (International Taxation), Chennai, was of the bona fide belief that it was required to deduct TDS u/s 194C of the IT Act and not u/s 195 of the IT Act which is applicable in case of non-resident – penalty set aside - appeal of the assessee is allowed. 2012 (8) TMI 576 TDS u/s 194H - payment of commission - Diversion by overriding title - tri-party agreement - held that:- The relationship between the assessee and franchisee/commission agent is of principal and agent. - Where an amount of fees received by an agent, he receives it for and on behalf of his principal. The terminology used by the assessee that it will be a charge for payment of commission to the franchisee/commission, in our view, is against the principles of law of agency and hence the same is immaterial. The payment of commission amounts to discharge an obligation after such income reaches to the assessee. There is no quarrel with the principles enunciated in the aforesaid decisions but keeping in view the law laid down by the Hon'ble Apex Court in the case of Sitaldas Tirathdas (1960 (11) TMI 17 - SUPREME COURT) that the case is one of application of a portion of the income to discharge an obligation, we are of the view that the assessee's case falls outside the rule laid down in Raja Bejoy Singh Dudhuria's case. The payment of commission though mentioned in receipt issued by the franchisee/commission agent does not amount to discharge an obligation by an overriding title rather the said payment amounts to discharge an obligation after such income reaches to the assessee. Since the assessee is liable to deduct TDS on the payment of commission under the provisions of section 194H of the Act and has failed to deduct the same, therefore, the Assessing Officer was justified in disallowing the payment of commission of Rs. 56,30,173 under the provisions of section 40(a)( ia) of the Act 2012 (8) TMI 575 Disallowance on account of employer’s contribution to ESI – alleged that assessee company had not paid employers’ contribution before the due date prescribed – Held that:- Assessee paid the amount in question in the financial year relevant to the assessment year under appeal - when the liability is crystallized and the amount is paid, deduction shall have to be allowed in favour of the assessee as per the provisions of law and further the claim of the assessee should be allowed even with the help of section 43B of the Income-tax Act – disallowance deleted - appeal of the assessee is allowed Disallowance on account of bad debts written off – Held that:- Amount in question has been written off as bad debt in the profit and loss account of the assessee as irrecoverable - it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable - It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee - assessee has satisfied the requirements of section 36(1)(vii ) of the Income-tax Act – addition deleted – In favor of assessee Disallowance of expenses claimed as export commission – Held that:- Assessee explained the reasons for inflating the commission which was due to mainly inflating the prices in the invoices - authorities below merely compared the commission with the preceding assessment year and rejected the claim of the assessee – CIT has not given any finding on the matter in controversy in the light of the submissions of the parties and documentary evidences available on record -commission cannot be disallowed by comparing with the earlier years due to the explanation of the assessee supported by documents – matter remanded to CIT - appeal of the assessee is allowed for statistical purposes Customs 2012 (8) TMI 604 Levy of CVD on Gum Arabic waste imported – Held that:- Gum arabic is a natural gum and not liable for CVD as it is extracted from the tree itself by making hole on the tree and some part of the gum which drops on the soil, that becomes gum arabic waste/rejects and this is the only product they have imported which does not have purity as natural gum arabic is having purity. Therefore, the gum arabic waste/reject is only a natural gum and as per the Board s clarification dated 28/06/2007 CVD is not leviable on gum arabic in raw form. Therefore, they are not liable to pay CVD on the imported goods – appeal allowed 2012 (8) TMI 574 Import of old and used photocopiers - Once the goods have been released on payment of redemption fine and nothing is left at this stage to consider about the claim of the appellant as to description of the goods disclosed in the bills of entry was proper, there is no scope to discard the order of the authority below except consideration on the quantum of penalty. 2012 (8) TMI 573 Restoration of CHA licence - Fraudulent export of prohibited narcotics drugs - violation of the provisions of Regulation 13 of CHALR, 1984 read together with Regulations 13(b), 13(e) and 19(8) of CHALR, 2004 - The appellant has suffered for a period of 6 years and is ready to give any undertaking to work diligently in the future years. - Difference of opinion - matter referred to larger bench. Corporate Laws 2012 (8) TMI 603 How to calculate / determine 'Net Worth' of the bidder for the purpose of tender - Contingent Liability on Revenue Account - writ petition on Contingent Liability to a Revenue Account would only be such sums as would be recorded in the balance-sheet - Held that: - If a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. Except contingent liability on account of “Capital Commitments” disclosed by the bidders in their Annual Reports, all other items of contingent liability reported by the bidders in their Annual Reports as per Accounting Standard (AS-29) issued by ICAI were considered for the purpose of net worth sufficiency - Empowered Committee of Secretaries was apprised that there has been no definition in any ICAI standards that contingent liability on revenue account means on account of any amount of demand created by revenue authority such as Income Tax, Sales Tax, etc.- as on calculation of net worth has been supported by audit firm who have concluded that the evaluation of net worth is in accordance with the NIO. Any deviation from the said provisions would result in denial of level playing field to all bidders and could result in litigation, thus it is apparent that the minutes of Notice Inviting Tender meetings have recorded a stand which is against the one projected by the writ petitioner. As these are mere opinions and the final decision has to be taken by the Cabinet Committee on Economic Affairs - Since the Cabinet Committee on Economic Affairs is yet to take a decision we hold the writ petition to be premature. Service Tax 2012 (8) TMI 607 Export of services - Demand of Service Tax on Business Auxiliary Services - denial of benefit of exemption Notification No.13/2003 dated 20/06/2003 and under the Export of Service Rules,2005 - assessee contested against invoking extended period of limitation - period in question is from 01/07/2003 to 19/11/2003 and from 18/03/2005 to 05/12/2007 - Held that:- Notification No.6/99-ST dated 28/02/1999 exempted services provided to any person in respect of which payment is received in Indian in convertible foreign exchange was rescinded and subsequently re-issued vide Notification No. 21/2003-ST dated 20/11/2003 which remained in force till 14/03/2005. During the intervening period i.e. from 01/03/2003 to 19/11/2003, the Board clarified vide Circular dated 25/04/2003 that " Service tax is a destination based consumption tax and it is not applicable on export of services. Export of services would continue to remain tax free even after withdrawal of Notification No.6/99, dated 09/04/1999." In the light of this clarification issued by the Board, the assessee has a prima facie, case for waiver of pre-deposit of dues adjudged for the period 01/07/2003 to 19/11/2003. From the period from 15/03/2005 onwards as per Export of Service Rules, 2005 that a taxable service shall be treated as ‘export of service' only if such service so ordered is delivered outside India and used in business outside India & in the instant case, the service of promotion of marketing of goods manufactured by the supplier has taken place in India and the said service is for the purpose promoting the business of the foreign manufacturer in India, thus the activity does not come within the scope of export of service during the period from 15/03/2005 to 18/04/2006. From the period from 19/04/2006 to 28/03/2007 though the condition of receipt of payment in convertible foreign exchange is satisfied, the conditions relating to delivery of service outside India and the use of the service outside India are not satisfied because the promotional activity undertaken by the service provider is in India and it can be used only in promoting the business in India. Therefore, the use of service is not outside India. The same position will prevail during the period up to 30/05/2007. Even for the period from 01/06/2007 onwards, the condition relating to service be provided from India and used outside India is not satisfied. Therefore, the demand of service tax for the period 18/03/2005 to 05/12/2007 appears to be prima facie correct in law - as activities are rendered in India and their effective use and enjoyment are in India and therefore, the benefit of the services rendered also accrue in India and hence leviable to service tax. The appellant failed to obtain service tax registration under business auxiliary service, failed to pay service tax and also failed to file statutory returns for the said services. They did not disclose to the department about the existence of the agreement with VIASYS and receipt of consideration towards the service rendered. These acts of the appellant clearly constitute suppression of facts on their part, thereby attracting the invocation of extended period of time for demand of service tax - not made out a case for complete waiver of the pre-deposit of the dues adjudged - direct the appellant to make a pre-deposit of Rs. 25 lakhs - partly in favour of assessee. 2012 (8) TMI 606 Demand of service tax - services charges for technical know-how and technical assistance – Held that:- Question falls squarely within the exception carved out in Section 35G, ‘an order relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment’, and the High Court has no jurisdiction to adjudicate the said issue - appeal is rejected as not maintainable 2012 (8) TMI 605 Whether the activities carried on by the assessee as Del Credere agents falls within the category of clearing and forwarding agent – Held that:- Question falls squarely within the exception carved out in Section 35G, ‘an order relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment’, and the High Court has no jurisdiction to adjudicate the said issue - appeal is rejected as not maintainable 2012 (8) TMI 597 Demand of service tax - applicant is an STP unit engaged in the development of customized software which they are exporting - new set of agreements between the applicant and their subsidiary – Held that:- Applicant is paying Service tax under the category IT services with effect from 16-5-2008 and in view of exporting the product/services, they are receiving refund in terms of Rule 5 of the CENVAT credit rules - period prior to 18-4-2006 no Service tax liability will be attracted in respect of services received by the applicant - it is a case of revenue neutrality – waiver of pre-deposit allowed 2012 (8) TMI 568 Waiver of pre-deposit - demand of Service Tax was confirmed on account of money transfer services - contention of assessee is that it is covered under export of services - Held that:- delivery in the instant case, is complete only when it is received by the recipient in India. Therefore, the service provided by the applicant would not be covered under export of services – applicant is directed to make a pre-deposit of 25% of demand 2012 (8) TMI 567 Penalty - Erection, Commissioning or Installation service – non-payment of service tax – Held that:- Service liability is not shown separately - invoice is simply VAT/S.T. invoice - Appellants paid the Service Tax promptly as soon as it was pointed out before issue of show cause notice and taking registration also - They have not even questioned whether Sales Tax and Service Tax were leviable on the same transaction - lenient view as contemplated under Section 80 of Finance Act, 1994 - penalties under various Sections of Finance Act, 1994 imposed on the appellants are set aside and interest on service tax & service tax demand are upheld as not contested. 2012 (8) TMI 565 Extended period of limitation - Demand of duty – non-incaution of value of the sale of SIM card in gross taxable value – Held that:- Since the earlier decisions of the Tribunal were in favour of the assessee, it has to be held that there was bona fide doubt about the non inclusion of the cost of SIM card in the value of services. If that be so, no mala fide can be attributable to the appellant so as to invoke the extended period of limitation - demand raised beyond the period of limitation is barred by limitation - no penalty is imposable upon the appellants 2012 (8) TMI 564 Waiver of pre-deposit – denial of Cenvat credit of Service tax paid on stock brokers services - appellant is a promoter of Airtel JT Mobiles. They had held shares for a long time and finally they sold them and got out of the tag of promoters – Held that:- whether disinvest is business activity or not has to be considered in detail by examining the activities of the appellant over a period of time, its memorandum and articles of association and other relevant facts before coming to a conclusion – matter remanded - pre-deposit is to be waived Central Excise 2012 (8) TMI 602 Non eligibility of cenvat credit - rent a cab services - Held that:- As decided in Stanzen Toyotetsu India (P) Ltd. [2011 (4) TMI 201 - KARNATAKA HIGH COURT] Rent-a-Cab service is provided by the assessee to these workers to reach the factory premises in time which has a direct bearing on the manufacturing activity & by no stretch of imagination can it be construed as a welfare measure. It is a basic necessity so as to ensure that the work force comes on time at the work place, the employers have taken this measure which has a direct bearing on the manufacturing activity. As undisputed fact of the case that the services of rent a cab services were received by the respondent for transportation of their employees from their residence to the factory premises and back to the residence and the service provider is registered and respondent is discharging the service tax liability billed on on such services rendered - no ground to deny the claim - in favour of assessee. 2012 (8) TMI 601 Clandestine clearance of goods - non inclusion of the value of engine/motor in the value of Concrete Mixer Machine - Held that:- As the appellant neither rebutted the allegation nor contended anything in support of their defence the lower authority has rightly held that 112 nos. of CMMs have been clandestinely removed without payment of duty and appropriate duty - remand the matter to the lower adjudicating authority with a direction to redetermine the duty liability on the 112 CMMs. 2012 (8) TMI 600 Waiver of pre-deposit - software licence key - contention of the applicant is that prior to 1.3.2006 the software was exempted from payment of central excise duty. It is only with effect from 1.3.2006 the software is liable to central excise duty – Held that:- Board vide circular dated 18.3.2011 in respect of the Customs Tariff has clarified that such keys which only permit the right to use the software are classifiable under Chapter Heading 49 of the Customs Tariff - matter is remanded to the adjudicating authority for de novo adjudication 2012 (8) TMI 599 Manufacture of sugar - by-product bio-compost came into existence which is being cleared by the respondents without payment of duty – Held that:- Demand of amount of 8% in respect of Bio-compost is set aside - pre-deposit of whole of the amount of penalty is waived. 2012 (8) TMI 598 Waiver of pre-deposit - Cenvat Credit - applicant is using MS plates, angles and channels to manufacture power cable distribution boards which are used in Poly Machines which are used in the manufacture of paper/paper boards – Held that:- Cable distribution boards are accessories for poly machines and that the MS channels and angles used are accessories to the said cable boards - eligible for CENVAT credit 2012 (8) TMI 596 Input services - Cenvat Credit Scheme was amended by new Cenvat Credit Rules, 2004, effective from 10-9-2004 by which they were allowed to take Cenvat credit of Service tax paid on input services – Held that:-Asse ssee had taken insurance of their plant and machinery and paid service tax on such insurance against bills dated prior to 10-9-2004 - credit is taken contrary to provisions in Rule 9(1)(f) of Cenvat Credit Rules, 2004 - assessee has taken proportionate credit by adopting their own interpretation without intimation to department would justify to consider this as a case of mis-representation and suppression to invoke extended period for demanding the excess credit availed and utilized 2012 (8) TMI 572 Failure to furnish the re-warehousing certificate within stipulated period of 90 days in terms of Rule 173 of Central Excise Rules, 1944 - 100% EOU - goods cleared without payment of duty - demand of duty and penalty imposed - assessee contended furnishing copy of letter issued by the consignor M/s.FACOR in lieu of certificate - Held that:- Commissioner(Appeals) has rightly observed that AR-3A duly countersigned by the officer in charge of the warehouse at destination only being the authentic document as prescribed in the statute, the certificate of the consignee produced by the appellant will be of no avail. Also, appellant could not produce anything contrary or new to the above. balance of duty confirmed, however, taking into consideration all the facts and circumstances of the case, penalty imposed under Rule 173Q is set aside. 2012 (8) TMI 571 SSI Exemption - Contravention of provisions of Rule 8 of the Central Excise Rules, 2002 read with Notification No.08/03-CE dated 01.03.2003 - Held that:- The appellant did not opt for availing the benefit of Notification No. 8/2003-CE dated 01.3.2003 at the beginning of the financial year thus option for the availment is not in accordance with the Central Excise Rules - The duty and the Education Cess which they did not pay for not determining the value of Rs. 25,44,255/- in computation with the aggregate value for home consumption, is computable with the aggregate clearance value in terms of the Notification No.08/2003-CE dated 01.3.2003. Penalty under Rule 27 is not sustainable as it was not invoked in the impugned SCN. 2012 (8) TMI 570 Disallownace of CENVAT credit - job-work charges for grooving - Held that:- As it is not disputed that the service provider has paid the service tax and once the service tax has been paid and service has been used in or in relation to the manufacture of the final products of the appellant, the appellant is rightly entitled to avail CENVAT credit - in favour of assessee. Manpower supply services - Held that:- As affidavit along with a copy of the muster roll in support of assessee's claim that they have used the labour in or in relation to the manufacture of the final products were not shown or produced before the lower authorities and, therefore, it will be appropriate to remand this matter back to the original adjudicating authority to consider the claim - in favour of assessee by way of remand. 2012 (8) TMI 569 Alleged suppression of sales and wrong availment of benefit of Notification 64/95 dated 16.3.1995 - invokation of extended period of limitation - assessee engaged in the manufacture of IC engines, cleared goods manufactured to M/s. Goa Shipyard Ltd. by availing the benefit of Notification 64/95 - Held that:- It is found that respondents filed classification declaration before clearance of the goods. Also, necessary monthly returns alongwith invoices showing clearance of goods to M/s. Goa Shipyards Ltd. by claiming the benefit of Notification. In addition to this, also produced certificate from the competent authority that the goods in question are for use on board of naval ship. In these circumstances, the allegation of suppression with intent to evade duty is not sustainable. Demand beyond the normal period is held to be time barred - Decided against Revenue. 2012 (8) TMI 566 CENVAT credit – Held that:- Appellant has not registered with the department as input service tax credit distributor, he cannot distribute service tax credit in respect of services availed elsewhere than in the unit where manufacturing activity is taking place and duty liability is discharged - appellant directed to make a pre-deposit Wealth tax 2012 (8) TMI 595 Valuation - exempted asset under wealth tax - Assessing Officer noticed that the assessee has not occupied the property in question for residential purpose for the period of 12 months - Assessing Officer valued the property as per 2nd proviso to Rule 3 of Schedule III of WT Rules – Held that:- What is required is that the house should have been exclusively used by the assessee for residential purpose and should not have been let out for rent or used for any commercial or non-residential purpose - property in question is residential house which has not been let out or used for the purpose other than residential; therefore, even though the assessee did not stay in the house so long, this house is exclusively for residential purpose, the condition as enumerated in the third proviso to Rule 3 are satisfied - conditions as enumerated in third proviso to rule 3 of Schedule III were satisfied by assessee
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Newsletter: Where Service Meets Reader Approval.

TMI Tax Updates - e-Newsletter August 25, 2012

Articles

1. China Acts Opportunist

2. NOTIFICATIONS RESCINDED RECENTLY

News

1. GST is More Effective and Efficient Substitute for Plethora of Indirect Taxes: FM

2. Chidambaram Appointed as Governor on the Board of Governors of African Development Bank and African Development Fund

3. Award of remaining Exploration Blocks under Ninth Bid Round of New Exploration Licensing Policy (NELP-IX) and cancellation of two blocks awarded earlier under NELP-IX

4. National Mission on Food Processing

5. Additional financing from external funding agencies and continuance of 75:25 sharing pattern under the Rashtriya Madhyamik Shiksha Abhiyan Scheme

7. Conversion of Optionally Convertible Debentures of Rs.923 Crore held by Government in Equity in IFCI

8. Approval of change in the equity structure of the Delhi Mumbai Industrial Corridor Development Corporation (DMICDC)

9. 10 FDI Proposals Amounting to Rs. 1259.92 Crore Approved

10. Foreign and Domestic DEBTs

11. Tax on Film Artists Services

12. Vacancies in Nationalized Banks

13. Field Trial of Plastic Notes

14. 67500 Cases Pending in DRTs

15. Steps to Recover NPAs

16. Proposal to Sell 10.82 Percent Stake in Sail

17. Insurers Surpass Targets for Rural Areas in 2010-11

18. Measures to Check Inflation

19. CCI Order against Chemist and Druggist Association

20. Institutional linkages for the gems & jewellery sector to be strengthened Measures to boost SEZ exports soon: Anand Sharma

21. Government Takes Several Policy Measures to Increase Availability of Institutional Credit to Farmers, Sets an Annual; Target of Rs.5,75,000 Crore for Credit to Agriculture Sector in 2012-13

22. Funds to NABARD

23. Rs.52,275.55 Crore Released Under Agriculture Debt Waiver & Debt Relief Scheme to Give Benefit to 3.45 Crore Farmers

24. Assessment of Agricultural Loan Burden

25. Notices Issued by Enforcement Directorate to BCCI and its Officials for Contravention of FEMA

26. Farm Credit to Uncovered Farmers

27. High Level Committee on External Commercial Borrowings (HLCECB) takes Various Decisions; Permits Sidbi for Accessing ECB for on-lending to MSME Sector Subject to Certain Conditions

28. Delay in Banning Import of Chinese Milk Products

29. Trade Through FDI from Pakistan

30. Breakthrough in Trade Relations with Pakistan

31. Additional items under Special Focus Market Schemes

32. Services Agreement with Asean Countries

33. Manufacturing Sector Performance

34. DMIC Project: Concept Note Ready for Eastern Corridor

35. Notices under BIPA

36. Pending List for Trademark Registration

Notifications

1. 47/2012 - dated 21-8-2012 - Cus

2. 12 (RE-2012)/2009-2014 - dated 22-8-2012 - FTP

3. 11(RE-2012) /2009-2014 - dated 22-8-2012 - FTP

4. 232/2012-RB - dated 30-5-2012 - FEMA

5. 231/2012-RB - dated 30-5-2012 - FEMA

Circulars / Instructions / Orders

1. 14 - dated 22-8-2012

2. 17 - dated 23-8-2012

3. 18 - dated 23-8-2012

4. 16 - dated 22-8-2012

5. 15 - dated 21-8-2012

6. 26/2012 - dated 23-8-2012

Highlights / Catch Notes

Income Tax

Merger with parent company not exempt from capital gains tax under Income Tax Act, section 47(via) interpretation.

India-Mauritius DTAC exempts capital gains from share buybacks from Indian taxation under Article 13, Paragraph 4.

India-Germany DTAA: Key Distinctions Between "Copyright Right" and "Copyrighted Article" Affecting Taxation of Royalties and License Charges.

Business losses cannot offset unexplained cash credits taxed u/s 68, which are treated as taxable income.

High Court Rules Mistaken Advance Payment Not to Be Added to Assessee's Income for Tax Purposes.

Assessing Officer's 3-Year Composite Notice u/s 148 Faces Legal Scrutiny for Not Meeting Statutory Requirements.

High Court Rules Computer Data Processing and Stationery Sales Qualify as "Manufacture" u/s 80-I for Tax Benefits.

Revenue Department Missed Chance to Contest High Court Judgment; Section 263 of Income Tax Act Not Applicable.

Assessment Additions Based on Under-Invoicing Claims Unjustifiable Without More Than Just a Show Cause Notice by Commissioner.

Dispute Over TDS Deduction on Wheeling and Transmission Charges: Section 194J vs. Section 194C Interpretation.

Section 80-IA Deduction: Clarification on Loss Carry Forward Limits to Initial Assessment Year Onward Only.

Joint Venture's Books Rejected, Profit Estimated at 10% of Gross Receipts Due to Best Judgment Assessment.

Annual Value of House Property Income Uses Municipal Rateable Value per Section 23(a) of the Income Tax Act.

High Court confirms companies can deduct anticipated leave salary expenses, aiding financial planning and tax compliance.

Capital gains deductions denied for REC bond investments u/s 54EC; maturity proceeds don't determine ownership.

Penalty for Non-Deduction of Tax Overturned Due to Genuine Belief in Tax Obligation, Says Appellate Tribunal.

Commission Payment Discharges Obligation Post-Income Receipt, Not by Overriding Title, Per Franchisee Receipt.

Customs

Import Duty Exemption on Oil Cakes Announced to Support Agriculture and Livestock Sectors with Reduced Costs.

Gum Arabic Waste Exempt from Countervailing Duty per Board Clarification on June 28, 2007.

DGFT

Import License Policy for Rough Marble & Travertine: Eligibility, Application Process, and Allocation Limits for 2012-13.

Foreign Trade Policy Update: Streamlining Export and Re-import of Certified Cut and Polished Diamonds Under Paragraph 4A.2.1.

FEMA

TMI Tax Updates - e-Newsletter
August 25, 2012